-----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, Kj7/8kPE6YrYiI5Qb5LTyyW2s6H26F046GLVjxsIOUmQ2WMGPN0s+kURazdQlh02 l35+KKbNn205ifBzcp+8Ug== 0000950152-97-006341.txt : 19970912 0000950152-97-006341.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950152-97-006341 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19970829 SROS: NONE 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: 497 SEC ACT: SEC FILE NUMBER: 033-21660 FILM NUMBER: 97672972 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 497 1 AMSOUTH MUTUAL FUNDS/INCOME FUNDS FORM 497 1 AMSOUTH MUTUAL FUNDS INCOME FUNDS 3435 Stelzer Road For current yield, purchase and redemption Columbus, Ohio 43219 information call (800) 451-8382
The AmSouth Bond Fund (the "Bond Fund"), the AmSouth Limited Maturity Fund (the "Limited Maturity Fund"), the AmSouth Government Income Fund (the "Government Income Fund"), the AmSouth Florida Tax-Free Fund (the "Florida Fund"), and the AmSouth Municipal Bond Fund (the "Municipal Bond Fund") (collectively, "the Income Funds" and the Florida Fund and Municipal Bond Fund sometimes collectively referred to herein as "the Tax-Free Funds") are five of fourteen series of units of beneficial interest ("Shares") each representing interests in one of fourteen separate investment funds (the "Funds") of AmSouth Mutual Funds (the "Trust"), an open-end management investment company. Each Income Fund has its own investment objective, and the net asset value per share of each Income Fund will fluctuate as the value of such Fund's investment portfolio changes in response to changing market interest rates and other factors. Each Income Fund is authorized to offer Premier Shares, Classic Shares and Class B Shares. However, currently only Class B Shares of the Bond Fund are being offered. The Shares of the Income Funds outstanding on August 31, 1997, have been redesignated as Classic Shares. AMSOUTH BOND FUND seeks current income consistent with the preservation of capital. The Bond Fund seeks to achieve this objective by investing in long-term bonds and other fixed-income securities. These investments may include debt securities issued by United States corporations and debt securities issued or guaranteed by the United States Government or its agencies or instrumentalities as well as zero-coupon obligations. The Bond Fund invests in fixed-income securities with a maturity in excess of one year, although such securities can have maturities of thirty years or longer. AMSOUTH LIMITED MATURITY FUND seeks current income consistent with the preservation of capital. The Limited Maturity Bond Fund seeks to achieve this objective by investing 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 Limited Maturity Fund to require the issuer of the security to redeem the security within five years from the date of purchase or for which the Limited Maturity Fund has acquired an unconditional "put" to sell the security within five years from the date of purchase. These investments may include debt securities issued by United States corporations and debt securities issued or guaranteed by the United States Government or its agencies or instrumentalities as well as zero-coupon obligations. AMSOUTH GOVERNMENT INCOME FUND seeks current income consistent with the preservation of capital. The Government Income Fund seeks to achieve this objective by investing under normal market conditions, at least 65% of the value of its total assets in obligations issued or guaranteed by the U.S. Government its agencies or instrumentalities. AMSOUTH FLORIDA TAX-FREE FUND seeks to produce as high a level of current interest income exempt from federal income taxes and Florida intangible taxes as is consistent with the preservation of capital. The Florida Fund seeks to achieve this objective by investing in high-grade obligations. While the Florida Fund may invest in taxable obligations, under normal market conditions at least 80% of the Florida Fund's net assets will be invested in obligations exempt from both federal personal income tax and, as at year-end, the Florida intangible personal property tax. The Fund is non-diversified and therefore may invest more than 5% of its total assets in the obligations of one issuer. AMSOUTH MUNICIPAL BOND FUND seeks to produce as high a level of current interest income exempt from federal income taxes as is consistent with the preservation of capital. The Municipal Bond Fund seeks to achieve this objective by investing in high-grade obligations. While the Municipal Bond Fund may 2 invest in taxable obligations, under normal market conditions at least 80% of the Municipal Bond Fund's net assets will be invested in obligations exempt from federal income tax. The Municipal Bond Fund is a diversified fund. AmSouth Bank, Birmingham, Alabama ("AmSouth") acts as the investment advisor to each Fund of the Trust ("Advisor"). BISYS Fund Services, Limited Partnership ("BISYS Fund Services"), Columbus, Ohio, acts as the Trust's distributor ("Distributor"). Each Income Fund has been divided into three classes of Shares, Premier Shares, Classic Shares and Class B Shares. The following investors qualify to purchase Premier Shares: (i) investors for whom AmSouth acts in a fiduciary, advisory, custodial, agency or similar capacity through an account with its Trust Department; (ii) investors who purchase Shares of a Fund through a 401(k) plan or a 403(b) plan which by its terms permits purchases of Shares; and (iii) orders placed on behalf of other investment companies distributed by the Distributor and its affiliated companies. All other investors are eligible to purchase Classic Shares or Class B Shares only. This Prospectus relates only to the Classic Shares and Class B Shares of the Income Funds, which are offered to the general public. Premier Shares of the Income Funds are offered through a separate prospectus. Interested persons who wish to obtain a copy of the prospectuses of the AmSouth Prime Obligations Fund, the AmSouth U.S. Treasury Fund, and the AmSouth Tax Exempt Fund (the "Money Market Funds") and the AmSouth Equity Fund, the AmSouth Regional Equity Fund, the AmSouth Balanced Fund, the AmSouth Capital Growth Fund, the AmSouth Small Cap Fund, and the AmSouth Equity Income Fund (the "Capital Appreciation Funds") may contact the Trust's distributor at the telephone number shown above. Additional information about the Income Funds, contained in a Statement of Additional Information, has been filed with the Securities and Exchange Commission and is available upon request without charge by writing to the Trust at its address or by calling the Trust at the telephone number shown above. The Statement of Additional Information bears the same date as this Prospectus and is incorporated by reference in its entirety into this Prospectus. This Prospectus sets forth concisely the information about the Classic Shares and Class B Shares of the Income Funds that a prospective investor ought to know before investing. Investors should read this Prospectus and retain it for future reference. THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY AMSOUTH OR ANY OF ITS AFFILIATES. THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR BY ANY OTHER AGENCY. AN INVESTMENT IN THE TRUST'S SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this Prospectus is September 1, 1997. 3 FEE TABLE
LIMITED GOVERNMENT MUNICIPAL MATURITY INCOME FLORIDA BOND BOND FUND FUND FUND FUND FUND ------------------- -------- ---------- ------- --------- CLASSIC CLASS B CLASSIC CLASSIC CLASSIC CLASSIC SHARES SHARES SHARES SHARES SHARES SHARES ------- ------- -------- ---------- ------- --------- SHAREHOLDER TRANSACTION EXPENSES(1) Maximum Sales Load Imposed on Purchases (as a percentage of offering price).................. 4.00% 0% 4.00% 4.00% 4.00% 4.00% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)......................................... 0% 0% 0% 0% 0% 0% Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as applicable)................................. 0% 5.00% 0% 0% 0% 0% Redemption Fees (as a percentage of amount redeemed, if applicable)(2).................... 0% 0% 0% 0% 0% 0% Exchange Fee................................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets) Management Fees (after voluntary fee reduction)(3).................................. .50% .50% .50% .30% .30% .40% 12b-1 Fees..................................... .00% 1.00% .00% .00% .00% .00% Shareholder Servicing Fees....................... .25% .00% .25% .25% .25% .25% Other Expenses (after voluntary fee reduction)(4).................................. .25% .25% .26% .35% .29% .30%(5) ---- ---- ---- ---- ---- ---- Total Fund Operating Expenses (after voluntary fee reduction)(6)............. 1.00% 1.75% 1.01% .90% .84% .95% ==== ==== ==== ==== ==== ====
- --------------- (1) Financial Institutions may charge a Customer's (as defined in the Prospectus) account fees for automatic investment and other cash management services provided in connection with investment in the Fund. (See "HOW TO PURCHASE AND REDEEM SHARES -- Purchases of Shares.") (2) A wire redemption charge is deducted from the amount of a wire redemption payment made at the request of a shareholder. (See "HOW TO PURCHASE AND REDEEM SHARES -- Redemption by Telephone.") (3) Absent the voluntary reduction of investment advisory fees, Management Fees as a percentage of average net assets would be .65% for each Income Fund. (See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS -- Investment Advisor.") (4) Absent the voluntary reduction of administration fees, Other Expenses as a percentage of average net assets would be 0.33% for the Bond Fund, 0.34% for the Limited Maturity Fund, 0.45% for the Government Income Fund, 0.39% for the Florida Fund and are estimated to be 0.38% for the Municipal Bond Fund. (See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS-Administrator.") (5) "Other expenses" for the Municipal Bond Fund are based on estimated amounts for the current fiscal year. (6) In the absence of any voluntary reduction in investment advisory fees and administration fees, Total Fund Operating Expenses for the Classic Shares would be 1.23% for the Bond Fund, 1.24% for the Limited Maturity Fund, 1.35% for the Government Income Fund, 1.29% for the Florida Fund and are estimated to be 1.28% for the Municipal Bond Fund. In the absence of any voluntary reduction in investment advisory fees and administration fees, Total Fund Operating Expenses for the Class B Shares would be 1.98% for the Bond Fund. EXAMPLE: You would pay the following expenses on a $1,000 investment in Classic Shares, assuming (1) 5% annual return and (2) redemption at the end of each time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Bond Fund................................................................ $ 50 $71 $93 $158 Limited Maturity Fund.................................................... $ 50 $71 $94 $159 Government Income Fund................................................... $ 49 $68 $88 $146 Florida Fund............................................................. $ 48 $66 $85 $140 Municipal Bond Fund...................................................... $ 49 $69 N/A N/A
3 4 You would pay the following expenses on a $1,000 investment in Class B Shares, assuming (1) deduction of the applicable Contingent Deferred Sales Charge; and (2) 5% annual return.
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Bond Fund Assuming a complete redemption at end of period................ $ 68 $85 $ 115 $186 Assuming no redemption................................................. $ 18 $55 $ 95 $186
Long-term shareholders may pay more than the equivalent of the maximum front-end sales charges otherwise permitted by NASD Rules. The purpose of the tables above is to assist an investor in the Classic Shares and Class B Shares of an Income Fund in understanding the various costs and expenses that an investor will bear directly or indirectly. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS" for a more complete discussion of annual operating expenses of the Income Funds. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the foregoing tables and examples relates only to Classic Shares and Class B Shares. The Trust also offers Premier Shares of each Income Fund which are subject to the same expenses except that there are no sales charges nor shareholder servicing or distribution expenses charged to Premier Shares. (See "Management of AmSouth Mutual Funds" -- "Investment Advisor" and "Distributor"). 4 5 FINANCIAL HIGHLIGHTS The tables below set forth certain financial information concerning the investment results for each of the Funds for the period from commencement of operations to January 31, 1997. The information from the commencement of operations to July 31, 1996 is a part of the financial statements audited by Coopers & Lybrand L.L.P., independent accountants for the Trust, whose report on the Trust's financial statements for the year ended July 31, 1996 appears in the Statement of Additional Information. The information for the period ended January 31, 1997 is unaudited. The Municipal Bond Fund had not commenced operations as of January 31, 1997. Further financial data is incorporated by reference into the Statement of Additional Information. BOND FUND
YEAR ENDED JULY 31, SIX MONTHS ENDED -------------------------------------------------------------------- JANUARY 31, 1997 1996 1995 1994 1993 1992 1991 1990 ---------------- -------- ------- ------- ------- ------- ------- ------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD................. $ 10.54 $ 10.83 $ 10.59 $ 11.29 $ 11.29 $ 10.42 $ 10.39 $ 10.61 ----- ----- ----- ----- ----- ----- ----- ----- INVESTMENT ACTIVITIES Net investment income..... 0.32 $ 0.65 0.69 0.69 0.71 0.74 0.74 0.77 Net realized and unrealized gains (losses) from investments............. 0.15 (0.18) 0.28 (0.66) 0.33 0.91 0.05 (0.21) ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Activities.............. 0.47 0.47 0.97 0.03 1.04 1.65 0.79 0.56 ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS Net investment income..... (0.36) (0.65) (0.69) (0.70) (0.71) (0.73) (0.74) (0.75) Net realized gains........ -- (0.11) (0.04) (0.03) (0.33) (0.05) (0.02) (0.03) ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions....... (0.36) (0.76) (0.73) (0.73) (1.04) (0.78) (0.76) (0.78) ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD.................... $ 10.65 $ 10.54 $ 10.83 $ 10.59 $ 11.29 $ 11.29 $ 10.42 $ 10.39 ===== ===== ===== ===== ===== ===== ===== ===== Total Return (Excludes Sales Charge)........... 4.53%(c) 4.40% 9.70% 0.23% 9.80% 16.41% 7.99% 5.54% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)............ $132,112 $132,737 $94,671 $79,472 $65,777 $60,156 $26,008 $17,518 Ratio of expenses to average net assets...... 0.75%(b) 0.75% 0.75% 0.78% 0.78% 0.82% 0.93% 0.84% Ratio of net investment income to average net assets.................. 6.03%(b) 6.12% 6.63% 6.31% 6.37% 6.94% 7.26% 7.82% Ratio of expenses to average net assets*..... 0.98%(b) 0.98% 0.98% 1.01% 1.01% 1.01% 1.11% 1.21% Ratio of net investment income to average net assets*................. 5.80%(b) 5.89% 6.40% 6.08% 6.14% 6.75% 7.09% 7.45% Portfolio Turnover.......... 11.20% 9.60% 17.70% 30.90% 14.98% 240.64% 181.77% 53.52% DECEMBER 1, 1988 TO JULY 31, 1989(a) ---------------- < NET ASSET VALUE, BEGINNING OF PERIOD................. $10.00 ----- INVESTMENT ACTIVITIES Net investment income..... 0.50 Net realized and unrealized gains (losses) from investments............. 0.56 ----- Total from Investment Activities.............. 1.06 ----- DISTRIBUTIONS Net investment income..... (0.45) Net realized gains........ -- ----- Total Distributions....... (0.45) ----- NET ASSET VALUE, END OF PERIOD.................... $10.61 ===== Total Return (Excludes Sales Charge)........... 10.91%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)............ $4,954 Ratio of expenses to average net assets...... 1.10%(b) Ratio of net investment income to average net assets.................. 7.47%(b) Ratio of expenses to average net assets*..... 2.28%(b) Ratio of net investment income to average net assets*................. 6.29%(b) Portfolio Turnover.......... 0.00%
- --------------- - 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) Annualized. (c) Not annualized. 5 6 LIMITED MATURITY FUND
YEAR ENDED JULY 31, SIX MONTHS ENDED -------------------------------------------------------------------- JANUARY 31, 1997 1996 1995 1994 1993 1992 1991 1990 ---------------- -------- ------- ------- ------- ------- ------- ------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD................ $ 10.31 $ 10.41 $ 10.23 $ 10.81 $ 10.81 $ 10.44 $ 10.29 $ 10.35 INVESTMENT ACTIVITIES Net investment income.... 0.30 0.58 0.58 0.54 0.60 0.70 0.73 0.72 Net realized and unrealized gains (losses) from investments............ 0.04 (0.10) 0.17 (0.45) 0.09 0.45 0.17 (0.05) ----- ----- ----- ----- ----- ----- ----- ----- Total from Investment Activities............. 0.34 0.48 0.75 0.09 0.69 1.15 0.90 0.67 ----- ----- ----- ----- ----- ----- ----- ----- DISTRIBUTIONS Net investment income.... (0.33) (0.57) (0.57) (0.54) (0.61) (0.69) (0.73) (0.70) In excess of net investment income...... -- (0.01) -- -- -- -- -- -- Net realized gains....... -- -- -- -- (0.08) (0.09) (0.02) (0.03) In excess of net realized gains.................. -- -- -- (0.13) -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- Total Distributions...... (0.33) (0.58) (0.57) (0.67) (0.69) (0.78) (0.75) (0.73) ----- ----- ----- ----- ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD................... $ 10.32 $ 10.31 $ 10.41 $ 10.23 $ 10.81 $ 10.81 $ 10.44 $ 10.29 ===== ===== ===== ===== ===== ===== ===== ===== Total Return (Excludes Sales Charge).......... 3.29%(c) 4.74% 7.65% 0.77% 6.72% 11.48% 9.06% 6.80% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)........... $ 41,087 $ 46,005 $59,798 $51,660 $53,933 $38,206 $11,112 $ 5,983 Ratio of expenses to average net assets..... 0.77%(b) 0.76% 0.80% 0.79% 0.69% 0.68% 0.85% 1.02% Ratio of net investment income to average net assets................. 5.56%(b) 5.48% 5.69% 5.05% 5.67% 6.78% 7.19% 7.23% Ratio of expenses to average net assets*.... 1.00%(b) 0.99% 1.03% 1.02% 1.03% 1.03% 1.20% 1.45% Ratio of net investment income to average net assets*................ 5.33%(b) 5.25% 5.46% 4.82% 5.33% 6.43% 6.84% 6.80% PORTFOLIO TURNOVER......... 42.36% 29.56% 38.11% 48.06% 141.27% 35.64% 85.08% 119.69% FEBRUARY 1, 1988 TO JULY 31, 1989(a) ---------------- < NET ASSET VALUE, BEGINNING OF PERIOD................ $10.00 INVESTMENT ACTIVITIES Net investment income.... 0.35 Net realized and unrealized gains (losses) from investments............ 0.32 ----- Total from Investment Activities............. 0.67 ----- DISTRIBUTIONS Net investment income.... (0.32) In excess of net investment income...... -- Net realized gains....... -- In excess of net realized gains.................. -- ----- Total Distributions...... (0.32) ----- NET ASSET VALUE, END OF PERIOD................... $10.35 ===== Total Return (Excludes Sales Charge).......... 6.87%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)........... $3,165 Ratio of expenses to average net assets..... 1.41%(b) Ratio of net investment income to average net assets................. 6.82%(b) Ratio of expenses to average net assets*.... 2.72%(b) Ratio of net investment income to average net assets*................ 5.51%(b) PORTFOLIO TURNOVER......... 28.28%
- --------------- - 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) Annualized. (c) Not annualized. 6 7 GOVERNMENT INCOME FUND
YEAR ENDED JULY 31, OCTOBER 1, 1993 SIX MONTHS ENDED ------------------- TO JANUARY 31, 1997 1996 1995 JULY 31, 1994(a) ---------------- ------- ------- ---------------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD.......................... $ 9.40 $ 9.54 $ 9.48 $ 10.00 ----- ----- ----- ----- INVESTMENT ACTIVITIES Net investment income....................................... 0.26 0.66 0.68 0.54 Net realized and unrealized gains (losses) from investments............................................... 0.20 (0.20) 0.08 (0.57) ----- ----- ----- ----- Total from Investment Activities.......................... 0.46 0.46 0.76 (0.03) ----- ----- ----- ----- DISTRIBUTIONS Net investment income....................................... (0.27) (0.59) (0.70) (0.33) Tax return of capital....................................... -- (0.01) -- (0.16) ----- ----- ----- ----- Total Distributions....................................... (0.27) (0.60) (0.70) (0.49) ----- ----- ----- ----- NET ASSET VALUE, END OF PERIOD................................ $ 9.59 $ 9.40 $ 9.54 $ 9.48 ===== ===== ===== ===== Total Return (Excludes Sales Charge)...................... 4.95%(c) 4.91% 8.43% (0.26)%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)........................... $ 13,762 $15,752 $16,679 $ 15,465 Ratio of expenses to average net assets..................... 0.72%(b) 0.65% 0.58% 0.37%(b) Ratio of net investment income to average net assets........ 5.49%(b) 6.81% 7.18% 6.56%(b) Ratio of expenses to average net assets*.................... 1.17%(b) 1.10% 1.19% 1.22%(b) Ratio of net investment income to average net assets*....... 5.04%(b) 6.36% 6.57% 5.71%(b) PORTFOLIO TURNOVER............................................ 2.65% 78.31% 27.32% 122.94%
- --------------- * During the period certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratio would have been as indicated. (a) Period from commencement of operations. (b) Annualized. (c) Not annualized. FLORIDA TAX-FREE FUND
SEPTEMBER 30, 1994 SIX MONTHS ENDED YEAR ENDED TO JANUARY 31, 1997 JULY 31, 1996 JULY 31, 1995(a) ---------------- ------------- ------------------ (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD................................ $ 10.30 $ 10.32 $ 10.00 ----- ----- ----- INVESTMENT ACTIVITIES Net investment income............................................. 0.22 0.45 0.34 Net realized and unrealized gains (losses) from investments....... 0.05 (0.01) 0.30 ----- ----- ----- Total from Investment Activities................................ 0.27 0.44 0.64 ----- ----- ----- DISTRIBUTIONS Net investment income............................................. (0.25) (0.45) (0.32) Net realized gains................................................ (0.01) (0.01) -- ----- ----- ----- Total Distributions............................................. (0.26) (0.46) (0.32) ----- ----- ----- NET ASSET VALUE, END OF PERIOD...................................... $ 10.31 $ 10.30 $ 10.32 ===== ===== ===== Total Return (Excludes Sales Charge)............................ 2.71%(c) 4.24% 6.53%(c) RATIOS/SUPPLEMENTAL DATA: Net Asset at end of period (000).................................. $ 52,825 $48,869 $ 48,333 Ratio of expenses to average net assets........................... 0.54%(b) 0.59% 0.70%(b) Ratio of net investment income to average net assets.............. 4.35%(b) 4.33% 4.16%(b) Ratio of expenses to average net assets*.......................... 0.99%(b) 1.04% 1.01%(b) Ratio of net investment income to average net assets*............. 3.90%(b) 3.88% 3.86%(b) PORTFOLIO TURNOVER.................................................. 2.30% 12.21% 2.33%
- --------------- * During the period certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratio would have been as indicated. (a) Period from commencement of operations. (b) Annualized. (c) Not annualized. 7 8 INVESTMENT OBJECTIVE AND POLICIES Each of the Bond Fund, Limited Maturity Fund, and Government Income Fund seeks current income consistent with the preservation of capital. There can be, of course, no assurance that any Fund will achieve its investment objective. The investment objective of each Fund is fundamental and may not be changed without a vote of a majority of the outstanding Shares of that Fund (as defined below under "GENERAL INFORMATION -- Miscellaneous" in this prospectus). THE BOND FUND AND LIMITED MATURITY FUND THE BOND FUND invests in long-term bonds and other fixed-income securities. The Bond Fund's investments primarily consist of, but are not limited to, debt obligations such as bonds, notes and debentures, which are issued by United States corporations or issued or guaranteed by the United States Government or its agencies or instrumentalities. The Bond Fund invests in debt securities only if they are rated at time of purchase in one of the three highest rating categories by a nationally recognized statistical rating organization (an "NRSRO"), or including all subclassifications indicated by modifiers of such "A" ratings. See "Appendix" to the Statement of Additional Information for an explanation of these ratings. The Bond Fund invests in fixed-income securities with a maturity in excess of one year, except for amounts held in cash equivalents. Fixed-income securities can have maturities of thirty years or more. The Bond Fund will invest at least 65% of the value of its total assets in bonds (including debentures), except that, when market conditions indicate a temporary defensive investment strategy as determined by the Advisor, more than 35% of the Bond Fund's total assets may be held in cash and cash equivalents. "Cash equivalents" are short-term, interest-bearing instruments or deposits. The purpose of cash equivalents is to provide income at money market rates while minimizing the risk of decline in value to the maximum extent possible. The instruments may include, but are not limited to, commercial paper, certificates of deposit, repurchase agreements, bankers' acceptances, United States Treasury Bills, bank money market deposit accounts and money market mutual funds. The Bond Fund will purchase commercial paper rated at the time of purchase in the highest rating category by an NRSRO or, if not rated, found by the Advisor under guidelines established by the Trust's Board of Trustees to be of comparable quality. See "Appendix" to the Statement of Additional Information for an explanation of these ratings. THE LIMITED MATURITY FUND invests 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 Limited Maturity Fund to require the issuer of the security to redeem the security within five years from the date of purchase by the Limited Maturity Fund or for which the Limited Maturity Fund has acquired an unconditional "put" to sell the security within five years from the date of purchase by the Limited Maturity Fund. The Limited Maturity Fund's investments consist primarily of, but are not limited to, debt securities such as bonds, notes and debentures, which are issued by United States corporations or issued or guaranteed by the United States Government or its agencies or instrumentalities. The Limited Maturity Fund invests in debt securities only if they are rated at time of purchase in one of the three highest rating categories by an NRSRO or, if not rated, found by the Advisor under guidelines established by the Trust's Board of Trustees to be of comparable quality. See "Appendix" to the Statement of Additional Information for an explanation of these ratings. Under normal circumstances, the Limited Maturity Fund will invest at least 65% of the value 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 Limited Maturity Fund to require the 8 9 issuer of the security to redeem the security within five years from the date of purchase by The Limited Maturity Fund or for which the Limited Maturity Fund has acquired an unconditional "put" to sell the security within five years from the date of purchase by the Limited Maturity Fund. The remainder of the Limited Maturity Fund's assets will 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 government and corporate bonds, including without limitation cash or money-market instruments, commercial paper, certificates of deposit, repurchase agreements, bankers' acceptances, U.S. Treasury Bills, obligations of the U.S. Government and its agencies, bank money market deposit accounts and money market mutual funds. The Limited Maturity Fund will purchase commercial paper rated at the time of purchase in the highest rating category by an NRSRO or, if not rated, found by the Advisor under guidelines established by the Trust's Board of Trustees to be of comparable quality. See "Appendix" to the Statement of Additional Information for an explanation of these ratings. At times, the Advisor may determine that it is not in the best interests of Shareholders of the Limited Maturity Fund to invest 65% of The Limited Maturity Fund's total assets in bonds, debentures, notes and other debt securities. At such times, the Fund may follow the temporary defensive investment strategy of investing more than 35% of its total assets in cash, cash equivalents and corporate bonds with remaining maturities of less than 1 year. There is no way to predict when, or for how long, the Limited Maturity Fund may pursue such a defensive investment strategy. At the time of purchase of a debt security with a stated or remaining maturity in excess of five years from the date of purchase by the Limited Maturity Fund, the Limited Maturity Fund may acquire a "put" with respect to such debt securities. Under a "put", the Limited Maturity Fund would have the right to sell the debt security within a specified period of time at a specified minimum price. The Limited Maturity Fund will only acquire puts from dealers, banks and broker-dealers which the Advisor has determined are creditworthy under guidelines established by the Trust's Board of Trustees. A put will be sold, transferred, or assigned by the Limited Maturity Fund only with the underlying debt security. The Limited Maturity Fund will acquire puts solely to shorten the maturity of the underlying debt security. 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. MASTER DEMAND NOTES The Bond and Limited Maturity Funds may also invest in master demand notes in order to satisfy short-term needs or, if warranted, as part of their 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 United States commercial bank acting as agent for the payees of such notes. Master demand notes are callable on demand by an Income Fund, but are not marketable to third parties. Master demand notes are direct lending arrangements between an Income Fund and the issuer of such notes. The quality of master demand notes will be reviewed by the Advisor of the Income Funds at least quarterly, which review 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 Bond Fund and the Limited Maturity Fund set forth above for commercial paper. VARIABLE AND FLOATING RATE NOTES The Bond Fund and the Limited Maturity Fund 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 an Income Fund will be determined by the Advisor under guidelines established by the 9 10 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. 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 an Income Fund will approximate their par value. It is anticipated that the only non-income producing securities to be held in the Bond Fund and Limited Maturity Fund will be zero-coupon obligations evidencing ownership of future interest and principal payments on United States 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 Maturity 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 Maturity Fund's total assets. An increase in interest rates will generally reduce the value of the investments in the Income 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 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 INVESTMENTS The Bond Fund may invest up to 20% of the value of its total assets and the Limited Maturity Fund may invest up to 30% of its total assets in debt securities of foreign issuers. Any investments by the Bond Fund and Limited Maturity Fund in these securities will be in accordance with such Fund's investment policies and restrictions. The Bond Fund and the Limited Maturity Fund may also invest in securities issued by foreign branches of U.S. banks and foreign banks and in Canadian Commercial Paper and Europaper. Investment in securities of foreign issuers is subject to special risks, such as future adverse political and economic developments, possible seizure, currency blockage, nationalization or expropriation of foreign investments, less stringent disclosure requirements, the possible establishment of exchange controls or taxation at the source, or the adoption of other foreign governmental restrictions. Additional risks include currency exchange risks, less publicly available information, the risk that companies may not be subject to the accounting, auditing and financial reporting standards and requirements of U.S. companies, the risk that foreign securities markets may have less volume and therefore less liquidity and greater price volatility than U.S. securities, and the risk that custodian and brokerage costs may be higher. To the extent that the Income Funds may invest in securities of foreign issuers which are not traded on any exchange, there is a further risk that these securities may not be readily marketable. The Income Funds will not hold foreign currency as a result of such investments. INSURANCE COMPANY FUNDING AGREEMENTS The Bond Fund and the Limited Maturity Fund may invest in funding agreements ("Funding Agreements") issued by insurance companies. Pursuant to such agreements, the Bond Fund and Limited Maturity Fund invests an amount of cash with an insurance company and the insurance company credits such investment on a monthly basis with guaranteed interest which is based on an index. The Funding Agreements provide that this guaranteed interest will not be less than a certain mini- 10 11 mum rate. The Bond Fund and the Limited Maturity Fund will only purchase a Funding Agreement when the Advisor has determined, 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 Investment Company Act of 1940, of the issuer, on any insurer, guarantor, provider of credit support for the instrument. The Bond Fund and the Limited Maturity Fund may receive all principal of and accrued interest on a Funding Agreement at any time upon thirty days' written notice. Because the Bond Fund and the Limited Maturity Fund may not receive the principal amount of a Funding Agreement from the insurance company on seven days' notice or less, the Funding Agreement is considered an illiquid investment, and, together with other instruments in such Fund which are not readily marketable, will not exceed 15% of such Fund's net assets. ASSET-BACKED SECURITIES The Bond Fund and the Limited Maturity 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. 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 Maturity 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. 11 12 THE GOVERNMENT INCOME FUND The Government Income Fund invests at least 65% of its total assets in obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, although up to 35% of the value of its total assets may be invested in other types of debt securities, preferred stocks and options. Consistent with the foregoing, under normal market conditions, the Government Income Fund will invest up to 80% of the value of its total assets in mortgage-related securities issued or guaranteed by the U.S. Government or its agencies or 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, which the Advisor deems present attractive opportunities and are of comparable quality. For a description of the rating symbols of each NRSRO, see the Appendix to the Statement of Additional Information. U.S. GOVERNMENT OBLIGATIONS The types of U.S. Government obligations, including mortgage-related securities, invested in by the Government Income Fund includes obligations issued or guaranteed as to payment of principal and interest by the full faith and credit of the U.S. Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness, and obligations issued or guaranteed by the agencies or instrumentalities of the U.S. Government, but not supported by such full faith and credit. Obligations of the U.S. Treasury include "stripped" U.S. Treasury Obligations such as Treasury Receipts, representing either future interest or principal payments. Stripped securities are issued at a discount to their "face value" and may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors. Obligations of certain agencies and instrumentalities of the U.S. Government, such as GNMA and the Export-Import Bank of the United States, are supported by the full faith and credit of the U.S. Treasury; others, such as those of FNMA, are supported by the right of the issuer to borrow from the Treasury; others are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Farm Credit Banks or FHLMC, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored agencies or instrumentalities if it is not obligated to do so by law. The principal governmental (i.e., backed by the full faith and credit of the United States Government) guarantor of mortgage-related securities is GNMA. GNMA is a wholly-owned United States 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 United States 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. MORTGAGE-RELATED SECURITIES -- IN GENERAL 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 12 13 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 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 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 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 net assets will be illiquid. COLLATERALIZED MORTGAGE OBLIGATIONS Mortgage-related securities in which the Government Income 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 13 14 significant assets other than those 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 Investment Company Act of 1940, as amended (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 Fund 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 Government Income Fund's 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 Government Income Fund selects CMOs or REMICs that do not meet the above requirements, the Government Income Fund's investment in such securities will be subject to the limitations on its investment in investment company securities as set forth under "INVESTMENT OBJECTIVES AND POLICIES -- Investment Restrictions" in the Statement of Additional Information. The Government Income Fund expects 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 will, consistent with the Government Income Fund's investment objective, policies and quality standards, consider making investments in such new types of securities. OTHER SECURITIES The Government Income Fund may hold some short-term obligations (with maturities of 12 months or less) consisting of domestic and foreign commercial paper (including variable amount master demand notes), bankers' acceptances, certificates of deposit and time deposits of domestic and foreign branches of U.S. banks and foreign banks, and repurchase and reverse repurchase agreements. The Government Income Fund may also invest in corporate debt securities that are rated at the time of purchase in one of the three highest rating 14 15 categories by an NRSRO or, if not rated, found by the Advisor under guidelines established by the Trust's Board of Trustees to be of comparable quality. THE FLORIDA FUND AND MUNICIPAL BOND FUND The Florida 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. The Municipal Bond Fund seeks to produce as high a level of current federal tax-exempt income, as is consistent with the preservation of capital. There can be, of course, no assurance that the Florida Fund or the Municipal Bond Fund will achieve their investment objectives. The investment objective of each Tax-Free Fund is fundamental and may not be changed without a vote of a majority of the outstanding Shares of the Fund (as defined below under "GENERAL INFORMATION -- Miscellaneous" in this prospectus). THE FLORIDA FUND invests primarily in 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 treated as a preference item for purposes of the federal alternative minimum tax for individuals, and is exempt from the Florida Intangible Personal Property Tax ("Florida Municipal Securities"). As a fundamental policy, under normal market conditions at least 80% of the Florida Fund's net assets will be invested in Florida Municipal Securities. THE MUNICIPAL BOND FUND invests primarily in bonds and 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 both exempt from federal income tax and not treated as a preference item for purposes of the federal alternative minimum tax for individuals ("Municipal Securities"). As a fundamental policy, under normal market conditions at least 80% of the Municipal Bond Funds' net 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. Additionally, as a fundamental policy, under normal market conditions at least 65% of the Municipal Bond Fund's total assets will be invested in bonds. Under normal market conditions, each Tax-Free 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"). The Florida Fund may also invest in Municipal Securities. At times, the Advisor may determine that, because of unstable conditions in the markets for Municipal Securities or Florida Municipal Securities (hereinafter referred to collectively as "Eligible Municipal Securities"), pursuing the Funds' basic investment strategies is inconsistent with the best interests of the Shareholders of the Funds. At such times, the Advisor may use temporary defensive strategies differing from those designed to achieve the Funds' investment objectives, such as by increasing the Funds' holdings in Taxable Obligations to over 20% of each Fund's net assets and by holding uninvested cash reserves pending investment and, with respect to the Florida Fund, increasing its holdings in Municipal Securities to over 20% of net assets. 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 below) for tax-exempt commercial paper. These obligations are described further in the Statement of Additional Information. The Tax-Free Funds may also invest in private activity bonds ("industrial development bonds" under prior law). Interest on private activity bonds (and industrial development bonds) is fully tax-exempt only if the bonds fall within certain defined categories of qualified private activity bonds and 15 16 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 for the purposes of this Prospectus if they do not have this effect regarding individuals. For additional information on the federal alternative minimum tax, see "DIVIDENDS AND TAXES." The Tax-Free Funds may invest in Eligible Municipal Securities that are rated at the time of purchase within the three highest rating groups assigned by an NRSRO. The Funds may also purchase Eligible Municipal Securities that are unrated at the time of purchase but are determined to be of comparable quality by the Advisor pursuant to guidelines approved by the Trust's Board of Trustees. Eligible Municipal Securities may be purchased in reliance upon a rating only when the rating organization is not affiliated with the issuer or guarantor of the securities. The applicable ratings are described in the Appendix to the Statement of Additional Information. The two principal classifications of Eligible Municipal Securities that may be held by the Tax-Free Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities, or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed. Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved. Eligible Municipal Securities may also include "moral obligation" bonds, which are normally issued by special purpose public 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. 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 Municipal Bond Fund does not presently intend to do so on a regular basis, it 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 puts only where the puts are available without the payment of any direct 16 17 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. 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 United States 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 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. THE MUNICIPAL BOND FUND -- CONCENTRATION 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 17 18 this nature may cause greater fluctuation in the net asset value of the Fund's Shares. GENERAL ECONOMIC CHARACTERISTICS OF ALABAMA Alabama ranks twenty-second in the nation in total population, with over four million residents in 1995. 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 4.0% for the period from 1992 to 1994. Alabama's per capita income in 1996 was ranked thirty-ninth in the nation. Currently Alabama's general obligations are rated Aa 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. 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 para.222 of the Constitution of Alabama. In so holding, the Court found that warrants are not "bonds" within the meaning of para. 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. 18 19 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 April 1, 1993, Montgomery Circuit Court Judge Gene Reese ruled that an unconstitutional disparity exists among Alabama's school districts because of inequitable distribution of tax funds. Judge Reese issued an order calling for a new design for the distribution of funds for educational purposes as well as a new system for funding public education. On January 10, 1997, the Alabama Supreme Court affirmed Judge Reese's ruling. The court stated that the Alabama Legislature must develop a plan within one year to correct the unconstitutional disparity. Any allocation of funds away from school districts could impair the ability of such districts to service debt. THE FLORIDA FUND -- DIVERSIFICATION AND CONCENTRATION The Florida Fund is a non-diversified fund under the Investment Company Act of 1940 (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 19 20 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 AA by both Moody's and 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. 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 principle 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 20 21 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 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. INVESTMENT TECHNIQUES Each Income Fund may invest up to 5% of the value of its total assets in the securities of any one money market mutual fund including Shares of the AmSouth Prime Obligations Fund, the AmSouth U.S. Treasury Fund (and, with respect to the Tax-Free Funds, the AmSouth Tax Exempt Fund), provided that no more than 10% of each 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 each Funds in the Prime Obligations Fund and the AmSouth U.S. Treasury Fund (and with respect to the Tax-Free Funds, the AmSouth Tax-Exempt 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 that are attributable to those Fund investments. 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. Additional restrictions regarding the Funds' investments in the securities of an unaffiliated money market fund and/or the AmSouth Money Market Funds are contained in the Statement of Additional Information. OPTIONS The Bond Fund, Limited Maturity Fund, and Government Income Fund may engage in writing call options from time to time as the Advisor deems to be appropriate. Options are written solely as covered call options (options on securities owned by the Fund). Such options are issued by the Options Clearing Corporation and may or may not be listed on a national securities exchange. In order to close out an option position, the Fund will enter into a "closing purchase transaction" -- the purchase of a call option on the same security with the same exercise price and expiration date as any call option which it may previously have written on any particular securities. When the portfolio security is sold, the Fund effects a closing purchase transactions so as to close out any existing call option on that security. If the Fund is unable to effect a closing 21 22 purchase transactions so as to close out any existing call option on that security. If the Fund is unable to effect a closing purchase transaction, it will not be able to sell the underlying security until the option expires or the Fund delivers the underlying security upon exercise. When writing a covered call option, the 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. From time to time, the Bond Fund and the Limited Maturity Fund may also purchase call options on any of the types of securities in which each Fund may invest. A purchased call option gives a Fund the right to buy and obligates the seller to sell the underlying security at a specified exercise price during the option period. Purchasing call options is a specialized investment technique that entails a substantial risk of a complete loss of the amounts paid as premiums to writers of options. From time to time, the Bond Fund may purchase put options. A put is a right to sell a specified security (or securities) within a specified period of time at a specified exercise price. Puts may be acquired by the 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. The Bond Fund may sell, transfer, or assign a put only in conjunction with the sale, transfer or assignment of the underlying security or securities. The amount payable to the Bond 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 which are acquired subject to the puts (thus reducing the yield to maturity otherwise available for the same securities). The Bond Fund intends to enter into puts only with dealers, banks, and broker-dealers which, in the Advisor's opinion, present minimal credit risks. For a discussion of the Limited Maturity Fund's ability to acquire puts, see "The Bond Fund and the Limited Maturity Fund" in this prospectus. For a discussion of the Tax-Free Funds' ability to acquire puts, see "The Florida Fund and the Municipal Bond Fund" in this Prospectus. WHEN-ISSUED SECURITIES Each Income Fund may also purchase securities on a "when-issued" basis. When-issued securities are securities purchased for delivery beyond the normal settlement date at a stated price and yield and thereby involve a risk that the yield obtained in the transaction will be less than that available in the market when delivery takes place. The Income Funds will generally not pay for such securities or start earning interest on them until they are received. When an Income Fund agrees to purchase securities on a "when-issued" basis, the Trust's custodian will set aside cash or liquid securities equal to the amount of the commitment in a segregated account. Securities purchased on a "when-issued" basis are recorded as an asset and are subject to changes in value based upon changes in the general level of interest rates. Each of the Income Funds expects that commitments to purchase "when-issued" securities will not exceed 25% of the value of its total assets under normal market conditions, and that a commitment to purchase "when-issued" securities will not exceed 60 days. In the event that its commitment to purchase "when-issued" securities ever exceeded 25% of the value of its total assets, an Income Fund's liquidity and the Advisor's ability to manage it might be adversely affected. The Income Funds do not intend to purchase "when-issued" securities for speculation purposes, but only for the purpose of acquiring portfolio securities. REPURCHASE AGREEMENTS Securities held by the Income Funds may be subject to repurchase agreements. If the seller under a repurchase agreement were to default on its 22 23 repurchase obligation or become insolvent, the Income Fund would suffer a loss to the extent that the proceeds from a sale of the underlying portfolio securities were less than the repurchase price under the agreement, or to the extent that the disposition of such securities by the Income Fund were delayed pending court action. Additionally, if the seller should be involved in bankruptcy or insolvency proceedings, the Income Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Income Fund is treated as an unsecured creditor and required to return the underlying security to the seller's estate. REVERSE REPURCHASE AGREEMENTS Each Income Fund may borrow funds for temporary purposes by entering into reverse repurchase agreements in accordance with the investment restrictions described below. Pursuant to such agreements, an Income Fund would sell portfolio securities to financial institutions such as banks and broker-dealers, and agree to repurchase them at a mutually agreed-upon date and price. Reverse purchase agreements involve the risk that the market value of the securities sold by an Income Fund may decline below the price at which the Fund is obligated to repurchase the securities. OTHER INVESTMENT PRACTICES In order to generate additional income, the Bond Fund, Limited Maturity Fund, and Government Income Fund may, from time to time, lend its 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 the Funds to certain risks, such as delays or an inability to regain the securities in the event the borrower were to default on its lending agreement or enter into bankruptcy, each Fund will receive 100% collateral in the form of cash or other liquid securities. This collateral will be valued daily by the Advisor and should the market value of the loaned securities increase, the borrower will furnish additional collateral to each Fund. During the time securities of the Funds 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, each Fund intends 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 has determined are creditworthy under guidelines established by the Trust's Board of Trustees. 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 less than a day. The object of such short-term trading is to increase the potential for capital appreciation and/or income of the Government Income Fund in order to take advantage of what the Advisor believes are changes in market, industry or individual company conditions or outlook. Any such trading would increase the turnover rate of the Government Income Fund and its transaction costs. The Bond Fund and Limited Maturity Funds will not purchase securities solely for the purpose of short-term trading. INVESTMENT RESTRICTIONS Each Income Fund is subject to a number of investment restrictions that may be changed only by a vote of a majority of the outstanding Shares of that Fund. See "GENERAL INFORMATION -- Miscellaneous" in this prospectus. THE BOND FUND, LIMITED MATURITY FUND, GOVERNMENT INCOME FUND, AND THE MUNICIPAL BOND 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, 23 24 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. THE INCOME FUNDS MAY NOT: 1. Purchase any securities which would cause more than 25% of the value of such Income 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 Maturity 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 example, gas, gas transmission, electric and gas, electric, and telephone will each be considered a separate industry. 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 10% of the value of its total assets at the time of such borrowing; or mortgage, pledge, or hypothecate any assets, except in connection with any such borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the value of 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. 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. VALUATION OF SHARES The net asset value of each Income Fund is determined and its Shares are priced as of 4:00 p.m., Eastern Time (the "Valuation Time") on each Business Day of such Fund. As used herein a "Business Day" constitutes any day on which the New York Stock Exchange (the"NYSE") is open for trading and the Federal Reserve Bank of Atlanta is open, except days on which there are not sufficient changes in the value of the Fund's portfolio securities that the Fund's net asset value might be materially affected, or days during which no Shares are tendered for redemption and no orders to purchase Shares are received. Currently, either the NYSE or the Federal Reserve Bank of Atlanta is closed on the customary national business holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of pricing sales and redemptions is calculated by dividing the value of all securities and other assets belonging to 24 25 an Income Fund, less the liabilities charged to that Class, by the number of the outstanding Shares that Class of that Fund. The net asset value per Share of each Income Fund will fluctuate as the value of its investment portfolio changes. The securities in each Fund will be valued at market value. If market quotations are not available, the securities will be valued by a method which the Board of Trustees of the Trust believes accurately reflects fair value. For further information about valuation of investments in the Income Funds, see the Statement of Additional Information. HOW TO PURCHASE AND REDEEM SHARES DISTRIBUTOR Shares in each Income Fund are sold on a continuous basis by the Trust's distributor, BISYS Fund Services (the "Distributor"). The principal office of the Distributor is 3435 Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares, contact the Trust at (800) 451-8382. Each Income Fund has been divided into three classes of Shares, Premier Shares, Classic Shares and B Shares. Class B Shares are currently offered only in the Bond Fund. The three classes of a particular Fund represent interests in the same investments and are identical in all respects except that (i) Classic Shares bear the expense of the fee under the Trust's Shareholder Servicing Plan (the "Servicing Plan"), which will cause the Classic Shares to have a higher expense ratio and to pay lower dividends than those of the Premier Shares, (ii) Class B Shares bear the expense of the fee under the Trust's Distribution and Shareholder Services Plan (the "Distribution Plan"), which will cause the Class B Shares to have a higher expense ratio and to pay a lower dividend than those of the Classic Shares or Premier Shares, (iii) Classic Shares have certain exclusive voting rights with respect to the Servicing Plan and Class B Shares have certain exclusive voting rights with respect to the Distribution Plan, and (iv) Classic Shares are subject to a front-end sales charge and Class B Shares are subject to a contingent deferred sales charge. The following investors qualify to purchase Premier Shares: (i) investors for whom AmSouth acts in a fiduciary, advisory, custodial, agency or similar capacity through an account with its Trust Department; (ii) investors who purchase Shares of a Fund through a 401(k) plan or a 403(b) plan which by its terms permits purchases of Shares; and (iii) orders placed on behalf of other investment companies distributed by the Distributor and its affiliated companies. All other investors are eligible to purchase Classic Shares or Class B Shares only. PURCHASES OF CLASSIC SHARES AND CLASS B SHARES Shares of the Income Funds may be purchased through procedures established by the Distributor in connection with requirements of qualified accounts maintained by or on behalf of certain persons ("Customers") by AmSouth or financial institutions that provide certain administrative support services for their customers or account holders (collectively, "Financial Institutions"). These procedures may include instructions under which a Customer's account is "swept" automatically no less frequently than weekly and amounts in excess of a minimum amount agreed upon by a Financial Institution and its Customer are invested by the Distributor in Shares of the Funds. These procedures may also include transactions whereby AmSouth as agent purchases Shares of the Income Funds in amounts that correspond to the market value of securities sold to the Funds by AmSouth as agent. Shares of the Trust sold to Financial Institutions acting in a fiduciary, advisory, custodial, agency, or other similar capacity on behalf of Customers will normally be held of record by the Financial Institutions. With respect to Shares so sold, it is the responsibility of the particular Financial Institution to transmit purchase or redemption orders to the Distributor and to deliver federal funds for purchase 25 26 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, Financial Institutions may charge a Customer's account fees for automatic investment and other cash management services provided in connection with investment in a Fund. Information concerning these services and any charges can be obtained from the Financial Institutions. This Prospectus should be read in conjunction with any such information received from the Financial Institutions. Investors may also purchase Classic Shares and Class B Shares of an Income Fund by completing and signing an Account Registration Form and mailing it, together with a check (or other negotiable bank draft or money order) in at least the minimum initial purchase amount, payable to the Trust in care of AmSouth Mutual Funds, P.O. Box 182733, Columbus, Ohio 43218-2733. Subsequent purchases of Classic Shares and Class B Shares of a Fund may be made at any time by mailing a check (or other negotiable bank draft or money order) payable to the Trust, to the above address. If an Account Registration Form has been previously received by the Distributor, investors may also purchase Classic Shares and Class B Shares of an Income Fund 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 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 cancelled and the investor could be liable for any losses or fees incurred. In the case of purchase of Shares effected by wiring funds to the Custodian, investors must call the Trust at (800) 451-8382 to obtain instructions regarding the bank account number into which the funds should be wired and other pertinent information. Investors may also purchase Classic Shares and Class B Shares by arranging systematic monthly, bi-monthly or quarterly investments into the Funds with the Trust's Automatic Investment Plan ("AIP"). The minimum investment amounts are $50 per transfer and the maximum amount with respect to any transfer is $100,000. After investors give the Trust proper authorization, their bank accounts, which must be with banks that are members of the Automated Clearing House, will be debited accordingly to purchase Shares. Investors will receive a confirmation from the Trust for every transaction, and a withdrawal will appear on their bank statements. To participate in AIP, investors must complete the appropriate sections of the Account Registration form or call for instructions. This form may be obtained by calling the Trust at (800) 451-8382. The amount investors specify will automatically be invested in Shares at the specified Fund's public offering price per Share next determined after the debit is made. To change the frequency or amount invested, written instructions must be received by the Trust at least seven Business Days in advance of the next transfer. If the bank or bank account number is changed, instructions must be received by the Trust at least 20 Business Days in advance. In order to change a bank or bank account number, investors also must have their signature guaranteed by a bank, broker, dealer, credit union, securities exchange, securities association, clearing agency or savings association, as those terms are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 (an "Eligible Guarantor Institution"). Signature guarantees are described more fully under "REDEMPTION BY MAIL" below. If there are insufficient funds in the investor's designated bank account to cover the Shares purchased using AIP, the investor's bank may charge the investor a fee or may refuse to honor the transfer instruction (in which case no Fund Shares will be purchased). Investors should check with their banks to determine whether they are members of the Automated Clearing House and whether their banks charge a 26 27 fee for transferring funds through the Automated Clearing House. Expenses incurred by the Funds related to AIP are borne by the Funds and therefore there is no direct charge by the Funds to investors for use of these services. Classic Shares and Class B Shares of each Fund are purchased at the public offering price per Share, which is the net asset value per Share (see "VALUATION OF SHARES") next determined after receipt by the Distributor of an order in good form to purchase Shares plus the applicable sales charge at the time of purchase in the case of Classic Shares as described below. Purchases of Shares of an Income Fund will be effected only on a Business Day (as defined in "VALUATION OF SHARES") of such Fund. An order received prior to the Valuation Time on any Business Day will be executed based on the net asset value determined as of the Valuation Time on the date of receipt. An order received after the Valuation Time on any Business Day will be executed based on the net asset value determined as of the next Business Day. In the case of orders for the purchase of Shares placed through a broker-dealer, the applicable public offering price will be calculated with reference to the net asset value as so determined, but only if the broker-dealer receives the order prior to the Valuation Time for that day and transmits it to the Distributor prior to its close of business that same day (normally 4:00 p.m. Eastern Time). The broker-dealer is responsible for transmitting such orders by close of business. If the broker-dealer fails to do so, the investor's right to that day's closing price must be settled between the investor and the broker-dealer. The minimum investment is $1,000 for the initial purchase of Classic Shares and Class B Shares by an investor. There is no minimum investment for subsequent purchases; however, as described above, the minimum subsequent investment when using AIP is $50 per transfer. The minimum initial investment amount may be waived if purchases are made in connection with Individual Retirement Accounts, Keogh plans or similar plans. For information on IRAs or Keogh or similar plans, contact AmSouth at 800-451-8382. The maximum investment is $250,000 for total purchases of Class B Shares. There is no limit on the amount of Classic Shares that may be purchased. The Trust reserves the right to reject any order for the purchase of its Shares in whole or in part, including purchases made with foreign and third party drafts or checks. Every Shareholder will receive a confirmation of each new transaction in his or her account, which will also show the total number of Shares of the particular Fund owned by the Shareholder. In the case of Classic Shares and Class B Shares held of record by Financial Institutions but beneficially owned by a Customer, confirmations of purchases, exchanges and redemptions of Classic Shares or Class B Shares by a Financial Institution will be sent to the Customer by the Financial Institution. Shareholders may rely on these statements in lieu of certificates. Certificates representing Shares will not be issued. SALES CHARGE -- CLASSIC SHARES The public offering price of a Classic Share of an Income Fund equals its net asset value plus a sales charge. BISYS receives this sales charge as Distributor and will re-allow a portion of it as dealer discounts and brokerage commissions. However, BISYS, at its sole discretion, may pay certain dealers all or part of the portion of the sales charge it receives. A broker or dealer who receives a reallowance in excess of 90% of the sales charge may be deemed to be an "underwriter" for purposes of the Securities Act of 1933. 27 28
SALES CHARGE AS A PERCENTAGE OF SALES CHARGE AS DEALER ALLOWANCE AS NET AMOUNT A PERCENTAGE OF A PERCENTAGE OF AMOUNT OF PURCHASE INVESTED OFFERING PRICE OFFERING PRICE - ---------------------------------------------- --------------- --------------- ------------------- Less than $100,000............................ 4.17% 4.00% 3.60% $100,000 but less than $250,000............... 3.09% 3.00% 2.70% $250,000 but less than $500,000............... 2.04% 2.00% 1.90% $500,000 but less than $1,000,000............. 1.01% 1.00% .90% $1,000,000 or more............................ 0%* 0%* 0%*
- --------------- * Classic Shares are offered at net asset value without an initial sales charge but are subject to a contingent deferred sales charge equal to 1% of the lesser of the value of the shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the total cost of such shares in the event of a share redemption within twelve months following the purchase of $1 million or more in Classic Shares. The Distributor will provide additional compensation in an amount up to 1.00% of the offering price of Classic Shares of the Funds for sales of $1 million to $5 million, and 0.50% for sales over $5 billion. From time to time dealers who receive dealer discounts and broker commissions from the Distributor may reallow all or a portion of such dealer discounts and broker commissions to other dealers or brokers. The sales charges set forth in the table above are applicable to purchases made at one time by any purchaser (a "Purchaser"), which includes: (i) an individual, his or her spouse and children under the age of 21; (ii) a trustee or other fiduciary of a single trust estate or single fiduciary account; or (iii) any other organized group of persons, whether incorporated or not, provided that such organization has been in existence for at least six months and has some purpose other than the purchase of redeemable securities of a registered investment company. In order to qualify for a lower sales charge, all orders from a Purchaser will have to be placed through a single investment dealer and identified at the time of purchase as originating from the same Purchaser, although such orders may be placed into more than one discrete account which identifies the Purchasers. SALES CHARGE WAIVERS The following classes of investors may purchase Classic Shares of a Fund with no sales charge in the manner described below (which may be changed or eliminated at any time by the Distributor): (1) Existing Shareholders of a Fund upon the reinvestment of dividend and capital gain distributions; (2) Officers, trustees, directors, employees and retired employees of the Trust, AmSouth Bancorporation and its affiliates, and BISYS Fund Services and its affiliates (and spouses and children of each of the foregoing); (3) Employees (and their spouses and children under the age of 21) of any broker-dealer with which the Distributor enters into a dealer agreement to sell shares of the Funds; (4) Investors who purchase Shares of a Fund through a payroll deduction plan; and (5) Investors who purchase Shares of a Fund through certain broker-dealers, registered investment advisors and other financial institutions that have entered into an agreement with the Distributor which includes a requirement that such shares be sold for the benefit of clients participating in a "wrap account," asset allocation or a similar program under which such clients pay a fee to such broker-dealer, registered investment advisor or other financial institution. From time to time, for special promotional purposes, the Distributor may offer special concessions to enable investors to purchase shares of a Fund offered by the Trust at net asset value without 28 29 payment of a front-end charge. To qualify for a net asset value purchase, the investor must pay for such purchase with the proceeds from the redemption of shares of a non-affiliated mutual fund on which a front-end sales charge was paid. A qualifying purchase of shares must occur within 30 days of prior redemption and must be evidenced by a confirmation of the redemption transaction. At the time of purchase, the investment representative must notify the Distributor that the purchase qualifies for a purchase at net asset value and provide sufficient information to permit confirmation of qualification. Proceeds from the redemption of shares on which no front-end sales charge was paid do not qualify for a purchase at net asset value. The Distributor may also periodically waive the sales charge for all investors with respect to any Income Fund. LETTER OF INTENT By checking the Letter of Intent box on the account application, a shareholder becomes eligible for reduced sales charges applicable to the total amount invested in Classic Shares of an Income Fund in the load fund over a 13-month period (beginning up to 90 days prior to the date indicated on the account application). The Trust's Transfer Agent will hold in escrow 5% of the amount indicated for payment of the higher sales charge if a shareholder does not purchase the full amount indicated on the account application. Upon completion of the total minimum investment specified on the account application, the escrow will be released, and an adjustment will be made to reflect any reduced sales charge applicable to shares purchased during the 90-day period prior to submission of the account application. Additionally, if the total purchases within the 13-month period exceed the amount specified, an adjustment will be made to reflect further reduced sales charges applicable to such purchases. All such adjustments will be made at the conclusion of the 13-month period in the form of additional shares credited to the shareholder's account at the then current Public Offering Price applicable to a single purchase of the total amount of the total purchases. If total purchases are less than the amount specified, escrowed shares may be involuntarily redeemed to pay the additional sales charge. Checking a Letter of Intent box does not bind an investor to purchase, or the Fund to sell, the full amount indicated at the sales load in effect at the time of signing, but an investor must complete the intended purchase to obtain the reduced sales load. For further information about Letters of Intent, interested investors should contact the Trust at (800) 451-8382. This program, however, may be modified or eliminated at any time or from time to time by the Distributor without notice. CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION A Purchaser may qualify for a reduced sales charge by combining concurrent purchases of Classic Shares of an Income Fund and one or more of the other Funds of the Trust sold with a sales charge or by combining a current purchase of Classic Shares of a Fund with prior purchases of Classic Shares of any Fund of the Trust sold subject to a sales charge. The applicable sales charge is based on the sum of (i) the Purchaser's current purchase of shares of any Fund sold with a sales charge plus (ii) the then current net asset value of all Shares held by the Purchaser in any Fund sold with a sales charge. To receive the applicable public offering price pursuant to the right of accumulation Shareholders must at the time of purchase provide the Transfer Agent or the Distributor with sufficient information to permit confirmation of qualification. Accumulation privileges may be amended or terminated without notice at any time by the Distributor. SALES CHARGE -- CLASS B SHARES Class B Shares are not subject to a sales charge when they are purchased, but are subject to a sales charge (the "Contingent Deferred Sales Charge") if a Shareholder redeems them prior to the sixth anniversary of purchase. When a Shareholder purchases Class B Shares, the full purchase amount is invested directly in the applicable Fund. Class B Shares of each Fund are subject to an ongoing distribution and shareholder service fee at an annual 29 30 rate of 1.00% of such Fund's average daily net assets as provided in the Distribution Plan (described below under "The Distributor"). This ongoing fee will cause Class B Shares to have a higher expense ratio and to pay lower dividends than Classic Shares. Class B Shares convert automatically to Classic Shares after eight years, commencing from the end of the calendar month in which the purchase order was accepted under the circumstances and subject to the qualifications described in this Prospectus. Proceeds from the Contingent Deferred Sales Charge and the distribution and shareholder service fees under the Distribution Plan are payable to the Distributor to defray the expenses of advance brokerage commissions and expenses related to providing distribution-related and Shareholder services to the Fund in connection with the sale of the Class B Shares, such as the payment of compensation to dealers and agents selling Class B Shares. A dealer commission of 4.00% of the original purchase price of the Class B Shares of the Fund will be paid to financial institutions and intermediaries. However, the Distributor may, in its sole discretion, pay a higher dealer commission. CONTINGENT DEFERRED SALES CHARGE If the Shareholder redeems Class B Shares prior to the sixth anniversary of purchase, the Shareholder will pay a Contingent Deferred Sales Charge at the rates set forth below. The Contingent Deferred Sales Charge is assessed on an amount equal to the lesser of the then-current market value or the cost of the Shares being redeemed. Accordingly, no sales charge is imposed on increases in net asset value above the initial purchase price. In addition, no charge is assessed on Shares derived from reinvestment of dividends or capital gain distributions. The amount of the Contingent Deferred Sales Charge, if any, varies depending on the number of years from the time of payment for the purchase of Class B Shares until the time of redemption of such Shares. Solely for purposes of determining the number of years from the time of any payment for the purchase of Shares, all payments during a month are aggregated and deemed to have been made on the first day of the month.
CONTINGENT DEFERRED SALES CHARGE AS A YEAR(S) PERCENTAGE 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% 6-7 None 7-8 None
In determining whether a particular redemption is subject to a Contingent Deferred Sales Charge, it is assumed that the redemption is first of any Classic Shares in the Shareholder's Fund account (unless the Shareholder elects to have Class B Shares redeemed first) or Shares representing capital appreciation, next of Shares acquired pursuant to reinvestment of dividends and capital gain distributions, and finally of other Shares held by the Shareholder for the longest period of time. This method should result in the lowest possible sales charge. To provide an example, assume you purchased 100 Shares at $10 per share (a total cost of $1,000) and prior to the second anniversary after purchase, the net asset value per share is $12 and during such time you have acquired 10 additional Shares through dividends paid in Shares. If you then make your first redemption of 50 Shares (proceeds of $600), 10 Shares will not be subject to charge because you received them as dividends. With respect to the remaining 40 Shares, the charge is applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds is subject to a Contingent Deferred Sales Charge at a rate of 4.00% (the applicable rate prior to the second anniversary after purchase). The Contingent Deferred Sales Charge is waived on redemption of Shares: (i) following the death or disability (as defined in the Code) of a Shareholder 30 31 or a participant or beneficiary of a qualifying retirement plan if redemption is made within one year of such death or disability; or (ii) to the extent that the redemption represents a minimum required distribution from an Individual Retirement Account or other qualifying retirement plan to a Shareholder who has attained the age of 70 1/2. A Shareholder or his or her representative should contact the Transfer Agent to determine whether a retirement plan qualifies for a waiver and must notify the Transfer Agent prior to the time of redemption if such circumstances exist and the Shareholder is eligible for this waiver. In addition, the following circumstances are not deemed to result in a "redemption" of Class B Shares for purposes of the assessment of a Contingent Deferred Sales Charge, which is therefore waived: (i) plans of reorganization of the Fund, such as mergers, asset acquisitions and exchange offers to which the Fund is a party; or (ii) exchanges for Class B Shares of other Funds of the Trust as described under "Exchange Privilege." CONVERSION FEATURE Class B Shares include all Shares purchased pursuant to the Contingent Deferred Sales Charge which have been outstanding for less than the period ending eight years after the end of the month in which the shares were purchased. At the end of this period, Class B Shares will automatically convert to Classic Shares and will be subject to the lower distribution and Shareholder service fees charged to Classic Shares. Such conversion will be on the basis of the relative net asset values of the two classes, without the imposition of any sales charge, fee or other charge. The conversion is not a taxable event to a Shareholder. For purposes of conversion to Classic Shares, shares received as dividends and other distributions paid on Class B Shares in a Shareholder's Fund account will be considered to be held in a separate sub-account. Each time any Class B Shares in a Shareholder's Fund account (other than those in the sub-account) convert to Classic Shares, a pro-rata portion of the Class B Shares in the sub-account will also convert to Classic Shares. If a Shareholder effects one or more exchanges among Class B Shares of the Funds of the Trust during the eight-year period, the Trust will aggregate the holding periods for the shares of each Fund of the Trust for purposes of calculating that eight-year period. Because the per share net asset value of the Classic Shares may be higher than that of the Class B Shares at the time of conversion, a Shareholder may receive fewer Classic Shares than the number of Class B Shares converted, although the dollar value will be the same. ADDITIONAL INFORMATION REGARDING BROKER COMPENSATION The Distributor, at its expense, will also provide additional compensation to dealers in connection with sales of Classic Shares and Class B Shares of any of the Funds. Such compensation will include financial assistance to dealers in connection with conferences, sales or training programs for their employees, seminars for the public, advertising campaigns regarding one or more Funds of the Trust, and/or other dealer-sponsored special events. In some instances, this compensation will be made available only to certain dealers whose representatives have sold a significant amount of such Shares. Compensation will include payment for travel expenses, including lodging, incurred in connection with trips taken by invited registered representatives and members of their families to locations within or outside of the United States for meetings or seminars of a business nature. Compensation will also include the following types of non-cash compensation offered through sales contests: (1) vacation trips, including the provision of travel arrangements and lodging at luxury resorts at an exotic location, (2) tickets for entertainment events (such as concerts, cruises and sporting events) and (3) merchandise (such as clothing, trophies, clocks and pens). Dealers may not use sales of a Fund's Shares to qualify for this compensation to the extent such may be prohibited by the laws of any state or any self-regulatory agency, such as the National Association of Securities Dealers, Inc. None of the aforementioned compensation is paid for by any Fund or its Shareholders. 31 32 EXCHANGE PRIVILEGE CLASSIC SHARES Classic Shares of each Fund may be exchanged for Classic Shares of the other Funds, provided that the Shareholder making the exchange is eligible on the date of the exchange to purchase Classic Shares (with certain exceptions and subject to the terms and conditions described in this prospectus). Classic Shares may not be exchanged for Class B Shares of the other Funds, and may be exchanged for Premier Shares of the other Funds only if the Shareholder becomes eligible to purchase Premier Shares. Shareholders may exchange their Classic Shares for Classic Shares of a Fund with the same or lower sales charge on the basis of the relative net asset value of the Classic Shares exchanged. Shareholders may exchange their Classic Shares for Classic Shares of a Fund with a higher sales charge by paying the difference between the two sales charges. Shareholders may also exchange Classic Shares of a Money Market Fund, for which no sales load was paid, for Classic Shares of a variable net asset value Fund ("Variable NAV Fund"). Under such circumstances, the cost of the acquired Classic Shares will be the net asset value per share plus the appropriate sales load. If Classic Shares of a Money Market Fund were acquired in a previous exchange involving Shares of a Variable NAV Fund, then such Shares of the Money Market Fund may be exchanged for Shares of a Variable NAV Fund without payment of any additional sales load within a twelve month period. Under such circumstances, the Shareholder must notify the Distributor that a sales load was originally paid. Depending upon the terms of a particular Customer account, a Participating Organization may charge a fee with regard to such an exchange. Information about such charges will be supplied by the Participating Organization. CLASS B SHARES Class B Shares of each Fund may be exchanged for Class B Shares of the other Funds on the basis of relative net asset value per Class B Share, without the payment of any Contingent Deferred Sales Charge which might otherwise be due upon redemption of the outstanding Class B Shares. Investors should note that, as of the date of this prospectus, Class B Shares were not offered in the AmSouth U.S. Treasury Fund, Tax Exempt Fund, Government Income Fund, Limited Maturity Fund, Florida Fund, and Municipal Bond Fund, thus, no exchanges may be effected for Class B Shares of these Funds. For purposes of computing the Contingent Deferred Sales Charge that may be payable upon a disposition of the newly acquired Class B Shares, the holding period for outstanding Class B Shares of the Fund from which the exchange was made is "tacked" to the holding period of the newly acquired Class B Shares. For purposes of calculating the eight-year holding period applicable to the newly acquired Class B Shares, the newly acquired Class B Shares shall be deemed to have been issued on the date of receipt of the Shareholder's order to purchase the outstanding Class B Shares of the Fund from which the exchange was made. Class B Shares may not be exchanged for Classic Shares of the other Funds, and may be exchanged for Premier Shares of the other Funds only if the Shareholder becomes eligible to purchase Premier Shares. A Contingent Deferred Sales Charge will apply as described in "How To Purchase and Redeem Shares" -- "Class B Shares" to exchanges of Class B Shares for Premier Shares. ADDITIONAL INFORMATION ABOUT EXCHANGES An exchange is considered to be a sale of Shares for federal income tax purposes on which a Shareholder may realize a capital gain or loss. In general, if a shareholder exchanges Income Fund shares for Shares of another Fund without paying a sales charge, the gain or loss on the exchange of the Fund Shares will be calculated without taking into account the sales charge paid on the Fund Shares if the Fund Shares were held less than 91 days. The sales charge will instead be added to the basis of the Fund Shares acquired in the exchange. The application of this rule will increase the gain or reduce the loss that the Shareholder would otherwise recognize on the exchange of the Shares of the Fund. 32 33 Before an exchange can be effected, a Shareholder must receive a current prospectus of the Fund and class into which the Shares are exchanged. An exchange may be made by calling the Trust at (800) 451-8382 or by mailing written instructions to the Transfer Agent. Exchange privileges may be exercised only in those states where Shares of such other Funds of the Trust may legally be sold, and may be amended or terminated at any time upon sixty (60) days' notice. The Trust's exchange privilege is not intended to afford shareholders a way to speculate on short-term movements in the market. Accordingly, in order to prevent excessive use of the exchange privilege that may potentially disrupt the management of the Trust and increase transaction costs, the Trust has established a policy of limiting excessive exchange activity. Exchange activity will not be deemed excessive if limited to four substantive exchange redemptions from a Fund during any calendar year. AUTO EXCHANGE AmSouth Mutual Funds Auto Exchange enables Shareholders to make regular, automatic withdrawals from Classic Shares and Class B Shares of the AmSouth Prime Obligations Fund and use those proceeds to benefit from dollar-cost-averaging by automatically making purchases of shares of the same Class of another AmSouth Mutual Fund. With shareholder authorization, the Trust's transfer agent will withdraw the amount specified (subject to the applicable minimums) from the shareholder's Prime Obligations Fund account and will automatically invest that amount in Classic Shares or Class B Shares of the AmSouth Mutual Fund designated by the Shareholder at the public offering price on the date of such deduction. In order to participate in the Auto Exchange, Shareholders must have a minimum initial purchase of $10,000 in their Prime Obligations Fund account and maintain a minimum account balance of $1,000. To participate in the Auto Exchange, Shareholders should complete the appropriate section of the Account Registration Form, which can be acquired by calling the Distributor. To change the Auto Exchange instructions or to discontinue the feature, a Shareholder must send a written request to the AmSouth Mutual Funds, P.O. Box 182733, Columbus, OH 43218-2733. The Auto Exchange may be amended or terminated without notice at any time by the Distributor. DIRECTED DIVIDEND OPTION Shareholders can elect to have dividend distributions (capital gains, dividends, dividends and capital gains) paid by check or reinvested within the Fund or reinvested in other AmSouth Mutual Funds of the same shareholder registration without a sales charge. To participate in the Directed Dividend Option, a shareholder must maintain a minimum balance of $1,000 in each Fund into which he or she plans to reinvest dividends. The Directed Dividend Option may be modified or terminated without notice. In addition, the Trust may suspend a shareholder's Directed Dividend Option without notice if the account balance is less than the minimum $1,000. Participation in the Option may be terminated or changed by the shareholder at anytime by writing the Distributor. The Directed Dividend Option is not available to participants in an AmSouth Mutual Funds IRA. REDEMPTION OF SHARES Shareholders may redeem their Classic Shares without charge, and their Class B Shares subject to the applicable Contingent Deferred Sales Charge, on any day that net asset value is calculated (see "VALUATION OF SHARES"). Shares may ordinarily be redeemed by mail or by telephone. However, all or part of a Customer's Shares may be redeemed in accordance with instructions and limitations pertaining to his or her account at a Financial Institution. For example, if a Customer has agreed with a Financial Institution to maintain a minimum balance in his or her account with a Financial Institution, and the balance in that account falls below that minimum, the Customer may be obliged to redeem, or the Financial Institution may redeem for and on behalf of the Customer, all or part of the Customer's Shares of a Fund of the 33 34 Trust to the extent necessary to maintain the required minimum balance. REDEMPTION BY MAIL A written request for redemption must be received by the Transfer Agent in order to constitute a valid tender for redemption. The Transfer Agent will require a signature guarantee by an eligible guarantor institution. For purposes of this policy, the term "eligible guarantor institution" shall include banks, brokers, dealers, credit unions, securities exchanges and associations, clearing agencies and savings associations as those terms are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. The Transfer Agent reserves the right to reject any signature guarantee if (1) it has reason to believe that the signature is not genuine, (2) it has reason to believe that the transaction would otherwise be improper, or (3) the guarantor institution is a broker or dealer that is neither a member of a clearing corporation nor maintains net capital of at least $100,000. The signature guarantee requirement will be waived if the following conditions apply: (1) the redemption check is payable to the Shareholder(s) of record; and (2) the redemption check is mailed to the Shareholder(s) at the address of record or the proceeds are either mailed or wired to a financial institution account previously designated. There is no charge for having redemption requests mailed to a designated bank account. REDEMPTION BY TELEPHONE A Shareholder may have the payment of redemption requests wired or mailed directly to a domestic commercial bank account previously designated by the Shareholder on the Account Registration Form. Under most circumstances, such payments will be transmitted on the next Business Day following receipt of a valid request for redemption. Such wire redemption requests may be made by the Shareholder by telephone to the Transfer Agent. The Transfer Agent may reduce the amount of a wire redemption payment from the maximum wire redemption charge of $15.00. Such charge is presently $7.00 for each wire redemption. There is no charge for having payment of redemption requests mailed or sent via the Automated Clearing House to a designated bank account. For telephone redemptions, call the Trust at (800) 451-8382. The Trust will employ reasonable procedures to confirm that instructions communicated by telephone are genuine; if these procedures are not followed, the Trust may be liable for any losses due to unauthorized or fraudulent instructions. These procedures include recording all phone conversations, sending confirmations to Shareholders within 72 hours of the telephone transaction, verifying the account name and a shareholder's account number or tax identification number, and sending redemption proceeds only to the address of record or to a previously authorized account. During periods of significant economic or market change, telephone redemptions may be difficult to complete. If a Shareholder is unable to contact the Distributor by telephone, a Shareholder may also mail the redemption request to the Distributor at the address listed above under "HOW TO REDEEM SHARES -- Redemption by Mail." PAYMENTS TO SHAREHOLDERS Redemption orders are effected at the net asset value per Share next determined after the Shares are properly tendered for redemption, as described above. The proceeds paid upon redemption of Shares in an Income Fund may be more or less than the amount invested. Payment to Shareholders for Shares redeemed will be made within seven days after receipt by the Transfer Agent of the request for redemption. However, to the greatest extent possible, the Trust will attempt to honor requests from Shareholders for next Business Day payments upon redemption of Shares if the request for redemption is received by the Transfer Agent before the Valuation Time on a Business Day or, if the request for redemption is received after the Valuation Time to honor requests for payment within two Business Days, unless it would be disadvantageous to the Trust or the Shareholders of the particular Income Fund to sell or liquidate portfolio securities in an amount sufficient to satisfy requests for payments in that manner. 34 35 At various times, the Trust may be requested to redeem Shares for which it has not yet received good payment. In such circumstances, the Trust may delay the forwarding of proceeds only until payment has been collected for the purchase of such Shares which may take up to 15 days or more. To avoid delay in payment upon redemption shortly after purchasing Shares, investors should purchase Shares by certified or bank check or by wire transfer. The Trust intends to pay cash for all Shares redeemed, but under abnormal conditions which make payment in cash unwise, the Trust may make payment wholly or partly in portfolio securities at their then current market value equal to the redemption price. In such cases, an investor may incur brokerage costs in converting such securities to cash. Due to the relatively high cost of handling small investments, the Trust reserves the right to redeem, at net asset value, the Shares of any Shareholder if, because of redemptions of Shares by or on behalf of the Shareholder, the account of such Shareholder in any Income Fund has a value of less than $250. Accordingly, an investor purchasing Shares of a Fund in only the minimum investment amount may be subject to such involuntary redemption if he or she thereafter redeems some of his or her Shares. Before the Trust exercises its right to redeem such Shares and to send the proceeds to the Shareholder, the Shareholder will be given notice that the value of the Shares in his or her account is less than the minimum amount and will be allowed 60 days to make an additional investment in an amount which will increase the value of the account to at least $250. See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of Additional Information for examples of when the Trust may suspend the right of redemption or redeem Shares involuntarily if it appears appropriate to do so in light of the Trust's responsibilities under the Investment Company Act of 1940. DIVIDENDS AND TAXES 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. Dividends will generally be paid monthly. Distributable net realized capital gains are distributed at least annually to Shareholders of record. A Shareholder will automatically receive all income dividends and capital gains distributions in additional full and fractional Shares unless the Shareholder elects to receive such dividends or distributions in cash. Dividends and distributions are reinvested without a sales charge as of the ex-dividend date using the net asset value determined on that date and are credited to a Shareholder's account on the payment date. Reinvested dividends and distributions receive the same tax treatment as dividends and distributions paid in cash. Dividends are generally taxable when received. However, dividends declared in October, November, or December to Shareholders of record during those months and paid during the following January are treated for tax purposes as if they were received by each Shareholder on December 31 of the prior year. Elections to receive dividends or distributions in cash, or any revocation thereof, must be made in writing to the Transfer Agent at 3435 Stelzer Road, Columbus, Ohio 43219, and will become effective with respect to dividends and distributions having record dates after its receipt by the Transfer Agent. Each of the Income Funds is treated as a separate entity for federal income tax purposes. Each Income Fund intends to qualify for treatment as a "regulated investment company" under the Code. If they so qualify, the Income Funds will not have to pay federal income taxes on net income and net capital gain income that they distribute to shareholders. Regulated investment companies are also subject to a federal excise tax if they do not distribute their income on a timely basis. Each Fund intends to avoid paying federal income and excise taxes by timely distributing substantially all its net income and net capital gain income. 35 36 The amount of dividends payable with respect to the Premier Shares will exceed dividends on Classic Shares, and the amount of dividends on Classic Shares will exceed the dividends on Class B Shares, as a result of the Shareholder Services Plan fee applicable to Classic Shares and the Distribution and Shareholder Services Plan fee applicable to Class B Shares. BOND FUND, LIMITED MATURITY FUND, AND GOVERNMENT INCOME FUND Distributions by the Bond Fund, Limited Maturity Fund, and Government Income Fund of ordinary income and/or an excess of 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. Distribution by the Bond Fund, Limited Maturity Fund, and Government Income Fund of the excess of net long-term capital gain over net short-term capital loss is taxable to Shareholders as long-term capital gain in the year in which it is received, 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, Limited Maturity Fund, and 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, Limited Maturity Fund, and Government Income Fund 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. If a Shareholder receives a capital gain dividend with respect to a Share of the Bond Fund, Limited Maturity 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 United States 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, Limited Maturity Fund, and 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, if any, than they would have in the absence of such transactions. Additional information regarding federal taxes is contained in the Statement of Additional Information under "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION -- Additional Tax Information" and "Additional Tax Information Concerning the Tax Exempt Fund." The foregoing discussion is limited to federal income tax consequences and is based on tax laws and regulations which are in effect as of the date of this Prospectus; such laws and regulations may be changed by legislative or administrative actions. The foregoing is also intended only as a brief sum- 36 37 mary of some of the important tax considerations generally affecting the Income Funds and their Shareholders. Potential investors in the Bond Fund, Limited Maturity Fund, and Government Income Fund are urged to consult their tax advisors concerning their own tax situation and concerning the application of state and local taxes which may differ from the federal income tax consequences described above. Shareholders will be advised at least annually as to the character for federal income tax purposes of distributions made during the year. FLORIDA FUND AND MUNICIPAL BOND FUND The Tax-Free Funds' Shareholders 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 the Tax-Free 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 the Tax-Free Funds will not be eligible for the dividends received deduction for corporate shareholders. Gains on the sale of Shares in the Tax-Free 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 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. A Tax-Free Fund 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 the Tax-Free 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 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 information regarding federal taxes is contained in the Statement of Additional Information under "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION -- Additional Tax Information" and "Additional Tax Information Concerning the Florida Fund." The foregoing discussion is limited to federal income tax consequences and is based on tax laws 37 38 and regulations which are in effect as of the date of this Prospectus; such laws and regulations may be changed by legislative or administrative actions. The foregoing is also intended only as a brief summary of some of the important tax considerations generally affecting the Tax-Free Funds and their Shareholders. Potential investors in the Tax-Free Funds are urged to consult their tax advisers concerning their own tax situation and concerning the application of state and local taxes which may differ from the federal income tax consequences described above. Shareholders will be advised at least annually as to the character for federal income tax purposes of distributions made during the year. ALABAMA TAXES Section 40-18-14(2)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(2)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). 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. The foregoing discussion is based on tax laws and regulations which are in effect as of the date of this Prospectus; such laws and regulations may be changed by legislative or administrative actions. The foregoing is also intended only as a brief summary of some of the important 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 38 39 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 ruling confirming this tax treatment is being sought 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. Potential investors are urged to consult with their Florida tax counsel concerning their own tax situation. MANAGEMENT OF AMSOUTH MUTUAL FUNDS TRUSTEES OF THE TRUST Overall responsibility for management of the Trust rests with the Board of Trustees of the Trust, who are elected by the Shareholders of the Trust. There are currently six Trustees, two of whom are "interested persons" of the Trust within the meaning of that term under the Investment Company Act of 1940. The Trustees, in turn, elect the officers of the Trust to supervise actively its day-to-day operations. The Trustees of the Trust, their current addresses, and principal occupations during the past five years are as follows (if no address is listed, the address is 3435 Stelzer Road, Columbus, Ohio 43219): 39 40
POSITION(S) HELD PRINCIPAL OCCUPATION NAME AND ADDRESS WITH THE TRUST DURING THE PAST 5 YEARS - ------------------------------ ------------------ ------------------------------------------- George R. Landreth* Chairman From December 1992 to present, employee of BISYS Fund Services BISYS Fund Services, Limited Partnership; 3435 Stelzer Road from July 1991 to December 1992, employee Columbus, Ohio 43219 of PNC Financial Corp.; from October 1984 to July 1991, employee of The Central Trust Co., N.A. Dr. Dick D. Briggs, Jr. Trustee From 1981 to present, Professor and Vice 459 DER Building Chairman, Department of Medicine, 1808 7th Avenue South University of Alabama at Birmingham School UAB Medical Center of Medicine; December 1995, to present, Birmingham, Alabama 35294 Physician, University of Alabama Health Services Foundation; from June 1988 to October 1992, President, Chief Executive Officer and Medical Director, University of Alabama Health Services Foundation Wendell D. Cleaver Trustee From September 3, 1993 to present, retired; 209 Lakewood Drive, West from December 1988 to August, 1993, Mobile, Alabama 36608 Executive Vice President, Chief Operating Officer and Director, Mobile Gas Service Corporation J. David Huber* Trustee From June 1987 to present, employee of BISYS Fund Services BISYS Fund Services, Limited Partnership 3435 Stelzer Road Columbus, OH 43219 Homer H. Turner, Jr. Trustee From June 1991 to present, retired; until 729 Cary Drive June 1991, Vice President, Birmingham Auburn, Alabama 36830 Division, Alabama Power Company James H. Woodward, Jr. Trustee From 1996 to present, Trustee of The The University of North Sessions Group; from July 1989 to present, Carolina at Charlotte Chancellor, The University of North Charlotte, North Carolina Carolina at Charlotte; until July 1989, 28223 Senior Vice President, University College, University of Alabama at Birmingham
- --------------- * Indicates an "interested person" of the Trust as defined in the Investment Company Act of 1940. 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 Ohio, Inc. receives any compensation from the Trust for acting as a Trustee. The officers of the Trust (see the Statement of Additional Information) receive no compensation directly from the Trust for performing the duties of their offices. BISYS Fund Services receives fees from the Trust for acting as Administrator and BISYS Fund Services Ohio, Inc. receives fees from the Trust for acting as Transfer Agent for and for providing fund accounting services to the Trust. Messrs. Huber and Landreth are employees and executive officers of BISYS Fund Services. INVESTMENT ADVISOR AmSouth is the Advisor of each Fund of the Trust. AmSouth is the bank affiliate of AmSouth 40 41 Bancorporation, one of the largest banking institutions headquartered in the mid-south region. AmSouth Bancorporation reported assets as of December 31, 1996 of $18.4 billion and operated 272 banking offices in Alabama, Florida, Georgia and Tennessee. AmSouth has provided investment management services through its Trust Investment Department since 1915. As of December 31, 1996, AmSouth and its affiliates had over $7.1 billion in assets under discretionary management and provided custody services for an additional $13.4 billion in securities. AmSouth is the largest provider of trust services in Alabama. AmSouth serves as administrator for over $12 billion in bond issues, and its Trust Natural Resources and Real Estate Department is a major manager of timberland, mineral, oil and gas properties and other real estate interests. Subject to the general supervision of the Trust's Board of Trustees and in accordance with the respective investment objectives and restrictions of the Funds, the Advisor manages the Funds, makes decisions with respect to and places orders for all purchases and sales of their investment securities, and maintains their records relating to such purchases and sales. Brian B. Sullivan, CFA is the portfolio manager for the Bond Fund and, as such, has had primary responsibility for the day-to-day portfolio management of the Bond Fund since 1992. Mr. Sullivan has been a portfolio manager at the Advisor since 1984, and is currently Senior Vice President and Trust Investment Officer in charge of fixed income investments. John P. Boston, CFA is the portfolio manager for the Limited Maturity Fund since August, 1995, and of the Government Income Fund since inception and, as such, has primary responsibility for the day-to-day portfolio management of the Limited Maturity and Government Income Funds. Mr. Boston has been associated with AmSouth's Trust Investment Group for over five years and is currently a Vice President and Trust Investment Officer. Dorothy E. Thomas, CFA is the portfolio manager for the Municipal Bond Fund and since May 15, 1997 is the portfolio manager for the Florida Fund, and as such, has primary responsibility for the day-to-day management of each Fund's portfolio. Ms. Thomas has been associated with AmSouth's Trust Investment Group for over ten years and is currently Vice President and Trust Investment Officer. Under investment advisory agreements between the Trust and the Advisor, the fee payable to the Advisor by each Fund for investment advisory services is the lesser of (a) a fee computed daily and paid monthly at the annual rate of sixty-five one-hundredths of one percent (.65%) of such Fund's average daily net assets or (b) such fee as may from time to time be agreed upon in writing by the Trust and the Advisor. A fee agreed to in writing from time to time by the Trust and the Advisor may be significantly lower than the fee calculated at the annual rate and the effect of such lower fee would be to lower a Fund's expenses and increase the net income of the Fund during the period when such lower fee is in effect. During the Trust's fiscal year ended July 31, 1996, the Advisor received investment advisory fees amounting to .50% of the Bond Fund's average daily net assets, .50% of the Limited Maturity Fund's average daily net assets, .30% of the Government Income Fund's average daily net assets, and .30% of the Florida Fund's average daily net assets. The Municipal Bond Fund had not commenced operations as of July 31, 1996. ADMINISTRATOR ASO Service Company ("ASO") is the administrator for each Fund of the Trust (the "Administrator"). ASO is a wholly owned subsidiary of BISYS. BISYS is a subsidiary of The BISYS Group, Inc., 150 Clove Road, Little Falls, New Jersey 07424, a publicly owned company engaged in information processing, loan servicing and 401(k) administration and recordkeeping services to and through banking and other financial organizations. The Administrator generally assists in all aspects of the Funds' administration and operation. Under management and administration agreements between the Trust, the fee payable by each Fund to the Administrator for administration services is the 41 42 lesser of (a) a fee computed at the annual rate of twenty one-hundredths of one percent (.20%) of such Income Fund's average daily net assets or (b) such fee as may from time to time be agreed upon by the Trust and the Administrator. A fee agreed to from time to time by the Trust and the Administrator may be significantly lower than the fee calculated at the annual rate and the effect of such lower fee would be to lower an Income Fund's expenses and increase the net income of the Fund during the period when such lower fee is in effect. ASO succeeded BISYS as Administrator on April 1, 1996. During the Trust's fiscal year ended July 31, 1996, BISYS and ASO received administration fees, after voluntary fee reductions, amounting to .12% of the Bond Fund's average daily net assets; .12% of the Limited Maturity Fund's average daily net assets; .10% of the Government Income Fund's average daily net assets; and .10% of the Florida Fund's average daily net assets, after voluntary fee reductions. SUB-ADMINISTRATORS AmSouth serves as a Sub-Administrator to the Trust. Pursuant to its current agreement with the Administrator, AmSouth has assumed certain of the Administrator's duties, for which AmSouth receives a fee, paid by the Administrator, calculated at an annual rate of up to ten one-hundredths of one percent (.10%) of each Fund's average daily net assets. BISYS Fund Services also serves as a Sub-Administrator to the Trust. Pursuant to its agreement with the Administrator, BISYS is entitled to compensation as mutually agreed from time to time by it and the Administrator. DISTRIBUTOR BISYS Fund Services acts as the Trust's principal underwriter and distributor (the "Distributor") pursuant to a Distribution Agreement under which shares are sold on a continuous basis. Classic Shares of the Trust are subject to a Shareholder Servicing Plan (the "Servicing Plan") permitting payment of compensation to financial institutions that agree to provide certain administrative support services for their customers or account holders. Each Fund has entered into a specific arrangement with BISYS for the provision of such services by BISYS, and reimburses BISYS for its cost of providing these services, subject to a maximum annual rate of twenty-five one-hundredths of one percent (.25%) of the average daily net assets of the Classic Shares of each Fund. Under the Trust's Distribution and Shareholder Services Plan (the "Distribution Plan"), Class B Shares of a Fund will pay a monthly distribution fee to the Distributor as compensation for its services in connection with the Distribution Plan at an annual rate equal to one percent (1.00%) of the average daily net assets of Class B Shares of each Fund which includes Shareholder Servicing fee of .25% of the average daily net assets of the Class B Shares of each Fund. The Distributor may periodically waive all or a portion of the fee with respect to a Fund in order to increase the net investment income of the Fund available for distribution as dividends. The Distributor may apply the B Share Fee toward the following: (i) compensation for its services or expenses in connection with distribution assistance with respect to such Fund's B Shares; (ii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance companies, and investment counselors) as brokerage commissions in connection with the sale of such Fund's B Shares; and (iii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance companies, and investment counselors), broker-dealers, and the Distributor's affiliates and subsidiaries as compensation for services and/or reimbursement of expenses incurred in connection with distribution or shareholder services with respect to such Fund's B Shares. All payments by the Distributor for distribution assistance or shareholder services under the Distribution Plan will be made pursuant to an agreement (a "Servicing Agreement") between the Distributor and such bank, other financial institution or intermediary, broker-dealer, or affiliate or subsidiary of 42 43 the Distributor (hereinafter referred to individually as "Participating Organizations"). A Servicing Agreement will relate to the provision of distribution assistance in connection with the distribution of a Fund's Class B Shares to the Participating Organization's customers on whose behalf the investment in such Shares is made and/or to the provision of shareholder services to the Participating Organization's customers owning a Fund's Class B Shares. Under the Distribution Plan, a Participating Organization may include AmSouth or a subsidiary bank or nonbank affiliates, or the subsidiaries or affiliates of those banks. A Servicing Agreement entered into with a bank (or any of its subsidiaries or affiliates) will contain a representation that the bank (or subsidiary or affiliate) believes that it possesses the legal authority to perform the services contemplated by the Servicing Agreement without violation of applicable banking laws (including the Glass-Steagall Act) and regulations. The distribution fee will be payable without regard to whether the amount of the fee is more or less than the actual expenses incurred in a particular year by the Distributor in connection with distribution assistance or shareholder services rendered by the Distributor itself or incurred by the Distributor pursuant to the Servicing Agreements entered into under the Distribution Plan. If the amount of the distribution fee is greater than the Distributor's actual expenses incurred in a particular year (and the Distributor does not waive that portion of the distribution fee), the Distributor will realize a profit in that year from the distribution fee. If the amount of the distribution fee is less than the Distributor's actual expenses incurred in a particular year, the Distributor will realize a loss in that year under the Distribution Plan and will not recover from a Fund the excess of expenses for the year over the distribution fee, unless actual expenses incurred in a later year in which the Distribution Plan remains in effect were less than the distribution fee paid in that later year. The Glass-Steagall Act and other applicable laws prohibit banks generally from engaging in the business of underwriting securities, but in general do not prohibit banks from purchasing securities as agent for and upon the order of customers. Accordingly, the Trust will require banks acting as Participating Organizations to provide only those services which, in the banks' opinion, are consistent with the then current legal requirements. It is possible, however, that future legislative, judicial or administrative action affecting the securities activities of banks will cause the Trust to alter or discontinue its arrangements with banks that act as Participating Organizations, or change its method of operations. It is not anticipated, however, that any change in a Fund's method of operations would affect its net asset value per share or result in financial loss to any customer. EXPENSES AmSouth and the Administrator each bear all expenses in connection with the performance of their services as Advisor and Administrator, respectively, other than the cost of securities (including brokerage commissions, if any) purchased for an Income Fund. 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 Premier, Classic, and Class B Shares of a Fund on the basis of the relative net asset value of each class. At present, the only expenses that will be borne solely by Classic and Class B Shares, other than in accordance with the relative net asset value of the class, are expenses under the Trust's Servicing Plan which relates only to the Classic Shares and the Distribution Plan which relates only to the Class B Shares. BANKING LAWS AmSouth believes that it possesses the legal authority to perform the investment advisory services for the Funds contemplated by its investment advisory agreement with the Trust and described in this Prospectus without violation of applicable banking laws and regulations, and has so represented in its investment advisory agreement with the Trust. Future changes in federal or state statutes and regulations relating to permissible activities of banks or 43 44 bank holding companies and their subsidiaries and affiliates as well as further judicial or administrative decisions or interpretations of present and future statutes and regulations could change the manner in which AmSouth could continue to perform such services for the Trust. See "MANAGEMENT OF The Trust -- Glass-Steagall Act" in the Statement of Additional Information for further discussion of applicable banking laws and regulations. GENERAL INFORMATION DESCRIPTION OF THE TRUST AND ITS SHARES The Trust was organized as a Massachusetts business trust on October 1, 1987. The Trust has an unlimited number of authorized shares of beneficial interest which may, without shareholder approval, be divided into an unlimited number of series of such shares, and which are presently divided into fourteen series of shares, one for each of the following Funds: the AmSouth Prime Obligations Fund, the AmSouth U.S. Treasury Fund, the AmSouth Tax Exempt Fund, the AmSouth Equity Fund, the AmSouth Regional Equity Fund, the AmSouth Capital Growth Fund, the AmSouth Small Cap Fund, the AmSouth Equity Income Fund, the AmSouth Bond Fund, the AmSouth Limited Maturity Fund, the AmSouth Municipal Bond Fund, the AmSouth Balanced Fund, the AmSouth Government Income Fund and the AmSouth Florida Tax- Free Fund. Each Fund, except the AmSouth Florida Tax-Free Fund, is diversified for purposes of the 1940 Act. As of the date of this Prospectus, Shares are not currently being offered in the AmSouth Small Cap Fund. Each Fund has been divided into three classes of Shares: Premier, Classic and Class B Shares, except that the AmSouth U.S. Treasury Fund and the Tax Exempt Fund are divided into Premier Shares and Classic Shares only. As of the date of this Prospectus, however, Class B Shares were not offered in the Limited Maturity Fund, Government Income Fund, Florida Fund, and Municipal Bond Fund. Each Share represents an equal proportionate interest in a Fund with other Shares of the same series, and is entitled to such dividends and distributions out of the income earned on the assets belonging to that Fund as are declared at the discretion of the Trustees (see "Miscellaneous" below). Shares of the Trust are entitled to one vote per share (with proportional voting for fractional shares) on such matters as Shareholders are entitled to vote. Shareholders vote in the aggregate and not by series or class on all matters except (i) when required by the Investment Company Act of 1940, shares shall be voted by individual series or class, (ii) when the Trustees have determined that the matter affects only the interests of one or more series or class, then only Shareholders of such series of class shall be entitled to vote thereon, (iii) only the holders of Classic Shares will be entitled to vote on matters submitted to Shareholder vote with regard to the Servicing Plan, and (iv) only the holders of Class B Shares will be entitled to vote on matters submitted to Shareholder vote with regard to the Distribution Plan. Overall responsibility for the management of the Trust is vested in the Board of Trustees. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS -- Trustees of the Trust." Individual Trustees are elected by the Shareholders and may be removed by the Board of Trustees or Shareholders at a meeting held for such purpose in accordance with the provisions of the Declaration of Trust and the By-laws of the Trust and Massachusetts law. See "ADDITIONAL INFORMATION -- Miscellaneous" in the Statement of Additional Information for further information. The Trust believes as of August 21, 1997, AmSouth, 1901 Sixth Avenue North, Birmingham, AL 35203, was the Shareholder of record of 98.01% of the outstanding shares of the Bond Fund, 97.51% of the outstanding shares of the Limited Maturity Fund, and 88.18% of the outstanding shares of the Florida Fund. As of August 21, 1997, AmSouth was the beneficial owner of approximately 72.49% of the 44 45 outstanding shares of the Bond Fund and 57.28% of the outstanding shares of the Limited Maturity Fund and may be deemed to be a "controlling person" of the Bond Fund and Limited Maturity Fund within the meaning of the Investment Company Act of 1940. CUSTODIAN As of April 17, 1997, AmSouth serves as custodian for the Trust ("Custodian"). Pursuant to the Custodian Agreement with the Trust, the Custodian receives compensation from each Fund for such services in an amount equal to an asset-based fee. TRANSFER AGENT AND FUND ACCOUNTANT BISYS Funds Services Ohio, Inc. serves as transfer agent for and provides fund accounting services to the Trust. PERFORMANCE INFORMATION MUNICIPAL BOND FUND The Municipal Bond Fund commenced operations on July 1, 1997 subsequent to the transfer of assets by the Tax-Exempt Portfolio, a common trust fund, to the Municipal Bond Fund in exchange for shares of the Municipal Bond Fund. The Fund's portfolio of investments on July 1, 1997 was the same as the portfolio of the Tax-Exempt Portfolio immediately prior to the transfer. The Tax-Exempt Portfolio is not a registered investment company as it is exempt from registration under the 1940 Act. Since, in a practical sense, the Tax-Exempt Portfolio constitutes a "predecessor" of the Fund, the Municipal Bond Fund calculates the performance for each Class of the Fund for periods commencing prior to the transfer of the Tax-Exempt Portfolio assets to the Fund by including the common trust fund's total return adjusted to reflect the deduction of fees and expenses applicable to the Classic Shares of the Municipal Bond Fund as stated in the Fee Table in this prospectus (i.e., adjusted to reflect anticipated expenses, net of management and administrative fee waivers). These fees and expenses include the appliable sales charge. The Municipal Bond Fund from time to time may advertise certain investment performance figures, as discussed below. These figures are based on historical earnings, but past performance data is not necessarily indicative of future performance of the Fund. COMPARATIVE PERFORMANCE INFORMATION REGARDING THE TAX-EXEMPT PORTFOLIO AND THE MUNICIPAL BOND FUND AVERAGE ANNUAL TOTAL RETURN*
3 5 10 FUND 1 YEAR YEARS YEARS YEARS - ------------------------------ ------ ------ ------ ------ Tax-Exempt Portfolio.......... 0.99% 3.54% 3.59% 5.24%
- --------------- * Figures were calculated pursuant to a methodology established by the SEC. The maximum sales load is 4.00% for the Municipal Bond Fund. The above-quoted performance data includes the performance of the Tax-Exempt Portfolio for the period before the Municipal Bond Fund commenced operations adjusted to reflect the deduction of fees and expenses applicable to the Classic Shares of the Municipal Bond Fund (i.e., adjusted to reflect anticipated expenses, net of management and administrative fee waivers). The Tax-Exempt Portfolio was not registered under the 1940 Act and therefore was not subject to certain investment restrictions, limitations and diversification requirements imposed by the Act and the Code. If the Tax-Exempt Portfolio had been registered under the 1940 Act, its performance may have been adversely affected. The investment objective, restrictions and guidelines of the Municipal Bond Fund are substan- 45 46 tially similar to the Tax-Exempt Portfolio and both were managed by the same personnel. GENERAL From time to time performance information for the Classic Shares and Class B Shares of an Income Fund showing its total return and/or yield may be presented in advertisements, sales literature and Shareholder reports. Total return will be calculated for the past year, five years (if applicable) and the period since the establishment of a Fund. Average annual total return is measured by comparing the value of an investment in a Fund at the beginning of the relevant period to the redemption value of the investment at the end of the period (assuming the investor paid the maximum sales load on the investment and assuming immediate reinvestment of any dividends or capital gains distributions) and annualizing the difference. Aggregate total return is calculated similarly to average annual total return except that the return figure is aggregated over the relevant period instead of annualized. Yield will be computed by dividing a Fund's net investment income per share earned during a recent one-month period by the Fund's per share maximum offering price (reduced by any undeclared earned income expected to be paid shortly as a dividend) on the last day of the period and annualizing the result. Each Fund may also present its total return and/or yield excluding the effect of the sales charge. The Tax-Free Funds may also present its "tax equivalent yield" which reflects the amount of income subject to federal income taxation that a taxpayer in a stated tax bracket would have to earn in order to obtain the same after-tax income as that derived from the yield of the Funds. The tax equivalent yield will be significantly higher than the yield of the Tax-Free Funds. Yield, effective yield, tax-equivalent yield, and total return will be calculated separately for each Class of Shares. Because Classic Shares are subject to lower Shareholder Services fees than Class B Shares, the yield and total return for Classic Shares will be higher than that of the Class B Shares for the same period. Because Premier Shares are not subject to the Distribution and Shareholder Services fees, the yield and total return for Premier Shares will be higher than that of the Classic and Class B Shares for the same period. Investors may also judge the performance of each Fund by comparing its performance to the performance of other mutual funds with comparable investment objectives and policies through various mutual fund or market indices and data such as that provided by Lipper Analytical Services, Inc. Comparisons may also be made to indices or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week, American Banker, Fortune, Institutional Investor, Ibbotson Associates, Inc., Morningstar Inc., CDA/Wiesenberger, Pensions and Investments, U.S.A. Today, and local newspapers. 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 each Fund's performance 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 Fund, operating expenses and market conditions. Any fees charged by a Financial Institution with respect to accounts investing in Shares of an Income Fund will not be included in performance calculations. MISCELLANEOUS Shareholders will receive unaudited semi-annual reports and annual reports audited by independent public accountants. As used in this Prospectus and in the Statement of Additional Information, "assets belonging to a Fund" means the consideration received by the Fund upon the issuance or sale of Shares in that Group, together with all income, earnings, profits, and proceeds derived from the investment thereof, 46 47 including any proceeds from the sale, exchange, or liquidation of such investments, and any funds or payments derived from any reinvestment of such proceeds, and any general assets of the Trust not readily identified as belonging to a particular Fund that are allocated to that Fund by the Trust's Board of Trustees. The Board of Trustees may allocate such general assets in any manner it deems fair and equitable. It is anticipated that the factor that will be used by the Board of Trustees in making allocations of general assets to particular Funds will be the relative net assets of the respective Funds at the time of allocation. Assets belonging to a particular Fund are charged with the direct liabilities and expenses in respect of that Fund, and with a share of the general liabilities and expenses of the Trust not readily identified as belonging to a particular Fund that are allocated to that Fund in proportion to the relative net assets of the respective Funds at the time of allocation. The timing of allocations of general assets and general liabilities and expenses of the Trust to particular Funds will be determined by the Board of Trustees of the Trust and will be in accordance with generally accepted accounting principles. Determinations by the Board of Trustees of the Trust as to the timing of the allocation of general liabilities and expenses and as to the timing and allocable portion of any general assets with respect to a particular Fund are conclusive. As used in this Prospectus and in the Statement of Additional Information, a "vote of a majority of the outstanding Shares" of the Trust or a particular Fund means the affirmative vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more of the votes of Shareholders of the Trust or such Fund present at such meeting at which the holders of more than 50% of the votes attributable to the Shareholders of record of the Trust or such Fund are represented in person or by proxy, or (b) the holders of more than 50% of the outstanding votes of Shareholders of the Trust or such Fund. Under Massachusetts law, Shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Trust's Declaration of Trust disclaims Shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in every agreement, obligation or instrument entered into or executed by the Trust or the Trustees. The Declaration of Trust provides for indemnification out of a Fund's property for all loss and expense of any Shareholder of such Fund held liable on account of being or having been a Shareholder. Thus, the risk of a Shareholder incurring financial loss on account of Shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations. Inquiries regarding the Trust may be directed in writing to the Trust at P.O. Box 182733, Columbus, Ohio 43218-2733 or by calling toll free (800) 451-8382. 47 48 AMSOUTH MUTUAL FUNDS INVESTMENT ADVISOR [AMSOUTH LOGO] AmSouth Bank 1901 Sixth Avenue North Birmingham, AL 35203 DISTRIBUTOR BISYS Fund Services, Limited Partnership 3435 Stelzer Road Columbus, OH 43219 ADMINISTRATOR ASO Services Company 3435 Stelzer Road Columbus, OH 43219 LEGAL COUNSEL Ropes & Gray One Franklin Square 1301 K Street, N.W. Suite 800 East Washington, DC 20005-3333 TRANSFER AGENT BISYS Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 AUDITORS Coopers & Lybrand L.L.P. 100 East Broad Street Columbus, OH 43215 TABLE OF CONTENTS
Page ---- Fee Table................................. 3 Financial Highlights...................... 5 Investment Objective and Policies......... 8 Investment Techniques..................... 21 Investment Restrictions................... 23 Valuation of Shares....................... 24 How to Purchase and Redeem Shares......... 25 Dividends and Taxes....................... 35 Management of the AmSouth Mutual Funds.... 39 General Information....................... 44
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. AS2P090197 49 AMSOUTH MUTUAL FUNDS -------------------- [AMSOUTH LOGO] AMSOUTH BANK Investment Advisor INCOME FUNDS [AMSOUTH MUTUAL FUNDS LOGO] Not FDIC Insured BISYS FUND SERVICES, DISTRIBUTOR Prospectus dated September 1, 1997 50 AMSOUTH MUTUAL FUNDS PREMIER SHARES 3435 Stelzer Road For current yield, purchase, and redemption Columbus, Ohio 43219 information, call (800) 451-8382
The AmSouth Prime Obligations Fund (the "Prime Obligations Fund"), the AmSouth U.S. Treasury Fund (the "AmSouth U.S. Treasury Fund"), and the AmSouth Tax Exempt Fund (the "Tax Exempt Fund") (collectively, the "Money Market Funds"), the AmSouth Bond Fund (the "Bond Fund"), the AmSouth Limited Maturity Fund (the "Limited Maturity Fund"), the AmSouth Government Income Fund (the "Government Income Fund"), the AmSouth Florida Tax-Free Fund (the "Florida Fund"), and the AmSouth Municipal Bond Fund (the "Municipal Bond Fund") (collectively, "the Income Funds" and the Florida Fund and Municipal Bond Fund sometimes collectively referred to herein as "the Tax-Free Funds"), and the AmSouth Equity Fund (the "Equity Fund"), the AmSouth Regional Equity Fund (the "Regional Equity Fund"), the AmSouth Balanced Fund (the "Balanced Fund"), the AmSouth Capital Growth Fund ( the "Capital Growth Fund"), the AmSouth Small Cap Fund (the "Small Cap Fund"), and the AmSouth Equity Income Fund (the "Equity Income Fund") (collectively, the "Capital Appreciation Funds") are fourteen series of units of beneficial interest ("Shares") each representing interests in one of fourteen separate investment funds (the "Funds") of AmSouth Mutual Funds (the "Trust"), an open-end management investment company. All securities or instruments in which the Money Market Funds invest have remaining maturities of 397 days or less. Each Money Market Fund seeks to maintain a constant net asset value of $1.00 per unit of beneficial interest, but there can be no assurance that net asset value will not vary. Each Income Fund and Capital Appreciation has its own investment objective and the net asset value per share of each Income Fund and Capital Appreciation Fund will fluctuate as the value of such Fund's investment portfolio changes in response to changing market interest rates and other factors. The Shares of the Income Funds and the Capital Appreciation Funds outstanding on August 31, 1997, have been redesignated as Classic Shares. AMSOUTH PRIME OBLIGATIONS FUND seeks current income with liquidity and stability of principal. The Prime Obligations Fund invests in high quality United States dollar-denominated money market instruments and other high-quality United States dollar-denominated instruments. AMSOUTH U.S. TREASURY FUND seeks current income with liquidity and stability of principal. The AmSouth U.S. Treasury Fund invests exclusively in short-term obligations issued by the U.S. Treasury, some of which may be subject to repurchase agreements collateralized by U.S. Treasury obligations. AMSOUTH TAX EXEMPT FUND seeks to produce 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. The Tax Exempt Fund seeks to achieve this objective by investing in short-term high-quality obligations. While the Tax Exempt Fund may invest in short-term taxable obligations, under normal market conditions at least 80% of the Tax Exempt Fund's total assets will be invested in obligations exempt from federal income tax. AMSOUTH BOND FUND seeks current income consistent with the preservation of capital. The Fund seeks to achieve this objective by investing in long-term bonds and other fixed-income securities. These investments may include debt securities issued by United States corporations and debt securities issued or guaranteed by the United States Government or its agencies or instrumentalities as well as zero-coupon obligations. The Bond Fund invests in fixed-income securities with a maturity in excess of one year, although such securities can have maturities of thirty years or longer. AMSOUTH LIMITED MATURITY FUND seeks current income consistent with the preservation of capital. The Fund seeks to achieve this objective by investing 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 Limited Maturity Fund to require the issuer of the security to redeem the security within five years from the date of purchase or for which the Limited Maturity Fund has acquired an unconditional "put" to sell the security within five years from the date of purchase. These investments may include debt securities issued by United States corporations and debt securities issued or guaranteed by the United States Government or its agencies or instrumentalities as well as zero-coupon obligations. AMSOUTH GOVERNMENT INCOME FUND seeks current income consistent with the preservation of capital. The Fund seeks to achieve this objective by investing, under normal market conditions, at least 65% of the value of its total assets in obligations issued or guaranteed by the U.S. Government its agencies or instrumentalities. AMSOUTH FLORIDA TAX-FREE FUND seeks to produce as high a level of current interest income exempt from federal income taxes and Florida intangible taxes as is consistent with the preservation of capital. The Florida Fund seeks to achieve this objective by investing in high-grade obligations. While the Florida Fund may invest in taxable obligations, under normal market conditions at least 80% of the Florida Fund's net assets will be invested in obligations exempt from both federal personal income tax and, as at year-end, the Florida intangible personal property tax. The Fund is non-diversified and therefore may invest more than 5% of its total assets in the obligations of one issuer. AMSOUTH MUNICIPAL BOND FUND seeks to produce as high a level of current interest income exempt from federal income taxes as is consistent with the preservation of capital. The Municipal Bond Fund seeks to achieve this objective by investing in high-grade obligations. While the Municipal Bond Fund may invest in taxable obligations, under normal market conditions at least 80% of the Municipal Bond Fund's net assets will be invested in obligations exempt from federal income tax. The Municipal Bond Fund is a diversified fund. AMSOUTH EQUITY FUND seeks growth of capital by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stocks. The production of income is an incidental objective. The Advisor will seek opportunities for the Equity Fund in securities that are believed to represent investment value. 51 AMSOUTH REGIONAL EQUITY FUND seeks growth of capital by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks, such as convertible bonds and convertible preferred stocks, of companies headquartered in the Southern Region of the United States. The Southern Region of the United States includes Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee and Virginia. The production of income is an incidental objective. The Advisor will seek opportunities for the Regional Equity Fund in securities that are believed to represent investment value. AMSOUTH BALANCED FUND seeks to obtain long-term capital growth and produce a reasonable amount of current income through a moderately aggressive investment strategy. The Balanced Fund seeks to achieve this objective by investing in a broadly diversified portfolio of securities, including common stocks, preferred stocks and bonds. The Advisor will seek opportunities for the Balanced Fund in securities that are believed to represent investment value. AMSOUTH CAPITAL GROWTH FUND seeks long-term capital appreciation and growth of income by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stocks. AMSOUTH SMALL CAP FUND seeks capital appreciation by investing primarily in a diversified portfolio of securities consisting of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stock. Any current income generated from these securities is incidental to the investment objective of the Fund. Under normal market conditions, the Fund will invest at least 65% of its total assets in common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stock of companies with a market capitalization of less than $1 billion. AMSOUTH EQUITY INCOME FUND seeks above average income and capital appreciation by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stock. Under normal market conditions, the Fund will invest at least 65% of its total assets in income-producing equity securities including common stock, preferred stock, and securities convertible into common stocks such as convertible bonds and convertible preferred stock. The portion of the Fund's total assets invested in common stock, preferred stock, and convertible securities will vary according to the Fund's assessment of market and economic conditions and outlook. AmSouth Bank, Birmingham, Alabama ("AmSouth"), acts as the investment advisor to each Fund of the Trust (the "Advisor"). Rockhaven Asset Management, LLC ("Rockhaven") acts as the investment sub-advisor to the Equity Income Fund ("Sub-Advisor"). Peachtree Asset Management ("Peachtree") acts as the investment sub-advisor to the Capital Growth Fund. BISYS Fund Services, Limited Partnership ("BISYS Fund Services"), Columbus, Ohio, acts as the Trust's distributor ("Distributor"). Each Fund has been divided into three classes of Shares, Premier Shares, Classic Shares and Class B Shares, except that the AmSouth U.S. Treasury Fund and the Tax-Exempt Fund are divided into Premier Shares and Classic Shares only. The following investors qualify to purchase Premier Shares: (i) investors for whom AmSouth acts in a fiduciary, advisory, custodial, agency or similar capacity through an account with its Trust Department; (ii) investors who purchase Shares of a Fund through a 401(k) plan or a 403(b) plan which by its terms permits purchases of Shares; and (iii) orders placed on behalf of other investment companies distributed by the Distributor and its affiliated companies. All other investors are eligible to purchase Classic Shares or Class B Shares only. As of the date of this Prospectus, the Small Cap Fund is not currently offering Shares. This Prospectus relates only to the Premier Shares of the Funds. Interested persons who wish to obtain a copy of the prospectuses of Classic Shares and Class B Shares of the Money Market Funds, the Income Funds and the Capital Appreciation Funds may contact the Trust's distributor at the telephone number shown above. Additional information about the Funds, contained in a Statement of Additional Information, has been filed with the Securities and Exchange Commission and is available upon request without charge by writing to the Trust at its address or by calling the Trust at the telephone number shown above. The Statement of Additional Information bears the same date as this Prospectus and is incorporated by reference in its entirety into this Prospectus. This Prospectus sets forth concisely the information about the Premier Shares of the Funds that a prospective investor ought to know before investing. Investors should read this Prospectus and retain it for future reference. THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY AMSOUTH OR ANY OF ITS AFFILIATES. THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR BY ANY OTHER AGENCY. AN INVESTMENT IN THE TRUST'S SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE ------------------------ The date of this prospectus is September 1, 1997. 52 FEE TABLE FOR THE MONEY MARKET FUNDS
PRIME AMSOUTH OBLIGATIONS U.S. TREASURY TAX FUND FUND EXEMPT FUND ----------- ------------- ----------- SHAREHOLDER TRANSACTION EXPENSES(1) Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................................................ 0% 0% 0% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)................................................ 0% 0% 0% Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as applicable)............................... 0% 0% 0% Redemption Fees (as a percentage of amount redeemed, if applicable)(2).................................................... 0% 0% 0% Exchange Fee........................................................ $0 $0 $0 ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets) Management Fees (after voluntary fee reduction for the Tax Exempt Fund)........................................................... 0.40% 0.40% 0.20%(3) 12b-1 Fees........................................................ 0% 0% 0% Other Expenses.................................................... 0.31% 0.31% 0.34% ---- ---- ---- Total Fund Operating Expenses (after voluntary fee reduction for the Tax Exempt Fund)............................................ 0.71% 0.71% 0.54%(4) ==== ==== ====
- ------------ (1) AmSouth may charge a Customer's (as defined in the Prospectus) account fees for automatic investment and other cash management services provided in connection with investment in a Money Market Fund. (See "HOW TO PURCHASE AND REDEEM SHARES--Purchases of Shares.") (2) A wire redemption charge is deducted from the amount of a wire redemption payment made at the request of a shareholder. (See "HOW TO PURCHASE AND REDEEM SHARES--Redemption by Telephone.") (3) Absent the voluntary reduction of investment advisory fees, Management Fees as a percentage of average net assets would be .40% for the Tax Exempt Fund. (See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS--INVESTMENT ADVISOR.") (4) In the absence of any voluntary reduction in investment advisory fees, Total Fund Operating Expenses for the Premier Shares of the Tax Exempt Fund would be .74%. EXAMPLE You would pay the following expenses on a $1,000 investment in Premier Shares, assuming (1) 5% annual return and (2) redemption at the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Prime Obligations Fund................................................ $7 $23 $40 $ 88 AmSouth U.S. Treasury Fund............................................ $7 $23 $40 $ 88 Tax Exempt Fund....................................................... $6 $17 $30 $ 68
Premier Shares are not subject to a 12b-1 fee and are not sold pursuant to a sales charge. The purpose of the table above is to assist a potential investor in understanding the various costs and expenses that an investor in Premier Shares of a Money Market Fund will bear directly or indirectly. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS" for a more complete discussion of annual operating expenses of the Money Market Funds. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 3 53 FEE TABLE FOR THE INCOME FUNDS
LIMITED GOVERNMENT MUNICIPAL BOND MATURITY INCOME FLORIDA BOND FUND FUND FUND FUND FUND ------- -------- ---------- ------- --------- PREMIER PREMIER PREMIER PREMIER PREMIER SHARES SHARES SHARES SHARES SHARES SHAREHOLDER TRANSACTION EXPENSES(1) Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................... 0% 0% 0% 0% 0% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)..................... 0% 0% 0% 0% 0% Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as applicable)......................................... 0% 0% 0% 0% 0% Redemption Fees (as a percentage of amount redeemed, if applicable)(2)................................... 0% 0% 0% 0% 0% Exchange Fee.......................................... $0 $0 $0 $0 $0 ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets) Management Fees (after voluntary fee reduction)(3).................. .50% .50% .30% .30% .40 12b-1 Fees............................................ .00% .00% .00% .00% .00 Other Expenses (after voluntary fee reduction)(4)..... .25% .26% .35% .29% .30 ---- ---- ---- ---- ---- Total Fund Operating Expenses (after voluntary fee reduction)(6)....................................... .75% .76% .65% .59% .70% ==== ==== ==== ==== ====
- ------------ (1) AmSouth may charge a Customer's (as defined in the Prospectus) account fees for automatic investment and other cash management services provided in connection with investment in the Fund. (See "HOW TO PURCHASE AND REDEEM SHARES--Purchases of Shares.") (2) A wire redemption charge is deducted from the amount of a wire redemption payment made at the request of a shareholder. (See "HOW TO PURCHASE AND REDEEM SHARES--Redemption by Telephone.") (3) Absent the voluntary reduction of investment advisory fees, Management Fees as a percentage of average net assets would be .65% for each Income Fund. (See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS--Investment Advisor.") (4) Absent the voluntary reduction of administration fees, Other Expenses as a percentage of average net assets would be 0.33% for the Bond Fund, 0.34% for the Limited Maturity Fund, 0.45% for the Government Income Fund and 0.39% for the Florida Fund and are estimated to be 0.38% for the Municipal Bond Fund. (See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS--Administrator and Distributor.") (5) Other expenses for the Municipal Bond Fund are based on estimated amounts for the current fiscal year. (6) In the absence of any voluntary reduction in investment advisory fees and administration fees, Total Fund Operating Expenses would be 0.98% for the Bond Fund, 0.99% for the Limited Maturity Fund, 1.10% for the Government Income Fund, 1.04% for the Florida Fund, and are estimated to be 1.03% for the Municipal Bond Fund. EXAMPLE You would pay the following expenses on a $1,000 investment in Premier Shares, assuming (1) 5% annual return and (2) redemption at the end of each time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Bond Fund............................................................. $ 8 $24 $42 $ 93 Limited Maturity Fund................................................. $ 8 $24 $42 $ 94 Government Income Fund................................................ $ 7 $21 $36 $ 81 Florida Fund.......................................................... $ 6 $19 $33 $ 74 Municipal Bond Fund................................................... $ 7 $22 N/A N/A
Premier Shares are not subject to a 12b-1 fee and are not sold pursuant to a sales charge. The purpose of the table above is to assist an investor in the Premier Shares of the Income Funds in understanding the various costs and expenses that an investor will bear directly or indirectly. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS" for a more complete discussion of annual operating expenses of the Income Funds. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 4 54 FEE TABLE FOR THE CAPITAL APPRECIATION FUNDS
REGIONAL CAPITAL EQUITY EQUITY EQUITY BALANCED GROWTH SMALL INCOME FUND FUND FUND FUND CAP FUND FUND ------- -------- -------- ------- -------- ------- PREMIER PREMIER PREMIER PREMIER PREMIER PREMIER SHARES SHARES SHARES SHARES SHARES SHARES SHAREHOLDER TRANSACTION EXPENSES(1) Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................. 0% 0% 0% 0% 0% 0% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)........................................ 0% 0% 0% 0% 0% 0% Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as applicable)................................... 0% 0% 0% 0% 0% 0% Redemption Fees (as a percentage of amount redeemed, if applicable)(2)................... 0% 0% 0% 0% 0% 0% Exchange Fee.................................... $0 $0 $0 $0 $0 $0 ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets) Management Fees................................. .80% .80% .80%(3) .80% .90% .80% 12b-1 Fees...................................... .00% .00% .00% .00% .00% .00% Other Expenses (after voluntary fee reduction)(4)................................. .22% .25% .24% .27% .27% .27% ---- ---- ---- ---- ---- ---- Total Fund Operating Expenses (after voluntary fee reductions)............................... 1.02%(5) 1.05%(5) 1.04%(3,5) 1.07% 1.17% 1.07% ==== ==== ==== ==== ==== ====
- ------------ (1) AmSouth may charge a Customer's (as defined in the Prospectus) account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (See "HOW TO PURCHASE AND REDEEM SHARES--Purchases of Shares.") (2) A wire redemption charge is deducted from the amount of a wire redemption payment made at the request of a shareholder. (See "HOW TO PURCHASE AND REDEEM SHARES--Redemption by Telephone.") (3) Amounts have been restated to reflect current fees. (4) Absent the voluntary reduction of administration fees, Other Expenses would be 0.31% for the Equity Fund, 0.33% for the Regional Equity Fund and 0.31% for the Balanced Fund. Other Expenses for the Capital Growth Fund, Small Cap Fund, and Equity Income Fund are based on estimates for the current fiscal year. (5) In the absence of any voluntary reduction of administration fees, Total Fund Operating Expenses would be 1.11% for the Equity Fund, 1.13% for the Regional Equity Fund and 1.11% for the Balanced Fund. EXAMPLE You would pay the following expenses on a $1,000 investment in Premier Shares, assuming (1) 5% annual return and (2) redemption at the end of each time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Equity Fund........................................................... $ 10 $32 $56 $125 Regional Equity Fund.................................................. $ 11 $33 $58 $128 Balanced Fund......................................................... $ 11 $33 $57 $127 Capital Growth Fund................................................... $ 11 $34 N/A N/A Small Cap Fund........................................................ $ 12 $37 N/A N/A Equity Income Fund.................................................... $ 11 $34 N/A N/A
Premier Shares are not subject to a 12b-1 fee and are not sold pursuant to a sales charge. The purpose of the table above is to assist a potential investor in understanding the various costs and expenses that an investor in Premier Shares of a Capital Appreciation Fund will bear directly or indirectly. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS" for a more complete discussion of annual operating expenses of the Capital Appreciation Funds. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 5 55 FINANCIAL HIGHLIGHTS The tables below set forth certain financial information concerning the investment results for each of the Funds for the period of commencement of operations to January 31, 1997. The information from the commencement of operations to July 31, 1996 is a part of the financial statements audited by Coopers & Lybrand L.L.P., independent accountants for the Trust, whose report on the Trust's financial statements for the year ended July 31, 1996 appears in the Statement of Additional Information. The information for the period ended January 31, 1997 is unaudited. The Municipal Bond Fund, Capital Growth Fund, Small Cap Fund and Equity Income Fund had not commenced operations as of January 31, 1997. Further financial data is incorporated by reference into the Statement of Additional Information.
PRIME OBLIGATIONS FUND SIX ---------------------------------------------------------------------------- MONTHS ENDED YEAR ENDED JULY 31, JANUARY 31, ---------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 1991 1990 ----------- ---------- -------- -------- -------- -------- -------- -------- PREMIER(b) PREMIER(b) ----------- ---------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ----------- ---------- -------- -------- -------- -------- -------- -------- INVESTMENT ACTIVITIES Net investment income........... 0.024 0.016 0 .050 0.029 0.027 0.042 0.067 0.079 ----------- ---------- -------- -------- -------- -------- -------- -------- DISTRIBUTIONS Net investment income........... (0.024) (0.016) (0.050) (0.029) (0.027) (0.042) (0.067) (0.079) ----------- ---------- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ============ =========== ========= ========= ========= ========= ========= ========= Total Return.................... 2.46%(d) 5.10% 5.14% 2.94% 2.76% 4.28% 6.87% 8.16% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)............... $ 450,867 $478,542 $617,673 $577,331 $456,428 $457,511 $307,873 $298,498 Ratio of expenses to average net assets........................ 0.68%(c) 0.71% 0.69% 0.70% 0.71% 0.71% 0.72% 0.70% Ratio of net investment income to average net assets......... 4.83%(c) 5.01% 5.04% 2.92% 2.73% 4.08% 6.61% 7.88% Ratio of expenses to average net assets*....................... (e) (e) (e) (e) (e) (e) (e) 0.72% Ratio of net investment income to average net assets*........ (e) (e) (e) (e) (e) (e) (e) 7.86% AUGUST 8, 1988 TO JULY 31, 1989(a) ---------- NET ASSET VALUE, BEGINNING OF PERIOD.......................... $ 1.000 ---------- INVESTMENT ACTIVITIES Net investment income........... 0.084 ---------- DISTRIBUTIONS Net investment income........... (0.084) ---------- NET ASSET VALUE, END OF PERIOD... $ 1.000 ========== Total Return.................... 8.72%(d) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)............... $293,749 Ratio of expenses to average net assets........................ 0.58%(c) Ratio of net investment income to average net assets......... 8.69%(c) Ratio of expenses to average net assets*....................... 0.71%(c) Ratio of net investment income to average net assets*........ 8.56%(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) Period from commencement of operations. (b) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Premier Shares, and the Fund Commenced offering Classic Shares. (c) Annualized. (d) Not annualized. (e) There were no waivers during the period. 6 56
AMSOUTH U.S. TREASURY FUND ---------------------------------------------------------------------------- SIX MONTHS SEPTEMBER 8, ENDED YEAR ENDED JULY 31, 1988 TO JANUARY 31, ---------------------------------------------------------------------------- JULY 31, 1997 1996 1995 1994 1993 1992 1991 1990 1989(a) ----------- ---------- -------- -------- -------- -------- -------- -------- ------------ PREMIER(b) PREMIER(b) ----------- ---------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD............ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ----------- ---------- -------- -------- -------- -------- -------- -------- ------------ INVESTMENT ACTIVITIES Net investment income.......... 0.023 0.015 0.048 0.028 0.027 0.041 0.064 0.077 0.075 ----------- ---------- -------- -------- -------- -------- -------- -------- ------------ DISTRIBUTIONS Net investment income.......... (0.023) (0.015) (0.048) (0.028) (0.027) (0.041) (0.064) (0.077) (0.075) ----------- ---------- -------- -------- -------- -------- -------- -------- ------------ NET ASSET VALUE, END OF PERIOD..... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ============ =========== ========= ========= ========= ========= ========= ========= ============ Total Return....... 2.33%(d) 4.93% 4.90% 2.80% 2.69% 4.15% 6.58% 8.04% 7.75%(d) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)........... $ 312,929 $368,162 $322,939 $300,603 $404,473 $339,666 $343,967 $239,291 $131,956 Ratio of expenses to average net assets.......... 0.70%(c) 0.71% 0.70% 0.71% 0.72% 0.73% 0.72% 0.68% 0.61%(c) Ratio of net investment income to average net assets...... 4.58%(c) 4.82% 4.81% 2.77% 2.66% 4.08% 6.28% 7.73% 8.31%(c) Ratio of expenses to average net assets*......... (e) (e) (e) (e) (e) (e) (e) 0.73% 0.74%(c) Ratio of net investment income to average net assets*..... (e) (e) (e) (e) (e) (e) (e) 7.68% 8.18%(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) Period from commencement of operations. (b) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Premier Shares, and the Fund commenced offering Classic Shares. (c) Annualized. (d) Not annualized. (e) There were no waivers during the period. 7 57
TAX EXEMPT FUND -------------------------------------------------------------- SIX MONTHS JUNE 27, ENDED YEAR ENDED JULY 31, 1988 TO JANUARY 31, -------------------------------------------------------------- JULY 31, 1997 1996 1995 1994 1993 1992 1991 1990(a) ----------- ------- ------- ------- ------- ------- ------- -------- PREMIER(b) PREMIER(b) ----------- ------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD............................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 -------- -------- -------- -------- -------- -------- -------- -------- INVESTMENT ACTIVITIES Net investment income.............. 0.015 0.010 0.032 0.019 0.021 0.030 0.046 0.011 -------- -------- -------- -------- -------- -------- -------- -------- DISTRIBUTIONS Net investment income.............. (0.015) (0.010) (0.032) (0.019) (0.021) (0.030) (0.046) (0.011) -------- -------- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD...... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ======== ======== ======== ======== ======== ======== ======== ======== Total Return....................... 1.55%(d) 3.15% 3.22% 1.95% 2.16% 3.12% 4.69% 0.54%(d) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)............................ $66,974 $43,611 $57,640 $60,923 $48,151 $38,392 $25,400 $28,246 Ratio of expenses to average net assets........................... 0.51%(c) 0.54% 0.54% 0.57% 0.49% 0.65% 0.52% 0.21%(c) Ratio of net investment income to average net assets............ 3.07%(c) 3.11% 3.15% 1.93% 2.12% 2.98% 4.59% 5.70%(c) Ratio of expenses to average net assets*.......................... 0.71%(c) 0.74% 0.74% 0.77% 0.78% 0.77% 0.77% 0.81%(c) Ratio of net investment income to average net assets*........... 2.87%(c) 2.91% 2.95% 1.73% 1.83% 2.86% 4.34% 5.10%(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) Period from commencement of operations. (b) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Premier Shares, and the Fund commenced offering Classic Shares. (c) Annualized. (d) Not annualized. 8 58
BOND FUND -------------------------------------------------------------------- SIX MONTHS DECEMBER 1, ENDED YEAR ENDED JULY 31, 1988 TO JANUARY 31, -------------------------------------------------------------------- JULY 31, 1997 1996 1995 1994 1993 1992 1991 1990 1989(a) ----------- -------- ------- ------- ------- ------- ------- ------- ----------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD...................... $ 10.54 $ 10.83 $ 10.59 $ 11.29 $ 11.29 $ 10.42 $ 10.39 $ 10.61 $ 10.00 ----------- -------- ------- ------- ------- ------- ------- ------- ----- INVESTMENT ACTIVITIES Net investment income....... 0.32 0.65 0.69 0.69 0.71 0.74 0.74 0.77 0.50 Net realized and unrealized gains (losses) from investments............... 0.15 (0.18) 0.28 (0.66) 0.33 0.91 0.05 (0.21) 0.56 ----------- -------- ------- ------- ------- ------- ------- ------- ----- Total from Investment Activities................ 0.47 0.47 0.97 0.03 1.04 1.65 0.79 0.56 1.06 ----------- -------- ------- ------- ------- ------- ------- ------- ----- DISTRIBUTIONS Net investment income....... (0.36) (0.65) (0.69) (0.70) (0.71) (0.73) (0.74) (0.75) (0.45) Net realized gains.......... -- -- (0.04) (0.03) (0.33) (0.05) (0.02) (0.03) -- ----------- -------- ------- ------- ------- ------- ------- ------- ----- In excess of net realized gain...................... -- (0.11) -- -- -- -- -- -- -- ----------- -------- ------- ------- ------- ------- ------- ------- ----- Total Distributions......... (0.36) (0.76) (0.73) (0.73) (1.04) (0.78) (0.76) (0.78) (0.45) ----------- -------- ------- ------- ------- ------- ------- ------- ----- NET ASSET VALUE, END OF PERIOD...................... $ 10.65 $ 10.54 $ 10.83 $ 10.59 $ 11.29 $ 11.29 $ 10.42 $ 10.39 $ 10.61 ============ ========= ======== ======== ======== ======== ======== ======== ============= Total Return (Excludes Sales Charge)... 4.53%(c) 4.40% 9.70% 0.23% 9.80% 16.41% 7.99% 5.54% 10.91%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)..................... $ 132,112 $132,737 $94,671 $79,472 $65,777 $60,156 $26,008 $17,518 $ 4,954 Ratio of expenses to average net assets................ 0.75%(b) 0.75% 0.75% 0.78% 0.78% 0.82% 0.93% 0.84% 1.10%(b) Ratio of net investment income to average net assets................ 6.03%(b) 6.12% 6.63% 6.31% 6.37% 6.94% 7.26% 7.82% 7.47%(b) Ratio of expenses to average net assets*............... 0.98%(b) 0.98% 0.98% 1.01% 1.01% 1.01% 1.11% 1.21% 2.28%(b) Ratio of net investment income to average net assets*................... 5.80%(b) 5.89% 6.40% 6.08% 6.14% 6.75% 7.09% 7.45% 6.29%(b) PORTFOLIO TURNOVER........... 11.20% 9.60% 17.70% 30.90% 14.98% 240.64% 181.77% 53.52% 0.00%
- ------------ * 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) Annualized. (c) Not annualized. 9 59
LIMITED MATURITY FUND ------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JULY 31, JANUARY 31, ------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 1991 ---------------- ------- ------- ------- ------- ------- ------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD.. $ 10.31 $ 10.41 $ 10.23 $ 10.81 $ 10.81 $ 10.44 $ 10.29 ------- ------- ------- ------- ------- ------- ------- INVESTMENT ACTIVITIES Net investment income................ 0.30 0.58 0.58 0.54 0.60 0.70 0.73 Net realized and unrealized gains (losses) from investments.......... 0.04 (0.10) 0.17 (0.45) 0.09 0.45 0.17 ------- ------- ------- ------- ------- ------- ------- Total from Investment Activities..... 0.34 0.48 0.75 0.09 0.69 1.15 0.90 ------- ------- ------- ------- ------- ------- ------- DISTRIBUTIONS Net investment income................ (0.33) (0.57) (0.57) (0.54) (0.61) (0.69) (0.73) In excess of net investment income... -- (0.01) -- -- -- -- -- Net realized gains................... -- -- -- -- (0.08) (0.09) (0.02) In excess of net realized gains...... -- -- -- (0.13) -- -- -- ------- ------- ------- ------- ------- ------- ------- Total Distributions.................. (0.33) (0.58) (0.57) (0.67) (0.69) (0.78) (0.75) ------- ------- ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD........ $ 10.32 $ 10.31 $ 10.41 $ 10.23 $ 10.81 $ 10.81 $ 10.44 ======= ======= ======= ======= ======= ======= ======= Total Return (Excludes Sales Charge)............................ 3.29%(c) 4.74% 7.65% 0.77% 6.72% 11.48% 9.06% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000).... $ 41,087 $46,005 $59,798 $51,660 $53,933 $38,206 $11,112 Ratio of expenses to average net assets............................. 0.77%(b) 0.76% 0.80% 0.79% 0.69% 0.68% 0.85% Ratio of net investment income to average net assets................. 5.56%(b) 5.48% 5.69% 5.05% 5.67% 6.78% 7.19% Ratio of expenses to average net assets*............................ 1.00%(b) 0.99% 1.03% 1.02% 1.03% 1.03% 1.20% Ratio of net investment income to average net assets*................ 5.33%(b) 5.25% 5.46% 4.82% 5.33% 6.43% 6.84% PORTFOLIO TURNOVER.................... 42.36% 29.56% 38.11% 48.06% 141.27% 35.64% 85.08% FEBRUARY 1, 1988 TO JULY 31, 1990 1989(a) ------ ----------- NET ASSET VALUE, BEGINNING OF PERIOD.. $10.35 $ 10.00 ------- ------- INVESTMENT ACTIVITIES Net investment income................ 0.72 0.35 Net realized and unrealized gains (losses) from investments.......... (0.05) 0.32 ------- ------- Total from Investment Activities..... 0.67 0.67 ------- ------- DISTRIBUTIONS Net investment income................ (0.70) (0.32) In excess of net investment income... -- -- Net realized gains................... (0.03) -- In excess of net realized gains...... -- -- ------- ------- Total Distributions.................. (0.73) (0.32) ------- ------- NET ASSET VALUE, END OF PERIOD........ $10.29 $ 10.35 ======= ======= Total Return (Excludes Sales Charge)............................ 6.80% 6.87%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000).... $5,983 $ 3,165 Ratio of expenses to average net assets............................. 1.02% 1.41%(b) Ratio of net investment income to average net assets................. 7.23% 6.82%(b) Ratio of expenses to average net assets*............................ 1.45% 2.72%(b) Ratio of net investment income to average net assets*................ 6.80% 5.51%(b) PORTFOLIO TURNOVER.................... 119.69% 28.28%
- ------------ * 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) Annualized. (c) Not annualized. 10 60
GOVERNMENT INCOME FUND -------------------------------------- YEAR ENDED SIX MONTHS ENDED JULY 31, OCTOBER 1, 1993 JANUARY 31, ------------------ TO JULY 31, 1997 1996 1995 1994(a) ---------------- ------- ------- --------------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD......... $ 9.40 $ 9.54 $ 9.48 $ 10.00 ------- ------- ------- ------- INVESTMENT ACTIVITIES Net investment income...................... 0.26 0.66 0.68 0.54 Net realized and unrealized gains (losses) from investments........................ 0.20 (0.20) 0.08 (0.57) ------- ------- ------- ------- Total from Investment Activities........... 0.46 0.46 0.76 (0.03) ------- ------- ------- ------- DISTRIBUTIONS Net investment income...................... (0.27) (0.59) (0.70) (0.33) Tax return of capital...................... -- (0.01) -- (0.16) ------- ------- ------- ------- Total Distributions........................ (0.27) (0.60) (0.70) (0.49) ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD............... $ 9.59 $ 9.40 $ 9.54 $ 9.48 ======= ======= ======= ======= Total Return (Excludes Sales Charge)....... 4.95%(c) 4.91% 8.43% (0.26)%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000).......... $ 13,762 $15,752 $16,679 $15,465 Ratio of expenses to average net assets.... 0.72%(b) 0.65% 0.58% 0.37%(b) Ratio of net investment income to average net assets.............................. 5.49%(b) 6.81% 7.18% 6.56%(b) Ratio of expenses to average net assets*... 1.17%(b) 1.10% 1.19% 1.22%(b) Ratio of net investment income to average net assets*............................. 5.04%(b) 6.36% 6.57% 5.71%(b) PORTFOLIO TURNOVER........................... 2.65% 78.31% 27.32% 122.94%
- ------------ * 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) Annualized. (c) Not annualized. 11 61
FLORIDA TAX-FREE FUND ---------------------------------------------------- SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30, 1994 JANUARY 31, JULY 31, TO JULY 31, 1997 1996 1995(a) ---------------- ---------- ------------------ (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 10.30 $ 10.32 $ 10.00 ---------------- ---------- ---------- INVESTMENT ACTIVITIES Net investment income........................... 0.22 0.45 0.34 Net realized and unrealized gains (losses) from investments.................................. 0.05 (0.01) 0.30 ---------------- ---------- ---------- Total from Investment Activities................ 0.27 0.44 0.64 ---------------- ---------- ---------- DISTRIBUTIONS Net investment income........................... (0.25) (0.45) (0.32) Net realized gains.............................. (0.01) (0.01) -- ---------------- ---------- ---------- Total Distributions............................. (0.26) (0.46) (0.32) ---------------- ---------- ---------- NET ASSET VALUE, END OF PERIOD.................... $ 10.31 $ 10.30 $ 10.32 ============= ======== ============== Total Return (Excludes Sales Charge).............. 2.71%(c) 4.24% 6.53%(c) RATIOS/SUPPLEMENTAL DATA: Net Asset at end of period (000)................ $ 52,825 $ 48,869 $ 48,333 Ratio of expenses to average net assets......... 0.54%(b) 0.59% 0.70%(b) Ratio of net investment income to average net assets....................................... 4.35%(b) 4.33% 4.16%(b) Ratio of expenses to average net assets*........ 0.99%(b) 1.04% 1.01%(b) Ratio of net investment income to average net assets*...................................... 3.90%(b) 3.88% 3.86%(b) PORTFOLIO TURNOVER................................ 2.30% 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) Period from commencement of operations. (b) Annualized. (c) Not annualized. 12 62
EQUITY FUND ------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JULY 31, JANUARY 31, ------------------------------------------------------------------------ 1997 1996 1995 1994 1993 1992 1991 ---------------- -------- -------- -------- -------- -------- ------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD....................... $ 17.62 $ 16.75 $ 14.82 $ 14.38 $ 13.40 $ 12.57 $ 11.99 -------- -------- -------- -------- -------- -------- ------- INVESTMENT ACTIVITIES Net Investment income........ 0.16 0.33 0.33 0.28 0.28 0.32 0.36 Net realized and unrealized gains from investments..... 2.30 1.48 2.39 0.83 1.48 1.20 0.61 -------- -------- -------- -------- -------- -------- ------- Total from Investment Activities................. 2.46 1.81 2.72 1.11 1.76 1.52 0.97 -------- -------- -------- -------- -------- -------- ------- DISTRIBUTIONS Net investment income........ (0.17) (0.33) (0.32) (0.28) (0.29) (0.33) (0.37) Net realized gains........... (1.04) (0.61) (0.47) (0.39) (0.49) (0.36) (0.02) -------- -------- -------- -------- -------- -------- ------- Total Distributions.......... (1.21) (0.94) (0.79) (0.67) (0.78) (0.69) (0.39) -------- -------- -------- -------- -------- -------- ------- NET ASSET VALUE, END OF PERIOD....................... $ 18.87 $ 17.62 $ 16.75 $ 14.82 $ 14.38 $ 13.40 $ 12.57 ======== ======== ======== ======== ======== ======== ======= Total Return (Excludes Sales Charge)...................... 14.32%(c) 11.09% 19.27% 7.90% 13.81% 12.94% 8.46% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)...................... $419,009 $374,622 $275,757 $205,611 $153,074 $107,934 $32,406 Ratio of expenses to average net assets................. 1.01%(b) 1.02% 1.03% 0.94% 0.95% 1.01% 1.15% Ratio of net investment income to average net assets..................... 1.71%(b) 1.86% 2.17% 1.93% 2.08% 2.50% 3.16% Ratio of expenses to average net assets*................ 1.09%(b) 1.11% 1.11% 1.11% 1.13% 1.15% 1.26% Ratio of net investment income to average net assets*.................... 1.63%(b) 1.77% 2.09% 1.76% 1.90% 2.36% 3.04% PORTFOLIO TURNOVER............ 11.94% 19.11% 19.46% 11.37% 15.12% 113.12% 15.78% Average commission rate paid(d).................... $ 0.0668 $ 0.0700 -- -- -- -- -- DECEMBER 1, 1988 TO JULY 31, 1990 1989(a) ------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD....................... $ 12.18 $ 10.00 ------- ------ INVESTMENT ACTIVITIES Net Investment income........ 0.37 0.22 Net realized and unrealized gains from investments..... (0.17) 2.16 ------- ------ Total from Investment Activities................. 0.20 2.38 ------- ------ DISTRIBUTIONS Net investment income........ (0.35) (0.20) Net realized gains........... (0.04) -- ------- ------ Total Distributions.......... (0.39) (0.20) ------- ------ NET ASSET VALUE, END OF PERIOD....................... $ 11.99 $ 12.18 ======= ====== Total Return (Excludes Sales Charge)...................... 1.66% 24.06%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)...................... $14,383 $ 5,476 Ratio of expenses to average net assets................. 1.11% 1.16%(b) Ratio of net investment income to average net assets..................... 3.16% 2.91%(b) Ratio of expenses to average net assets*................ 1.41% 2.34%(b) Ratio of net investment income to average net assets*.................... 2.86% 1.73%(b) PORTFOLIO TURNOVER............ 14.89% 4.03% Average commission rate paid(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) Period from commencement of operations. (b) Annualized. (c) Not annualized. (d) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of shares purchased and sold by the Fund for which commissions were charged. 13 63
REGIONAL EQUITY FUND ----------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JULY 31, JANUARY 31, ----------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 1991 1990 ---------------- ------- ------- ------- ------- ------- ------ ------ (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD............. $ 20.95 $ 18.94 $ 16.68 $ 16.74 $ 14.86 $ 13.44 $12.45 $11.64 ------- ------- ------- ------- ------- ------- ------ ------ INVESTMENT ACTIVITIES Net investment income........... 0.15 0.26 0.23 0.23 0.19 0.23 0.26 0.23 Net realized and unrealized gains from investments...... 3.79 2.20 2.26 0.58 2.09 2.34 1.20 0.84 ------- ------- ------- ------- ------- ------- ------ ------ Total from Investment Activities....... 3.94 2.46 2.49 0.81 2.28 2.57 1.46 1.07 ------- ------- ------- ------- ------- ------- ------ ------ DISTRIBUTIONS Net investment income........... (0.15) (0.26) (0.23) (0.23) (0.20) (0.23) (0.26) (0.22) Net realized gains............ (0.49) (0.19) -- (0.41) (0.20) (0.92) (0.21) (0.04) ------- In excess of net realized gains... -- -- -- (0.23) -- -- -- -- ------- ------- ------- ------- ------- ------- ------ ------ Total Distributions.... (0.64) (0.45) (0.23) (0.87) (0.40) (1.15) (0.47) (0.26) ------- ------- ------- ------- ------- ------- ------ ------ NET ASSET VALUE, END OF PERIOD.......... $ 24.25 $ 20.95 $ 18.94 $ 16.68 $ 16.74 $ 14.86 $13.44 $12.45 =================== ======== ======== ======== ======== ======== ======= ======= Total Return (Excludes Sales Charge).......... 18.96%(c) 13.10% 15.10% 4.87% 15.53% 20.66% 12.52% 9.41% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)............ $120,448 $93,584 $68,501 $54,744 $41,347 $15,707 $7,853 $3,161 Ratio of expenses to average net assets........... 1.03%(b) 1.05% 1.07% 0.79% 0.80% 0.91% 0.79% 1.22% Ratio of net investment income to average net assets........... 1.22%(b) 1.30% 1.35% 1.36% 1.17% 1.61% 2.21% 1.92% Ratio of expenses to average net assets*.......... 1.11%(b) 1.13% 1.15% 1.24% 1.28% 1.36% 1.58% 2.32% Ratio of net investment income to average net assets*.......... 1.14%(b) 1.22% 1.27% 0.90% 0.69% 1.16% 1.42% 0.82% PORTFOLIO TURNOVER........... 7.45% 8.22% 14.25% 5.83% 10.22% 24.99% 14.41% 14.00% Average commission rate paid(d)..... $ 0.0829 $0.0827 -- -- -- -- -- -- DECEMBER 1, 1988 TO JULY 31, 1989(a) ----------- NET ASSET VALUE, BEGINNING OF PERIOD............. $ 10.00 ----- INVESTMENT ACTIVITIES Net investment income........... 0.14 Net realized and unrealized gains from investments...... 1.64 ----- Total from Investment Activities....... 1.78 ----- DISTRIBUTIONS Net investment income........... (0.14) Net realized gains............ -- ----- In excess of net realized gains... -- ----- Total Distributions.... (0.14) ----- NET ASSET VALUE, END OF PERIOD.......... $ 11.64 ============= Total Return (Excludes Sales Charge).......... 17.79%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)............ $ 2,523 Ratio of expenses to average net assets........... 1.41%(b) Ratio of net investment income to average net assets........... 1.98%(b) Ratio of expenses to average net assets*.......... 2.65%(b) Ratio of net investment income to average net assets*.......... 0.74%(b) PORTFOLIO TURNOVER........... 1.13% Average commission rate paid(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) Period from commencement of operations. (b) Annualized. (c) Not annualized. (d) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of shares purchased and sold by the Fund for which commissions were charged. 14 64
BALANCED FUND -------------------------------------------- DECEMBER 19, SIX MONTHS ENDED YEAR ENDED JULY 31, 1991 TO JANUARY 31, -------------------------------------------- JULY 31, 1997 1996 1995 1994 1993 1992(a) ---------------- -------- -------- -------- -------- ------------ (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD.............................. $ 13.03 $ 12.76 $ 11.81 $ 11.86 $ 11.12 $ 10.00 -------- -------- -------- -------- -------- ------------ INVESTMENT ACTIVITIES Net Investment income............... 0.25 0.47 0.47 0.42 0.44 0.27 Net realized and unrealized gains from investments.................. 0.99 0.58 1.24 0.18 0.80 1.09 -------- -------- -------- -------- -------- ------------ Total from Investment Activities.... 1.24 1.05 1.71 0.60 1.24 1.36 -------- -------- -------- -------- -------- ------------ DISTRIBUTIONS Net investment income............... (0.27) (0.47) (0.46) (0.42) (0.45) (0.24) Net realized gains.................. (0.58) (0.31) (0.30) (0.23) (0.05) -- -------- -------- -------- -------- -------- ------------ Total Distributions................. (0.85) (0.78) (0.76) (0.65) (0.50) (0.24) -------- -------- -------- -------- -------- ------------ NET ASSET VALUE, END OF PERIOD........ $ 13.42 $ 13.03 $ 12.76 $ 11.81 $ 11.86 $ 11.12 =============== ======== ======== ======== ======== ============ Total Return (Excludes Sales Charge)........................... 9.73%(c) 8.37% 15.27% 5.13% 11.47% 13.71%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)... $355,980 $338,425 $295,509 $236,306 $179,134 $143,813 Ratio of expenses to average net assets............................ 1.02%(b) 0.98% 0.94% 0.84% 0.84% 0.83%(b) Ratio of net investment income to average net assets................ 3.62%(b) 3.61% 3.91% 3.56% 3.90% 4.45%(b) Ratio of expenses to average net assets*........................... 1.10%(b) 1.11% 1.12% 1.11% 1.12% 1.17%(b) Ratio of net investment income to average net assets*............... 3.54%(b) 3.48% 3.73% 3.28% 3.62% 4.10%(b) PORTFOLIO TURNOVER.................... 13.57% 20.47% 16.97% 14.43% 11.09% 23.18% Average commission rate paid(d)..... $ 0.0760 $ 0.0773 -- -- -- --
- ------------ * 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) Annualized. (c) Not annualized. (d) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of shares purchased and sold by the Fund for which commissions were charged. 15 65
EQUITY INCOME FUND ------------------ SIX MONTHS ENDED JULY 31, 1997 ------------------ (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD................................... $ 10.00 ---------- INVESTMENT ACTIVITIES Net investment income................................................ 0.07 Net realized and unrealized gains from investments................... 1.71 ---------- Total from Investment Activities..................................... 1.78 ---------- DISTRIBUTIONS Net investment income................................................ (0.06) Net realized gains................................................... 0.00 ---------- Total Distributions.................................................. (0.06) ---------- NET ASSET VALUE, END OF PERIOD......................................... $ 11.72 ============== Total Return (Excludes Sales Charge)................................. 17.81%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000).................................... $ 22,273 Ratio of expenses to average net assets.............................. 1.28%(b) Ratio of net investment income to average net assets................. 2.11%(b) Ratio of expenses to average net assets*............................. 1.49%(b) Ratio of net investment income to average net assets*................ 1.89%(b) PORTFOLIO TURNOVER..................................................... 27.38% Average commission rate paid(d)...................................... $ 0.0600
- ------------ * 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) Annualized. (c) Not annualized. (d) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of shares purchased and sold by the Fund for which commissions were charged. 16 66 INVESTMENT OBJECTIVE AND POLICIES The investment objective of each Fund is fundamental and may not be changed without a vote of a majority of the outstanding Shares of that Fund (as defined below under "GENERAL INFORMATION--Miscellaneous" in this prospectus). There can be, of course, no assurance that any Fund will achieve its investment objective. THE PRIME OBLIGATIONS AND AMSOUTH U.S. TREASURY FUNDS The investment objective of the Prime Obligations Fund and the AmSouth U.S. Treasury Fund is to seek current income with liquidity and stability of principal. Although the Prime Obligations Fund and the AmSouth U.S. Treasury Fund have the same Advisor and the same investment objective, their particular portfolio securities and yield will ordinarily differ due to differences in the types of investments permitted, cash flow, and the availability of particular portfolio investments. Market conditions and interest rates may affect the types and yields of securities held in each Fund. Changes in prevailing interest rates may affect the yield, and possibly the net asset value, of each Fund. Each Money Market Fund invests only in those securities and instruments considered by the Advisor to present minimal credit risks under guidelines established by the Trust's Board of Trustees. All securities or instruments in which each of the Money Market Funds invest have remaining maturities of 397 days or less, although instruments subject to repurchase agreements may bear longer maturities. The dollar-weighted average maturity of the securities in each Money Market Fund will not exceed 90 days. THE PRIME OBLIGATIONS FUND invests in U.S. dollar-denominated, high-quality short-term debt instruments. Investments will be limited to those obligations which, at the time of purchase, (i) possess the highest short-term rating from at least two nationally recognized statistical rating organizations (an "NRSRO") (for example, commercial paper rated "A-1" by Standard & Poor's Corporation and "P-1" by Moody's Investors Service, Inc.) or one NRSRO if only rated by one NRSRO or (ii) do not possess a rating (i.e., are unrated) but are determined to be of comparable quality to the rated instruments eligible for purchase by the Fund under the guidelines adopted by the Trustees. The Statement of Additional Information contains further information concerning the rating and other requirements governing the Prime Obligation Fund's investments, including information relating to the treatment of securities subject to a tender or demand feature and securities deemed to possess a rating based on comparable rated securities of the same issuer. The Statement also identifies the NRSROs that may be utilized by the Advisor with respect to portfolio investments for the Fund and provides a description of the relevant ratings assigned by each such NRSRO. The Prime Obligations Fund will invest in a variety of U.S. Treasury obligations, differing in their interest rates, maturities, and times of issuance, and other obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities. Obligations of certain agencies and instrumentalities of the U.S. Government, such as the Government National Mortgage Association and the Export-Import Bank of the United States, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal National Mortgage Association, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Student Loan Marketing Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Farm Credit Bank or the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored agencies or instrumentalities if it is not obligated to do so by law. The Prime Obligations Fund will invest in the obligations of such agencies or instrumentalities only when the Advisor believes that the credit risk with respect thereto is minimal. 17 67 The Prime Obligations Fund may invest in bankers' acceptances guaranteed by domestic and foreign banks if at the time of investment the guarantor bank has capital, surplus, and undivided profits in excess of $100,000,000 (as of the date of its most recently published financial statements). The Prime Obligations Fund may invest in certificates of deposit and demand and time deposits of domestic and foreign banks and savings and loan associations if (a) at the time of investment the depository institution has capital, surplus, and undivided profits in excess of $100,000,000 (as of the date of their most recently published financial statements) or (b) the principal amount of the instrument is insured in full by the Federal Deposit Insurance Corporation. Variable amount master demand notes in which the Prime Obligations Fund may invest are unsecured demand notes that permit the indebtedness thereunder to vary, and that provide for periodic adjustments in the interest rate according to the terms of the instrument. Because master demand notes are direct lending arrangements between the Prime Obligations Fund and the issuer, they are not normally traded. Although there is no secondary market in the notes, the Prime Obligations Fund may demand payment of principal and accrued interest at any time. While the notes are not typically rated by credit rating agencies, issuers of variable amount master demand notes (which are normally manufacturing, retail, financial, and other business concerns) must satisfy the same criteria as to quality as set forth above for commercial paper. The Advisor will consider the earning power, cash flow, and other liquidity ratios of the issuers of such notes and will continuously monitor their financial status and ability to meet payment on demand. In determining average weighted portfolio maturity, a variable amount master demand note will be deemed to have a maturity equal to the period of time remaining until the principal amount can be recovered from the issuer through demand. The period of time remaining until the principal amount can be recovered under a variable master demand note may not exceed seven days. The Prime Obligations Fund may invest in the securities of other money market funds that have similar policies and objectives, invest in securities of equal or higher short-term ratings, and are in compliance with Rule 2a-7 under the Investment Company Act of 1940. The Prime Obligations Fund may also invest in short-term municipal obligations. THE AMSOUTH U.S. TREASURY FUND invests exclusively in short-term United States dollar-denominated obligations issued by the U.S. Treasury. Such obligations may include "stripped" U.S. Treasury obligations such as Treasury Receipts issued by the U.S. Treasury representing either future interest or principal payments. Stripped Treasury Securities are sold at a deep discount because the buyer of those securities receives only the right to receive a future fixed payment on the security and does not receive any rights to periodic interest payments on the security. These securities may exhibit greater price volatility then ordinary debt securities because of the manner in which their principal and interest are returned to investors. Obligations purchased by the AmSouth U.S. Treasury Fund may be subject to repurchase agreements collateralized by the underlying U.S. Treasury obligation. THE BOND FUND AND LIMITED MATURITY FUND THE BOND FUND seeks current income consistent with the preservation of capital. The Bond Fund invests in long-term bonds and other fixed-income securities. The Bond Fund's investments primarily consist of, but are not limited to, debt obligations such as bonds, notes and debentures, which are issued by United States corporations or issued or guaranteed by the United States Government or its agencies or instrumentalities. The Bond Fund invests in debt securities only if they are rated at time of purchase in one of the three highest rating categories by an NRSRO, or including all subclassifications indicated by modifiers of such "A" ratings. See "Appendix" to the Statement of Additional Information for an explanation of these ratings. 18 68 The Bond Fund invests in fixed-income securities with a maturity in excess of one year, except for amounts held in cash equivalents. Fixed-income securities can have maturities of thirty years or more. The Bond Fund will invest at least 65% of the value of its total assets in bonds (including debentures), except that, when market conditions indicate a temporary defensive investment strategy as determined by the Advisor, more than 35% of the Bond Fund's total assets may be held in cash and cash equivalents. "Cash equivalents" are short-term, interest-bearing instruments or deposits. The purpose of cash equivalents is to provide income at money market rates while minimizing the risk of decline in value to the maximum extent possible. The instruments may include, but are not limited to, commercial paper, certificates of deposit, repurchase agreements, bankers' acceptances, United States Treasury Bills, bank money market deposit accounts and money market mutual funds. The Bond Fund will purchase commercial paper rated at the time of purchase in the highest rating category by an NRSRO or, if not rated, found by the Advisor under guidelines established by the Trust's Board of Trustees to be of comparable quality. See "Appendix" to the Statement of Additional Information for an explanation of these ratings. THE LIMITED MATURITY FUND seeks current income consistent with the preservation of capital. The Limited Maturity Fund invests 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 Limited Maturity Fund to require the issuer of the security to redeem the security within five years from the date of purchase by the Limited Maturity Fund or for which the Limited Maturity Fund has acquired an unconditional "put" to sell the security within five years from the date of purchase by the Limited Maturity Fund. The Limited Maturity Fund's investments consist primarily of, but are not limited to, debt securities such as bonds, notes and debentures, which are issued by United States corporations or issued or guaranteed by the United States Government or its agencies or instrumentalities. The Limited Maturity Fund invests in debt securities only if they are rated at time of purchase in one of the three highest rating categories by an NRSRO or, if not rated, found by the Advisor under guidelines established by the Trust's Board of Trustees to be of comparable quality. See "Appendix" to the Statement of Additional Information for an explanation of these ratings. Under normal circumstances, the Limited Maturity Fund will invest at least 65% of the value 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 Limited Maturity Fund to require the issuer of the security to redeem the security within five years from the date of purchase by The Limited Maturity Fund or for which the Limited Maturity Fund has acquired an unconditional "put" to sell the security within five years from the date of purchase by the Limited Maturity Fund. The remainder of the Limited Maturity Fund's assets will be invested in cash, cash equivalents and government and corporate bonds, including without limitation cash or money-market instruments, commercial paper, certificates of deposit, repurchase agreements, bankers' acceptances, U.S. Treasury Bills, obligations of the U.S. Government and its agencies, bank money market deposit accounts and money market mutual funds. The Limited Maturity Fund will purchase commercial paper rated at the time of purchase in the highest rating category by an NRSRO or, if not rated, found by the Advisor under guidelines established by the Trust's Board of Trustees to be of comparable quality. See "Appendix" to the Statement of Additional Information for an explanation of these ratings. At times, the Advisor may determine that it is not in the best interests of Shareholders of the Limited Maturity Fund to invest 65% of The Limited Maturity Fund's total assets in bonds, debentures, notes and other debt securities. At such times, the Fund may follow the temporary defensive investment strategy of investing more than 35% of its total assets in cash, cash equivalents and corporate bonds with remaining 19 69 maturities of less than 1 year. There is no way to predict when, or for how long, the Limited Maturity Fund may pursue such a defensive investment strategy. At the time of purchase of a debt security with a stated or remaining maturity in excess of five years from the date of purchase by the Limited Maturity Fund, the Limited Maturity Fund may acquire a "put" with respect to such debt securities. Under a "put", the Limited Maturity Fund would have the right to sell the debt security within a specified period of time at a specified minimum price. The Limited Maturity Fund will only acquire puts from dealers, banks and broker-dealers which the Advisor has determined are creditworthy under guidelines established by the Trust's Board of Trustees. A put will be sold, transferred, or assigned by the Limited Maturity Fund only with the underlying debt security. The Limited Maturity Fund will acquire puts solely to shorten the maturity of the underlying debt security. 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. MASTER DEMAND NOTES The Bond and Limited Maturity Funds may also invest in master demand notes in order to satisfy short-term needs or, if warranted, as part of their 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 United States commercial bank acting as agent for the payees of such notes. Master demand notes are callable on demand by an Income Fund, but are not marketable to third parties. Master demand notes are direct lending arrangements between an Income Fund and the issuer of such notes. The quality of master demand notes will be reviewed by the Advisor of the Income Funds at least quarterly, which review 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 Bond Fund and the Limited Maturity Fund set forth above for commercial paper. VARIABLE AND FLOATING RATE NOTES The Bond Fund and the Limited Maturity Fund 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 an Income 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. 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 an Income Fund will approximate their par value. It is anticipated that the only non-income producing securities to be held in the Bond Fund and Limited Maturity Fund will be zero-coupon obligations evidencing ownership of future interest and principal payments on United States 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 Maturity 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 Maturity Fund's total assets. 20 70 An increase in interest rates will generally reduce the value of the investments in the 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 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. THE GOVERNMENT INCOME FUND THE GOVERNMENT INCOME FUND seeks current income consistent with preservation of capital. The Government Income Fund invests at least 65% of its total assets in obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, although up to 35% of the value of its total assets may be invested in other types of debt securities, preferred stocks and options. Consistent with the foregoing, under normal market conditions, the Government Income Fund will invest up to 80% of the value of its total assets in mortgage-related securities issued or guaranteed by the U.S. Government or its agencies or 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, which the Advisor deems present attractive opportunities and are of comparable quality. For a description of the rating symbols of each NRSRO, see the Appendix to the Statement of Additional Information. The Government Income Fund may also hold some short-term obligations (with maturities of 12 months or less) consisting of domestic and foreign commercial paper (including variable amount master demand notes), bankers' acceptances, certificates of deposit and time deposits of domestic and foreign branches of U.S. banks and foreign banks, and repurchase and reverse repurchase agreements. The Government Income Fund may also invest in corporate debt securities that are rated at the time of purchase in one of the three highest rating categories by an NRSRO or, if not rated, found by the Advisor under guidelines established by the Trust's Board of Trustees to be of comparable quality. U.S. GOVERNMENT OBLIGATIONS The types of U.S. Government obligations, including mortgage-related securities, invested in by the Government Income Fund includes obligations issued or guaranteed as to payment of principal and interest by the full faith and credit of the U.S. Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness, and obligations issued or guaranteed by the agencies or instrumentalities of the U.S. Government, but not supported by such full faith and credit. Obligations of the U.S. Treasury include "stripped" U.S. Treasury Obligations such as Treasury Receipts, representing either future interest or principal payments. Stripped securities are issued at a discount to their "face value" and may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors. Obligations of certain agencies and instrumentalities of the U.S. Government, such as GNMA and the Export-Import Bank of the United States, are supported by the full faith and credit of the U.S. Treasury; others, such as those of FNMA, are supported by the right of the issuer to borrow from the Treasury; others are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Farm Credit Banks or FHLMC, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored agencies or instrumentalities if it is not obligated to do so by law. The principal governmental (i.e., backed by the full faith and credit of the United States Govern- 21 71 ment) guarantor of mortgage-related securities is GNMA. GNMA is a wholly-owned United States 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 United States 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. MORTGAGE-RELATED SECURITIES--IN GENERAL 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 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 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 passthrough 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 exam- 22 72 ination 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 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 net assets will be illiquid. COLLATERALIZED MORTGAGE OBLIGATIONS Mortgage-related securities in which the Government Income 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 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 Investment Company Act of 1940, as amended (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 Fund 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 Government Income Fund's 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 Government Income Fund selects CMOs or REMICs that do not meet the above requirements, the Government Income Fund's investment in such securities will be subject to the limitations on its investment in investment company securities as set forth under "INVESTMENT OBJECTIVES 23 73 AND POLICIES--Investment Restrictions" in the Statement of Additional Information. The Government Income Fund expects 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 will, consistent with the Government Income Fund's investment objective, policies and quality standards, consider making investments in such new types of securities. THE TAX EXEMPT FUND, FLORIDA FUND AND MUNICIPAL BOND FUND THE 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. The Tax Exempt Fund invests primarily in bonds and 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 both exempt from federal income tax and not treated as a preference item for purposes of the federal alternative minimum tax for individuals ("Municipal Securities") and which generally have remaining maturities of one year or less. The Tax Exempt Fund may also invest up to 10% of the value of its total assets in the securities of money market mutual funds which invest primarily in obligations exempt from federal income tax. The Tax Exempt Fund will incur additional expenses due to the duplication of expenses as a result of investing in securities of such money market mutual funds. Additional restrictions on the Tax Exempt Fund's investments in the securities of such money market funds are contained in the Statement of Additional Information. As a fundamental policy, under normal market conditions at least 80% of the Tax Exempt 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. Changes in prevailing interest rates may affect the yield, and possibly the net asset value, of the Tax Exempt Fund. The Tax Exempt Fund invests only in those securities and instruments considered by the Advisor to present minimal credit risks under guidelines established by the Trust's Board of Trustees. All securities or instruments in which the Fund invests have remaining maturities of 397 days or less, although instruments subject to repurchase agreements and certain variable rate and floating rate instruments subject to demand features may bear longer maturities. The dollar-weighted average maturity of the securities in the Tax Exempt Fund will not exceed 90 days. The Tax Exempt Fund is not intended to constitute a balanced investment program and is not designed for investors seeking capital appreciation. Investment in the Tax Exempt Fund would not be appropriate for tax-deferred plans, such as IRA and Keogh plans. Investors should consult a tax or other financial advisor to determine whether investment in the Tax Exempt Fund would be appropriate. THE FLORIDA 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. The Florida Fund invests primarily in 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 treated as a preference item for purposes of the federal alternative minimum tax for individuals, and is exempt from the Florida Intangible Personal Property Tax ("Florida Municipal Securities"). As a fundamental policy, under normal market conditions at least 80% of the Florida Fund's net assets will be invested in Florida Municipal Securities. THE MUNICIPAL BOND FUND seeks to produce as high a level of current federal tax-exempt income, 24 74 as is consistent with the preservation of capital. The Municipal Bond Fund invests primarily in Municipal Securities, as defined above. As a fundamental policy, under normal market conditions at least 80% of the Municipal Bond Funds' net 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. Additionally, as a fundamental policy, under normal market conditions at least 65% of the Municipal Bond Fund's total assets will be invested in bonds. It is a fundamental policy that, under normal market conditions, the Tax Exempt Fund may invest up to 20% of its total 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"). Under normal market conditions, the Florida Fund and the Municipal Bond Fund may invest up to 20% of its net assets in Taxable Obligations. The Florida Fund may also invest in Municipal Securities. At times, the Advisor may determine that, because of unstable conditions in the markets for Municipal Securities or Florida Municipal Securities (hereinafter referred to collectively as "Eligible Municipal Securities"), pursuing the Funds' basic investment strategies is inconsistent with the best interests of the Shareholders of the Funds. At such times, the Advisor may use temporary defensive strategies differing from those designed to achieve the Funds' investment objectives. With regard to the Tax Exempt Fund, the Advisor may increase its holdings in short-term Taxable Obligations to over 20% of its total assets and hold uninvested cash reserves pending investment. With regard to the Tax-Free Funds, the Advisor may increase each Fund's holdings in Taxable Obligations to over 20% of each Fund's net assets, and with respect to the Florida Fund, increase its holdings in Municipal Securities to over 20% of net assets, and by holding 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 Funds' quality standards (as described below) for tax-exempt commercial paper. These obligations are described further in the Statement of Additional Information. The Tax Exempt Fund and the Tax-Free Funds may also invest in private activity bonds ("industrial development bonds" under prior law). Interest on private activity bonds (and industrial development bonds) is fully tax-exempt only if the bonds fall within certain defined categories of qualified 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 Eligible Municipal Securities for the purposes of this Prospectus if they do not have this effect regarding individuals. For additional information on the federal alternative minimum tax, see "DIVIDENDS AND TAXES." The Tax Exempt Fund will invest only in those Municipal Securities and other obligations which are considered by the Advisor, pursuant to guidelines approved by the Board of Trustees, 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. The Statement of Additional Information contains further information concerning the rating and other requirements governing the Tax Exempt Fund's investments, including information relating to the treatment of securities subject to a tender or demand feature and securities deemed to possess a rating based on comparable rated securities of the same issuer. The Statement of Additional Information also identifies the NRSROs that may be uti- 25 75 lized by the Advisor with respect to portfolio investments for the Fund and provides a description of the relevant ratings assigned by each such NRSRO. The Tax-Free Funds may invest in Eligible Municipal Securities that are rated at the time of purchase within the three highest rating groups assigned by a nationally recognized statistical rating organization (an "NRSRO"). The Tax-Free Funds may also purchase Eligible Municipal Securities that are unrated at the time of purchase but are determined to be of comparable quality by the Advisor pursuant to guidelines approved by the Trust's Board of Trustees. Eligible Municipal Securities may be purchased in reliance upon a rating only when the rating organization is not affiliated with the issuer or guarantor of the securities. The applicable ratings are described in the Appendix to the Statement of Additional Information. The two principal classifications of Eligible Municipal Securities that may be held by the Tax-Free Funds and the Tax Exempt Fund are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities, or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed. Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved. Eligible Municipal Securities may also include "moral obligation" bonds, which are normally issued by special purpose public 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. 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 Exempt Fund, 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 Municipal Bond Fund and the Tax Exempt 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 or projects located in the same state. Such investments would be made only if deemed necessary or appropriate by the Advisor. To the extent that a Fund's assets are concentrated in Municipal Securities that are so related, a Fund will be subject to the peculiar risks presented by such securities, such as negative developments in a particular industry or state, to a greater extent than it would be if the Fund's assets were not so concentrated. The Tax Exempt Fund and 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 Tax-Free Funds expect that they will generally acquire puts only where the puts are available without the payment of any direct or indirect consideration. However, if necessary or ad- 26 76 visable, the TaxFree 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. 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 United States 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. 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. The Tax-Free Funds may also 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 Exempt Fund and 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 Tax-Free 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 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. THE MUNICIPAL BOND FUND--CONCENTRATION 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 27 77 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. GENERAL ECONOMIC CHARACTERISTICS OF ALABAMA Alabama ranks twenty-second in the nation in total population, with over four million residents in 1995. 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 4.0% for the period from 1992 to 1994. Alabama's per capita income in 1996 was ranked thirty-ninth in the nation. Currently Alabama's general obligations are rated Aa 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. 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 sec. 222 of the Constitution of Alabama. In so holding, the Court found that warrants are not "bonds" within the meaning of sec. 222. According to the Court, warrants are not negotiable instruments and transferees of warrants 28 78 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 April 1, 1993, Montgomery Circuit Court Judge Gene Reese ruled that an unconstitutional disparity exists among Alabama's school districts because of inequitable distribution of tax funds. Judge Reese issued an order calling for a new design for the distribution of funds for educational purposes as well as a new system for funding public education. On January 10, 1997, the Alabama Supreme Court affirmed Judge Reese's ruling. The court stated that the Alabama Legislature must develop a plan within one year to correct the unconstitutional disparity. Any allocation of funds away from school districts could impair the ability of such districts to service debt. THE FLORIDA FUND--DIVERSIFICATION AND CONCENTRATION The Florida Fund is a non-diversified fund under the Investment Company Act of 1940 (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 in the securities of any one issuer (other than U.S. government securities). Thus, the Florida Fund generally may each invest up to 25% of its total assets in the securities of 29 79 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 AA by both Moody's and 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. 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 principle 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 30 80 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 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. CAPITAL APPRECIATION FUNDS The Advisor will seek to invest in equity securities which are believed to represent investment value. Factors which the Advisor may consider in selecting equity securities include industry and company fundamentals, historical price relationships, and/or underlying asset value. The Advisor to the Equity, Regional Equity, and Balanced Funds will use a variety of economic projections, technical analysis, and earnings projections in formulating individual stock purchase and sale decisions. The Advisor will select investments that it believes have basic investment value which will eventually be recognized by other investors, thus increasing their value to the Funds. In the selection of the investments for the Equity, Regional Equity, and Balanced Funds, the Advisor may therefore be making investment decisions which could be contrary to the present expectations of other professional investors. These decisions may involve greater risks compared to other mutual funds, of either (a) more accurate assessment by other investors, in which case losses may be incurred by a Fund, or (b) long delay in investor recognition of the accuracy of the investment decisions of a Fund, in which case invested capital of a Capital Appreciation Fund in an individual security or group of securities may not appreciate for an extended period. In managing the Capital Growth Fund and Small Cap Fund, the Advisor will seek securities with 31 81 potential to produce above-average earnings growth. Issuers include companies with a history of above-average growth or companies that are expected to enter periods of above-average growth or are positioned in emerging growth industries. Should the expected growth potential of such companies fail to be realized, a loss may be incurred. The equity securities in which the Capital Appreciation Funds may invest may be subject to wider fluctuations in value than some other forms of investment. Depending upon the performance of a Capital Appreciation Fund's investments, the net asset value per Share of such Fund may decrease instead of increase. Each Capital Appreciation Fund may provide current income. The Balanced Fund and the Equity Income Fund are expected to produce a higher level of current income than the other Capital Appreciation Funds. Most companies in which the Equity, Regional Equity, Balanced, Capital Growth, and Equity Income Funds will invest will be listed on national securities exchanges. Stocks held by the Small Cap Fund will frequently be traded over the counter. THE EQUITY FUND seeks capital appreciation 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 Equity Fund will normally invest at least 80% of the value of its total assets in common stocks and securities convertible into common stocks, such as convertible bonds and convertible preferred stocks, believed by the Advisor to be undervalued. The production of current income is an incidental objective of the Fund. Under normal market conditions, the Equity Fund may also invest up to 20% of the value of its total assets in preferred stocks, corporate bonds, notes, and warrants, and obligations with maturities of 12 months or less such as commercial paper (including variable amount master demand notes), bankers' acceptances, certificates of deposit, repurchase agreements, money market mutual funds, obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and demand and time deposits of domestic and foreign banks and savings and loan associations. If deemed appropriate for temporary defensive purposes, the Equity Fund may increase its holdings in short-term obligations to over 20% of its total assets and may also hold uninvested cash pending investment. The Fund may also write covered call options. See "Options." THE REGIONAL EQUITY FUND seek capital growth by investing primarily in a diversified portfolio of common stock and securities convertible into common stock, such as convertible bonds and convertible preferred stock. The Regional Equity Fund will normally invest at least 65% of the value of its total assets in common stocks and securities convertible into common stocks believed by the Advisor to be undervalued of companies headquartered in the Southern Region of the United States, which includes Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee and Virginia. The production of current income is an incidental objective of the Fund. Under normal market conditions, the Regional Equity Fund may also invest up to 35% of the value of its total assets in common stocks and securities convertible into common stock of companies headquartered outside the Southern Region, preferred stocks, corporate bonds, notes, and warrants, and obligations with maturities of 12 months or less such as commercial paper (including variable amount master demand notes), bankers' acceptances, certificates of deposit, repurchase agreements, money market mutual funds, obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and demand and time deposits of domestic and foreign banks and savings and loan associations. If deemed appropriate for temporary defensive purposes, the Regional Equity Fund may increase its holdings in short-term obligations to over 35% of its total assets and may also hold uninvested cash pending investment. The Regional Equity Fund may also write covered call options. See "Options." There can be no assurance that the economy of the Southern Region or the companies headquartered in the Southern Region will grow in the future or that a company headquartered in the Southern Region whose assets, revenues or employees are 32 82 located substantially outside of the Southern Region will share in any economic growth of the Southern Region. Additionally, any localized negative economic factors or possible physical disasters in the Southern Region area could have a much greater impact on the Regional Equity Fund's assets than on similar funds whose investments are geographically more diverse. THE BALANCED FUND seeks to obtain long-term capital growth and produce a reasonable amount of current income through a moderately aggressive investment strategy. The Balanced Fund seeks to achieve this objective by investing in a broadly diversified portfolio of securities, including common stocks, preferred stocks and bonds. The Balanced Fund will normally invest in equity securities consisting of common stocks but may also invest in other equity-type securities such as warrants, preferred stocks and convertible debt instruments. The Fund's equity investments will be in companies with a favorable outlook and believed by the Advisor to be undervalued. The Balanced Fund's debt securities will consist of securities such as bonds, notes, debentures and money market instruments. The average dollar-weighted portfolio maturity of debt securities held by the Balanced Fund will vary according to market conditions and interest rate cycles and will range between 1 year and 30 years under normal market conditions. The Balanced Fund's debt securities will consist of high grade securities, which are those securities rated in one of the three highest rating categories by an NRSRO at the time of purchase, or if not rated, found the by the Advisor under guidelines established by the Trust's Board of Trustees to be of comparable quality. (For a further description of these bond ratings, see the Appendix to the Trust's Statement of Additional Information.) In the event that the rating of any debt securities held by the Balanced Fund falls below the third highest by an NRSRO the Fund will not be obligated to dispose of such obligations and may continue to hold such obligations if, in the opinion of the Advisor, such investment is considered appropriate under the circumstances. The Balanced Fund may also write covered call options. See "Options." It is a fundamental policy of the Balanced Fund that it will invest at least 25% of its total assets in fixed-income securities. For this purpose, fixed-income securities include debt securities, preferred stock and that portion of the value of securities convertible into common stock, including convertible preferred stock and convertible debt, which is attributable to the fixed-income characteristics of those securities. The portion of the Balanced Fund's assets invested in equity and debt securities will vary in accordance with economic conditions, the general level of common stock prices, interest rates and other relevant considerations, including the risks associated with each investment medium. Although the Balanced Fund seeks to reduce the risks associated with any one investment medium by utilizing a variety of investments, performance will depend upon additional factors such as timing and mix and the ability of the Advisor to judge and react to changing market conditions. THE CAPITAL GROWTH FUND seeks long-term capital appreciation and growth of income by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stocks. The Capital Growth Fund will normally invest at least 65% of the value of its total assets in common stocks and securities convertible into common stocks, such as convertible bonds and convertible preferred stocks, believed by the Advisor to have attractive potential for growth. Under normal market conditions, the Capital Growth Fund may also invest up to 35% of the value of their total assets in preferred stocks, corporate bonds, notes, and warrants, and obligations with maturities of 12 months or less such as commercial paper (including variable amount master demand notes), bankers' acceptances, certificates of deposit, repurchase agreements, money market mutual funds, obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and demand and time deposits of domestic and foreign banks and savings and loan associations. If deemed appropriate for temporary defensive purposes, the Capital Growth Fund may increase its holdings in 33 83 short-term obligations to over 35% of their total assets and may also hold uninvested cash pending investment. The Capital Growth Fund may also write covered call options. See "Options." THE SMALL CAP FUND seeks capital appreciation by investing primarily in a diversified portfolio of securities consisting of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stocks. Any current income generated from these securities is incidental to the investment objective of the Fund. Under normal market conditions, the Fund will invest at least 65% of its total assets in common stocks and securities convertible into common stocks of companies with a market capitalization of less than $1 billion determined at the time the security is purchased. Under normal market conditions, the Small Cap Fund may invest up to 35% of the value of its total assets in common stock and securities convertible into common stocks of companies with a market capitalization of greater than $1 billion determine at the time the security is purchased, preferred stocks, corporate bonds, notes, and warrants, and obligations with maturities of 12 months or less such as commercial paper (including variable amount master demand notes), bankers' acceptances, certificates of deposit, repurchase agreements, money market mutual funds, obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and demand and time deposits of domestic and foreign banks and savings and loan associations. If deemed appropriate for temporary defensive purposes, Small Cap Fund may increase its holdings in short-term obligations to over 35% of its total assets and may also hold uninvested cash pending investment. The Small Cap Fund may also write covered call options. See "Options." While small capital company securities may offer a greater capital appreciation potential than investments in mid- or large-cap company securities, they may also present greater risks. Small capital company securities tend to be more sensitive to changes in earnings expectations and have lower trading volumes than mid-to large-cap company securities and, as a result, they may experience more abrupt and erratic price movements. Any current income produced by a security is not a primary factor in the selection of investments. The Small Cap Fund may also invest in investment grade debt securities, that is, securities rated "BBB" or higher by an NRSRO at the time of purchase. If the rating of a security falls below investment grade, the Advisor will consider whatever action is appropriate consistent with the Fund's investment objectives and policies. See the Appendix to the Statement of Additional Information for a discussion of rating categories. The Small Cap Fund is managed in accordance with a value philosophy. This approach consists of developing a diversified portfolio of securities consistent with the Fund's investment objective and selected primarily on the basis of the Advisor's judgment that the securities have an underlying value, or potential value, which exceeds their current prices. The basis and quantification of the economic worth, or basic value of individual companies reflects the Advisor's assessment of a company's assets and the company's prospects for earning growth over the next 1 1/2-to-3 years. The Advisor relies primarily on the knowledge, experience and judgment of its own research staff, but also receives and uses information from a variety of outside sources, including brokerage firms, electronic data bases, specialized research firms and technical journals. THE EQUITY INCOME 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. Under normal market conditions, the Fund will invest at least 65% of its total assets in income-producing equity securities including common stock, preferred stock, and securities convertible into common stocks such as convertible bonds and convertible preferred stock. The portion of the Fund's total assets invested in common stock, preferred stock, and convertible securities will vary according to the Fund's assessment of market and economic conditions and outlook. 34 84 Under normal market conditions, the Equity Income Fund may also invest up to 35% of the value of its total assets in corporate bonds, notes, and warrants, and obligations with maturities of 12 months or less such as commercial paper (including variable amount master demand notes), bankers' acceptances, certificates of deposit, repurchase agreements, money market mutual funds, obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and demand and time deposits of domestic and foreign banks and savings and loan associations. If deemed appropriate for temporary defensive purposes, the Equity Income Fund may increase its holdings in short-term obligations to over 35% of its total assets and may also hold uninvested cash pending investment. The Equity Income Fund may also write covered call options. See "Options." The Equity Income Fund's stock selection emphasizes those common stocks in each sector that have good value, attractive yield, and dividend growth potential. The Fund will utilize convertible securities because such securities typically offer higher yields and good potential for capital appreciation. REAL ESTATE INVESTMENT TRUSTS The Capital Growth Fund, Small Cap Fund, and Equity Income Fund may invest in real estate investment trusts. Real estate investment trusts are sensitive to factors such as changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, overbuilding, and the management skill and creditworthiness of the issuer. Real estate may also be affected by tax and regulatory requirements, such as those relating to the environment. CONVERTIBLE SECURITIES Each of the Capital Appreciation Funds may invest in convertible securities. Convertible securities are fixed income-securities which may be exchanged or converted into a predetermined number of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities. Each Capital Appreciation Fund other than the Balanced Fund may invest in convertible securities rated "BBB" or higher by an NRSRO at the time of investment, or if unrated, of comparable quality. The Equity Income Fund may invest in convertible securities rated "BB" or lower by an NRSRO at the time of investment, or if unrated, of comparable quality. The Balanced Fund may invest in convertible securities rated "A" or higher by an NRSRO or, if unrated, of comparable quality. If a convertible security falls below these minimum ratings after a Fund has purchased it, a 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 Equity Income Fund were 35 85 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 Equity Income Fund's net asset value can be expected to decrease as long-term interest rates rise and to increase as long-term rates fall. In addition, lower rated securities may be more difficult to dispose of or to value than high-rated, lower-yielding securities. The Sub-Advisor attempts to reduce the risks described above through diversification of the portfolio and by credit analysis of each issuer as well as by monitoring broad economic trends and corporate and legislative developments. Convertible bonds and convertible preferred stocks are fixed-income securities that generally retain the investment characteristics of fixed-income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed-income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities, and, therefore, have a claim to assets of the corporation prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same company. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. The Capital Appreciation Funds will exchange or convert the convertible securities held in portfolio into shares of the underlying common stock in instances in which, in the opinion of the Advisor or Sub-Advisor, the investment characteristics of the underlying common shares will assist a Fund in achieving its investment objectives. Otherwise, a Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor or Sub-Advisor evaluates the investment characteristics of the convertible security as a fixed-income instrument, and the investment potential of the underlying equity security for capital 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. OTHER INVESTMENTS FOREIGN INVESTMENTS The Prime Obligations Fund may invest in Eurodollar Certificates of Deposits ("ECDs") which are U.S. dollar denominated certificates of deposit issued by offices of foreign and domestic banks located outside the United States; Eurodollar Time Deposits ("ETDs") which are U.S. dollar denominated deposits in a foreign branch of a U.S. bank or a foreign bank; Canadian Time Deposits 36 86 ("CTDs") which are essentially the same as ETDs except they are issued by Canadian offices of major Canadian banks; and Yankee Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the United States. The Prime Obligations Fund will not invest in excess of 10% of its net assets in time deposits, including ETDs and CTDs but not including certificates of deposit, with maturities in excess of seven days which are subject to penalties upon early withdrawal. The Prime Obligations Fund may also invest in commercial paper (including variable amount master demand notes) issued by U.S. or foreign corporations. The Prime Obligations Fund may also invest in Canadian Commercial Paper ("CCP"), which is commercial paper issued by a Canadian corporation or a Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S. dollar denominated commercial paper of a foreign issuer. The Prime Obligations Fund will acquire securities issued by foreign branches of U.S. banks, foreign banks, or other foreign issuers only when the Advisor believes that the risks associated with such instruments are minimal and only when such instruments are denominated and payable in United States dollars. The Bond Fund may invest up to 20% of the value of its total assets and the Limited Maturity Fund may invest up to 30% of its total assets in debt securities of foreign issuers. Each Capital Appreciation Fund may invest in foreign securities through the purchase of American Depository Receipts or the purchase of securities on the Toronto Stock Exchange, but will not do so if immediately after a purchase and as a result of the purchase the total value of such foreign securities owned by such Fund would exceed 25% (20% for the Balanced Fund) of the value of the total assets of such Fund. The Bond Fund, the Limited Maturity Fund, and the Capital Appreciation Funds may also invest in ECDs, ETDs, CTDs, Yankee CDs, CCP, and Europaper. Investment in securities of foreign issuers is subject to special risks, such as future adverse political and economic developments, the possible imposition of withholding taxes on interest income, 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, or the adoption of other foreign governmental restrictions. Additional risks include currency exchange risks, less publicly available information, the risk that companies may not be subject to the accounting, auditing and financial reporting standards and requirements of U.S. companies, the risk that foreign securities markets may have less volume and therefore less liquidity and greater price volatility than U.S. securities, and the risk that custodian and brokerage costs may be higher. In addition, foreign branches of U.S. banks and foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and record keeping standards than those applicable to domestic branches of U.S. banks. To the extent that a Fund may invest in securities of foreign issuers which are not traded on any exchange, there is a further risk that these securities may not be readily marketable. The Income Funds will not hold foreign currency as a result of such investments. INSURANCE COMPANY FUNDING AGREEMENTS The Prime Obligations Fund, the Bond Fund, and the Limited Maturity Fund may invest in funding agreements, also known as guaranteed investment contracts, ("Funding Agreements") issued by insurance companies. Pursuant to such agreements, the Bond Fund and Limited Maturity Fund invests an amount of cash with an insurance company and the insurance company credits such investment on a monthly basis with guaranteed interest which is based on an index. The Funding Agreements provide that this guaranteed interest will not be less than a certain minimum rate. The Prime Obligations Fund, the Bond Fund and the Limited Maturity Fund will only purchase a Funding Agreement (i) when the Advisor has determined, under guidelines established by the Board of Trustees, that the Funding Agreement presents minimal credit risks to the Fund and is of comparable quality to instru- 37 87 ments that are rated high quality by an NRSRO that is not an affiliated person, as defined in the Investment Company Act of 1940, of the issuer, on any insurer, guarantor, or provider of credit support for the instrument and (ii) with respect to the Prime Obligations Fund, if it may receive all principal of and accrued interest on a Funding Agreement at any time upon thirty days' written notice. The Bond Fund and the Limited Maturity Fund may receive all principal of and accrued interest on a Funding Agreement at any time upon thirty days' written notice. Because a Fund may not receive the principal amount of a Funding Agreement from the insurance company on seven days' notice or less, a Funding Agreement is considered an illiquid investment, and, together with other instruments in such Fund which are not readily marketable, will not exceed 10% of the Prime Obligations Fund's net assets and 15% of the Bond Fund or Limited Maturity Fund's net assets. With regard to the Prime Obligations 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. ASSET-BACKED SECURITIES The Prime Obligations Fund, the Bond Fund and the Limited Maturity 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 tradeins. Many people buy new cars every two or three years, leading to rising prepayment rates as a pool becomes more seasoned. Certificates for Amortizing Revolving Debt ("CARDS") represent participation in a fixed pool of credit card accounts. CARDS pay "interest only" for a specified period, 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 generally 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. Asset-backed securities purchased by the Prime Obligations Fund will be subject to the same quality requirements as other securities purchased 38 88 by the Fund. The Bond Fund and the Limited Maturity 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. INVESTMENT TECHNIQUES OPTIONS The Bond Fund, Limited Maturity Fund, Government Income Fund, and the Capital Appreciation Funds may engage in writing call options from time to time as the Advisor or Sub-Advisor deems to be appropriate. Options are written solely as covered call options (options on securities owned by a Fund). Such options must be issued by the Options Clearing Corporation and may or may not be listed on a national securities exchange. In order to close out an option position, a Fund will enter into a "closing purchase transaction"--the purchase of a call option on the same security with the same exercise price and expiration date as any call option which it may previously have written on any particular securities. When the portfolio security is sold, a Fund effects a closing purchase transactions so as to close out any existing call option on that security. If a Fund is unable to effect a closing purchase transaction so as to close out any existing call option on that security. If a Fund is unable to effect a closing purchase transaction, it will not be able to sell the underlying security until the option expires or a Fund delivers the underlying security upon exercise. 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. From time to time, the Bond Fund and the Limited Maturity Fund may also purchase call options on any of the types of securities in which each Fund may invest. A purchased call option gives a Fund the right to buy and obligates the seller to sell the underlying security at a specified exercise price during the option period. Purchasing call options is a specialized investment technique that entails a substantial risk of a complete loss of the amounts paid as premiums to writers of options. From time to time, the Bond Fund and the Balanced Fund may purchase put options as the Advisor deems to be appropriate. A put is a right to sell a specified security (or securities) within a specified period of time at a specified exercise price. Puts may be acquired by 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. The Bond Fund and the Balanced Fund may sell, transfer, or assign a put only in conjunction with the sale, transfer or assignment of the underlying security or securities. The amount payable to a Fund upon its exercise of a "put" is normally (i) the Fund's acquisition cost of the securities subject to the put (excluding any accrued interest which the Fund paid on the acquisition), less any amortized market premium or plus any amortized market or original issue discount during the period the Fund owned the securities, plus (ii) all interest accrued on the securities which are acquired subject to the puts (thus reducing the yield to maturity otherwise available for the same securities). The Balanced 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, the Fund may pay for puts either separately in cash or by paying a higher price for portfolio securities which are acquired subject to puts (thus reducing the yield to maturity otherwise available for the same securities). The Bond Fund intends to enter into puts only with dealers, banks, and broker-dealers which, in the Advisor's opinion, present minimal credit risks. 39 89 For a discussion of the Limited Maturity Fund's ability to acquire puts, see "The Bond Fund and the Limited Maturity Fund" in this prospectus. For discussion of the Tax Exempt Fund's and the Tax-Free Funds' ability to acquire puts, see "The Tax-Free Fund, the Florida Fund and the Municipal Bond Fund" in this Prospectus. WHEN-ISSUED SECURITIES The Tax Exempt Fund, the Income Funds and the Capital Appreciation Funds may also purchase securities on a "when-issued" basis. When-issued securities are securities purchased for delivery beyond the normal settlement date at a stated price and yield and thereby involve a risk that the yield obtained in the transaction will be less than that available in the market when delivery takes place. A Fund will generally not pay for such securities or start earning interest on them until they are received. When a Fund agrees to purchase securities on a "when-issued" basis, the Trust's custodian will set aside cash or liquid securities equal to the amount of the commitment in a segregated account. Securities purchased on a "when-issued" basis are recorded as an asset and are subject to changes in value based upon changes in the general level of interest rates. Each 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 the event that a Fund's commitment to purchase "when-issued" securities ever exceeded 25% of the value of its total assets, a Fund's liquidity and the Advisor's or Sub-Advisor's ability to manage it might be adversely affected. The Funds do not intend to purchase "when-issued" securities for speculation purposes, but only for the purpose of acquiring portfolio securities. REPURCHASE AGREEMENTS Securities held by each Fund may be subject to repurchase agreements. If the seller under a repurchase agreement were to default on its repurchase obligation or become insolvent, a Fund would suffer a loss to the extent that the proceeds from a sale of the underlying portfolio securities were less than the repurchase price under the agreement, or to the extent that the disposition of such securities by a 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 a Fund is treated as an unsecured creditor and required to return the underlying security to the seller's estate. REVERSE REPURCHASE AGREEMENTS Each Fund may borrow funds for temporary purposes by entering into reverse repurchase agreements in accordance with the investment restrictions described below. Pursuant to such agreements, a Fund would sell portfolio securities to financial institutions such as banks and broker-dealers, and agree to repurchase them at a mutually agreed-upon date and price. Reverse purchase 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. OTHER INVESTMENT PRACTICES Each Income Fund and Capital Appreciation Fund may invest up to 5% of the value of its total assets in the securities of any one money market mutual fund including Shares of the AmSouth Prime Obligations Fund, the AmSouth U.S. Treasury Fund (and, with respect to the Tax-Free Funds, the AmSouth Tax Exempt Fund), provided that no more than 10% of each 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 a Fund in the Prime Obligations Fund and the AmSouth U.S. Treasury Fund (and with respect to the Tax-Free Funds, the AmSouth Tax-Exempt 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 that are attributable to those Fund invest- 40 90 ments. 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. Additional restrictions regarding the Funds' investments in the securities of an unaffiliated money market fund and/or the AmSouth Money Market Funds are contained in the Statement of Additional Information. In order to generate additional income, the Bond Fund, Limited Maturity Fund, Government Income Fund and the Capital Appreciation Funds may, from time to time, lend its 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 the Funds to certain risks, such as delays or an inability to regain the securities in the event the borrower were to default on its lending agreement or enter into bankruptcy, each 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 each Fund. During the time securities of a Fund are on loan, the borrower pays the Fund any dividends or interest paid on such securities. Loans are subject to termination by a Fund or the borrower at any time. While the Funds do not have the right to vote securities on loan, each Fund intends 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. The Government Income Fund and the Capital Appreciation Funds may engage in the technique of short-term trading. Such trading involves the selling of securities held for a short time, ranging from several months to less than a day. The object of such short-term trading is to increase the potential for capital appreciation and/or income of the Government Income 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 the Government Income Fund and its transaction costs. The Bond Fund and Limited Maturity Funds will not purchase securities solely for the purpose of short-term trading. Each Capital Appreciation Fund will not invest more than 15% of its net assets in time deposits with maturities in excess of seven days which are subject to penalties upon early withdrawal. The portfolio turnover of each Capital Appreciation Fund and Income Fund may vary greatly from year to year as well as within a particular year. High turnover rates will generally result in higher transaction costs and higher levels of taxable realized gains to the Fund's shareholders. Portfolio turnover for the Capital Growth Fund, Small Cap Fund, and Equity Income Fund is not expected to exceed 200% in the coming year. INVESTMENT RESTRICTIONS Each Fund is subject to a number of investment restrictions that may be changed only by a vote of a majority of the outstanding Shares of that Fund. See "GENERAL INFORMATION--Miscellaneous" in this prospectus. THE 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 Obligations Fund's total assets would be invested in such issuer, except that 25% or less of the value of the 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 41 91 guaranteed by the U.S. Government or its agencies or instrumentalities. 2. Purchase any securities which would cause more than 25% of the value of the 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 United States 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 AMSOUTH 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 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, LIMITED MATURITY FUND, GOVERNMENT INCOME FUND, MUNICIPAL BOND FUND AND THE CAPITAL APPRECIATION FUNDS MAY NOT: 1. Purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. 42 92 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. THE INCOME FUNDS AND THE CAPITAL APPRECIATION FUNDS MAY NOT: 1. Purchase any securities which would cause more than 25% of the value of such Income 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 Maturity 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 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, INCOME FUNDS, AND CAPITAL APPRECIATION FUNDS 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; 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. 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. VALUATION OF SHARES The net asset value of each Income Fund and Capital Appreciation Fund is determined and its Shares are priced as of 4:00 p.m., Eastern Time (the "Valuation Time") on each Business Day of such Fund. The net asset value of each of the Prime Obligations Fund and the AmSouth U.S. Treasury Fund is determined and its Shares are priced as of 1:00 p.m. and 4:00 p.m., Eastern Time ("Valuation Times") on each Business Day of such Fund. The net asset value of the Tax Exempt Fund is determined and its Shares are priced as of 12:00 noon and 4:00 p.m., Eastern Time (the "Valuation Times") on each Business Day of the Fund. As used herein a "Business Day" constitutes any day on which the New York Stock Exchange (the "NYSE") is open for trading and the Federal Reserve Bank of Atlanta is open, except days on which there are not sufficient changes in the value 43 93 of the Fund's portfolio securities that the Fund's net asset value might be materially affected, or days during which no Shares are tendered for redemption and no orders to purchase Shares are received. Currently, either the NYSE or the Federal Reserve Bank of Atlanta is closed on the customary national business holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of pricing sales and redemptions is calculated by dividing the value of all securities and other assets belonging to a Fund, less the liabilities charged to that Class, by the number of the outstanding Shares of that Class. The net asset value per Share of each Income Fund and Capital Appreciation Fund will fluctuate as the value of its investment portfolio changes. The securities in each Income Fund and Capital Appreciation Fund will be valued at market value. If market quotations are not available, the securities will be valued by a method which the Board of Trustees of the Trust believes accurately reflects fair value. For further information about valuation of investments in the Income Funds and Capital Appreciation Funds, see the Statement of Additional Information. The assets in each Money Market Fund are valued based upon the amortized cost method. Pursuant to rules and regulations of the Securities and Exchange Commission regarding the use of the amortized cost method, each Money Market Fund will maintain a dollar-weighted average portfolio maturity of 90 days or less. Although the Trust seeks to maintain each Money Market Fund's net asset value per share at $1.00, there can be no assurance that net asset value will not vary. HOW TO PURCHASE AND REDEEM SHARES DISTRIBUTOR Shares in each Fund are sold on a continuous basis by the Trust's distributor, BISYS Fund Services (the "Distributor"). The principal office of the Distributor is 3435 Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares, contact the Trust at (800) 451-8382. Each Fund has been divided into three classes of Shares, Premier Shares, Classic Shares and B Shares, except that the AmSouth U.S. Treasury Fund and Tax Exempt Fund are divided into Premier Shares and Classic Shares only. Class B Shares are not currently offered in the Limited Maturity Fund, Government Income Fund, Florida Fund and Municipal Bond Fund. The three classes of a particular Fund represent interests in the same investments and are identical in all respects except that (i) Classic Shares bear the expense of the fee under the Trust's Shareholder Servicing Plan (the "Servicing Plan"), which will cause the Classic Shares to have a higher expense ratio and to pay lower dividends than those of the Premier Shares, (ii) Class B Shares bear the expense of the fee under the Trust's Distribution and Shareholder Services Plan (the "Distribution Plan"), which will cause the Class B Shares to have a higher expense ratio and to pay a lower dividend than those of the Classic Shares or Premier Shares, (iii) Classic Shares have certain exclusive voting rights with respect to the Servicing Plan and Class B Shares have certain exclusive voting rights with respect to the Distribution Plan, and (iv) Classic Shares are subject to a front-end sales charge and Class B Shares are subject to a contingent deferred sales charge. The following investors qualify to purchase Premier Shares: (i) investors for whom AmSouth acts in a fiduciary, advisory, custodial, agency or similar capacity through an account with its Trust Department; (ii) investors who purchase Shares of a Fund through a 401(k) plan or a 403(b) plan which by its terms permits purchases of Shares; and (iii) orders placed on behalf of other investment companies distributed by the Distributor and its affiliated companies. All other investors are eligible to purchase Classic Shares or Class B Shares only. 44 94 PURCHASES OF PREMIER SHARES 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. 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 AmSouth and its Customer are invested by the Distributor in Shares of a Money Market Fund. Premier Shares of the Trust sold to AmSouth on behalf of Customers will normally be held of record by AmSouth. With respect to Shares so sold, it is the responsibility of AmSouth 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 AmSouth and reflected in the account statements provided by AmSouth to Customers. Premier Shares of each Fund are purchased at the appropriate net asset value per Share (see "VALUATION OF SHARES") next determined after receipt by the Distributor of an order in good form to purchase Shares. An order to purchase Money Market Fund Shares will be deemed to have been received by the Distributor only when federal funds with respect thereto are available to the Trust's custodian for investment. Federal funds are monies credited to a bank's account within a Federal Reserve Bank. Payment for an order to purchase Shares which is transmitted by federal funds wire will be available the same day for investment by the Trust's custodian, if received prior to the last Valuation Time (see "VALUATION OF SHARES"). Payments transmitted by other means (such as by check drawn on a member of the Federal Reserve System) will normally be converted into federal funds within two banking days after receipt. The Trust strongly recommends that investors of substantial amounts use federal funds to purchase Shares. Purchases of Shares of a Fund will be effected only on a Business Day (as defined in "VALUATION OF SHARES") of such Fund. With respect to the Income Funds and the Capital Appreciation Funds, an order received prior to the Valuation Time on any Business Day will be executed based on the net asset value determined as of the Valuation Time on the date of receipt. An order received after the Valuation Time on any Business Day will be executed based on the net asset value determined as of the next Business Day. With respect to the Money Market Funds, an order received prior to a Valuation Time on any Business Day will be executed at the net asset value determined as of the next Valuation Time on the date of receipt. An order received after the last Valuation Time on any Business Day will be executed at the net asset value determined as of the next Valuation Time on the next Business Day. Shares of the Prime Obligations Fund and the AmSouth U.S. Treasury Fund purchased before 1:00 p.m., Eastern Time, begin earning dividends on the same Business Day. Shares of the Tax Exempt Fund purchased before 12:00 noon, Eastern Time, begin earning dividends on the same Business Day. All Shares of a Money Market Fund continue to earn dividends through the day before their redemption. In the case of orders for the purchase of Shares placed through a broker-dealer, the applicable public offering price will be calculated with reference to the net asset value as so determined, but only if the broker-dealer receives the order prior to the Valuation Time for that day and transmits it to the Distributor prior to its close of business that same day (normally 4:00 p.m. Eastern Time). The broker-dealer is responsible for transmitting such orders by close of business. If the broker-dealer fails to do so, the investor's right to that day's closing price must be settled between the investor and the broker-dealer. There is no sales charge imposed by the Trust in connection with the purchase of Premier Shares of a Fund. Sales charges apply to purchases of other classes. Depending upon the terms of a particular 45 95 Customer account, AmSouth may charge a Customer's account fees for automatic investment and other cash management services provided in connection with investment in a Fund. Information concerning these services and any charges can be obtained from AmSouth. This Prospectus should be read in conjunction with any such information received from AmSouth. The Trust reserves the right to reject any order for the purchase of its Shares in whole or in part, including purchases made with foreign and third party drafts or checks. Every Shareholder will receive a confirmation of each new transaction in his or her account, which will also show the total number of Shares of the particular Fund owned by the Shareholder. Reports of purchases, redemptions and exchanges of Shares by AmSouth on behalf of its Customers will be sent by AmSouth to its Customers. Shareholders may rely on these statements in lieu of certificates. Certificates representing Shares will not be issued. EXCHANGE PRIVILEGE Premier Shares of each Fund may be exchanged for Premier Shares of the other Funds, provided that the Shareholder making the exchange is eligible on the date of the exchange to purchase Premier Shares (with certain exceptions and subject to the terms and conditions described in this prospectus). Premier Shares of each Fund may also be exchanged for Classic Shares, if the Shareholder ceases to be eligible to purchase Premier Shares. Premier Shares of each Fund may not be exchanged for Class B Shares. The Trust does not impose a charge for processing exchanges of its Premier Shares. However, the exchange of Premier Shares for Classic Shares will require payment of the sales charge unless a sales charge waiver applies. Shareholders may exchange their Premier Shares for Premier Shares of another Fund on the basis of the relative net asset value of the Shares exchanged. An exchange is considered to be a sale of Shares for federal income tax purposes on which a Shareholder may realize a capital gain or loss. In general, if a shareholder exchanges Income Fund shares for Shares of another Fund without paying a sales charge, the gain or loss on the exchange of the Fund Shares will be calculated without taking into account the sales charge paid on the Fund Shares if the Fund Shares were held less than 91 days. The sales charge will instead be added to the basis of the Fund Shares acquired in the exchange. The application of this rule will increase the gain or reduce the loss that the Shareholder would otherwise recognize on the exchange of the Shares of the Fund. Before an exchange can be effected, a Shareholder must receive a current prospectus of the Fund and class into which the Shares are exchanged. An exchange may be made by calling the Trust at (800) 451-8382 or by mailing written instructions to the Transfer Agent. Exchange privileges may be exercised only in those states where Shares of such other Funds of the Trust may legally be sold, and may be amended or terminated at any time upon sixty (60) days' notice. The Trust's exchange privilege is not intended to afford shareholders a way to speculate on short-term movements in the market. Accordingly, in order to prevent excessive use of the exchange privilege that may potentially disrupt the management of the Trust and increase transaction costs, the Trust has established a policy of limiting excessive exchange activity. Exchange activity will not be deemed excessive if limited to four substantive exchange redemptions from a Fund during any calendar year. DIRECTED DIVIDEND OPTION Shareholders can elect to have dividend distributions (capital gains, dividends, dividends and capital gains) paid by check or reinvested within the Fund or reinvested in other AmSouth Mutual Funds of the same shareholder registration without a sales charge. To participate in the Directed Dividend Option, a shareholder must maintain a minimum balance of $1,000 in each Fund into which he or she plans to reinvest dividends. 46 96 The Directed Dividend Option may be modified or terminated without notice. In addition, the Trust may suspend a shareholder's Directed Dividend Option without notice if the account balance is less than the minimum $1,000. Participation in the Option may be terminated or changed by the shareholder at anytime by writing the Distributor. The Directed Dividend Option is not available to participants in an AmSouth Mutual Funds IRA. CHECK WRITING SERVICE A Shareholder may write checks on his or her Prime Obligations Fund account for $1,000 or more. Once a Shareholder has signed and returned a signature card, he or she will receive a supply of checks drawn on Huntington National Bank. The check may be made payable to any person, and the Shareholder's account will continue to earn dividends until the check clears. Because of the difficulty of determining in advance the exact value of a Fund account, a Shareholder should not use a check to close his or her account. The Shareholder's account will be charged a fee on stopping payment of a check upon the Shareholder's request or if the check cannot be honored because of insufficient funds or other valid reasons. REDEMPTION OF SHARES Shares may ordinarily be redeemed by mail or by telephone. However, all or part of a Customer's Shares may be redeemed in accordance with instructions and limitations pertaining to his or her account at AmSouth. For example, if a Customer has agreed with AmSouth to maintain a minimum balance in his or her account with AmSouth, and the balance in that account falls below that minimum, the Customer may be obliged to redeem, or AmSouth may redeem for and on behalf of the Customer, all or part of the Customer's Shares of a Fund of the Trust to the extent necessary to maintain the required minimum balance. REDEMPTION BY MAIL A written request for redemption must be received by the Transfer Agent in order to constitute a valid tender for redemption. The Transfer Agent will require a signature guarantee by an eligible guarantor institution. For purposes of this policy, the term "eligible guarantor institution" shall include banks, brokers, dealers, credit unions, securities exchanges and associations, clearing agencies and savings associations as those terms are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. The Transfer Agent reserves the right to reject any signature guarantee if (1) it has reason to believe that the signature is not genuine, (2) it has reason to believe that the transaction would otherwise be improper, or (3) the guarantor institution is a broker or dealer that is neither a member of a clearing corporation nor maintains net capital of at least $100,000. The signature guarantee requirement will be waived if the following conditions apply: (1) the redemption check is payable to the Shareholder(s) of record; and (2) the redemption check is mailed to the Shareholder(s) at the address of record or the proceeds are either mailed or wired to a financial institution account previously designated. There is no charge for having redemption requests mailed to a designated bank account. REDEMPTION BY TELEPHONE A Shareholder may have the payment of redemption requests wired or mailed directly to a domestic commercial bank account previously designated by the Shareholder on the Account Registration Form. Under most circumstances, such payments will be transmitted on the next Business Day following receipt of a valid request for redemption. Such wire redemption requests may be made by the Shareholder by telephone to the Transfer Agent. The Transfer Agent may reduce the amount of a wire redemption payment from the then maximum wire redemption charge. Such charge is presently $7.00 for each wire redemption. There is no charge for having payment of redemption requests mailed or sent via the Automated Clearing House to a designated bank account. For telephone redemptions, call the Trust at (800) 451-8382. The Trust will employ reasonable procedures to confirm that instructions communicated by telephone are genuine; if these procedures are not followed, the Trust may 47 97 be liable for any losses due to unauthorized or fraudulent instructions. These procedures include recording all phone conversations, sending confirmations to Shareholders within 72 hours of the telephone transaction, verifying the account name and a shareholder's account number or tax identification number, and sending redemption proceeds only to the address of record or to a previously authorized account. During periods of significant economic or market change, telephone redemptions may be difficult to complete. If a Shareholder is unable to contact the Distributor by telephone, a Shareholder may also mail the redemption request to the Distributor at the address listed above under "HOW TO REDEEM SHARES--Redemption by Mail." PAYMENTS TO SHAREHOLDERS Redemption orders are effected at the net asset value per Share next determined after the Shares are properly tendered for redemption, as described above. The proceeds paid upon redemption of Shares in an Income Fund and a Capital Appreciation Fund may be more or less than the amount invested. Payment to Shareholders for Shares redeemed will be made within seven days after receipt by the Transfer Agent of the request for redemption. However, to the greatest extent possible, the Trust will attempt to honor requests from Income Fund and Capital Appreciation Fund Shareholders for next Business Day payments upon redemption of Shares if the request for redemption is received by the Transfer Agent before 4:00 p.m., Eastern Time, on a Business Day or, if the request for redemption is received after 4:00 p.m., Eastern Time, to honor requests for payment within two Business Days, unless it would be disadvantageous to the Trust or the Shareholders of the particular Income Fund to sell or liquidate portfolio securities in an amount sufficient to satisfy requests for payments in that manner. To the greatest extent possible, the Trust will attempt to honor requests from Money Market Fund Shareholders for same day payments upon redemption of Shares if the request for redemption is received by the Transfer Agent before 12:00 noon, Eastern Time, on a Business Day or, if the request for redemption is received after 12:00 noon, Eastern Time, to honor requests for payment on the next Business Day, unless it would be disadvantageous to the Trust or the Shareholders of the particular Money Market Fund to sell or liquidate portfolio securities in an amount sufficient to satisfy requests for payments in that manner. At various times, the Trust may be requested to redeem Shares for which it has not yet received good payment. In such circumstances, the Trust may delay the forwarding of proceeds only until payment has been collected for the purchase of such Shares which may take up to 15 days or more. To avoid delay in payment upon redemption shortly after purchasing Shares, investors should purchase Shares by certified or bank check or by wire transfer. The Trust intends to pay cash for all Shares redeemed, but under abnormal conditions which make payment in cash unwise, the Trust may make payment wholly or partly in portfolio securities at their then current market value equal to the redemption price. In such cases, an investor may incur brokerage costs in converting such securities to cash. Due to the relatively high cost of handling small investments, the Trust reserves the right to redeem, at net asset value, the Shares of any Shareholder if, because of redemptions of Shares by or on behalf of the Shareholder, the account of such Shareholder in any Fund has a value of less than $250. Accordingly, an investor purchasing Shares of a Fund in only the minimum investment amount may be subject to such involuntary redemption if he or she thereafter redeems some of his or her Shares. Before the Trust exercises its right to redeem such Shares and to send the proceeds to the Shareholder, the Shareholder will be given notice that the value of the Shares in his or her account is less than the minimum amount and will be allowed 60 days to make an additional investment in an amount which will increase the value of the account to at least $250. See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" and "VALUATION--Valuation of the Money Market Funds" in 48 98 the Statement of Additional Information for examples of when the Trust may suspend the right of redemption or redeem Shares involuntarily if it appears appropriate to do so in light of the Trust's responsibilities under the Investment Company Act of 1940. DIVIDENDS AND TAXES Each Fund is treated as a separate entity for federal income tax purposes. Each Fund intends to qualify for treatment as a "regulated investment company" under the Code. If it so qualifies, a Fund will not have to pay federal income taxes on net income and net capital gain income that they distribute to shareholders. Regulated investment companies are also subject to a federal excise tax if they do not distribute their income on a timely basis. Each Fund intends to avoid paying federal income and excise taxes by timely distributing substantially all its net income and net capital gain income. The amount of dividends payable with respect to the Premier Shares will exceed dividends on Classic Shares, and the amount of dividends on Classic Shares will exceed the dividends on Class B Shares, as a result of the Shareholder Services Plan fee applicable to Classic Shares and the Distribution and Shareholder Services Plan fee applicable to Class B Shares. Additional information regarding federal taxes is contained in the Statement of Additional Information under "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION--Additional Tax Information." The following discussion is limited to federal income tax consequences and is based on tax laws and regulations which are in effect as of the date of this Prospectus; such laws and regulations may be changed by legislative or administrative actions. The following is also intended only as a brief summary of some of the important tax considerations generally affecting the Funds and Shareholders. Potential investors are urged to consult their tax advisors concerning their own tax situations and concerning the application of state and local taxes which may differ from the federal income tax consequences described below. Shareholders will be advised at least annually as to the character for federal income tax purposes of distributions made during the year. PRIME OBLIGATIONS FUND AND AMSOUTH U.S. TREASURY 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. The net income attributable to a Fund's Classic Shares and the dividends payable on Classic Shares will be reduced by the shareholder service fee assessed against such Shares under the Shareholder Servicing Plan (see Administrator and Distributor below). Dividends will generally be paid monthly. Distributable net capital gains (if any) will be distributed at least annually. A Shareholder will automatically receive all income dividends and capital gains distributions in additional full and fractional Shares of the same class at net asset value as of the date of payment unless the Shareholder elects to receive such dividends or distributions in cash. Reinvested dividends receive the same tax treatment as dividends paid in cash. Such election, or any revocation thereof, must be made in writing to the Transfer Agent at P.O. Box 182733, Columbus, Ohio 43218-2733, and will become effective with respect to dividends and distributions having record dates after its receipt by the Transfer Agent. Dividends are paid in cash not later than seven Business Days after a Shareholder's complete redemption of his or her Shares. Dividends are generally taxable when received. However, dividends declared in October, November, or December to Shareholders of record during those months and paid during the following January are treated for tax purposes as if they were received by each Shareholder on December 31 of the prior year. Dividends will generally be taxable to a Shareholder as ordinary income to the extent of the 49 99 Shareholder's ratable share of each Fund's earnings and profits as determined for tax purposes. Because all of the net investment income of the Prime Obligations Fund and the AmSouth U.S. Treasury Fund is expected to be interest income, it is anticipated that no distributions will qualify for the dividends received deduction for corporate shareholders. The Prime Obligations Fund and the AmSouth U.S. Treasury Fund 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 AmSouth U.S. Treasury Fund's investments in U.S. government obligations may not be eligible for exemption from state and local taxes even though the income on such investments would have been exempt from state and local taxes if the Shareholder directly held such investments. In addition, the state and local tax 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. 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. BOND FUND, LIMITED MATURITY FUND, AND GOVERNMENT INCOME FUND Distributions by the Bond Fund, Limited Maturity Fund, and Government Income Fund of ordinary income and/or an excess of 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. Distribution by the Bond Fund, Limited Maturity Fund, and Government Income Fund of the excess of net long-term capital gain over net short-term capital loss is taxable to Shareholders as long-term capital gain in the year in which it is received, 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, Limited Maturity Fund, and 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. 50 100 Dividends received by a Shareholder that are derived from the Bond Fund, Limited Maturity Fund, and Government Income Fund 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. If a Shareholder receives a capital gain dividend with respect to a Share of the Bond Fund, Limited Maturity 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 United States 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, Limited Maturity Fund, and 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, if any, than they would have in the absence of such transactions. TAX EXEMPT FUND, FLORIDA FUND, AND MUNICIPAL BOND FUND The Tax Exempt and Tax-Free Funds' Shareholders 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 the Tax Exempt and Tax-Free 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 the Tax Exempt and Tax-Free Funds will not be eligible for the dividends received deduction for corporate shareholders. Gains on the sale of Shares in the Tax Exempt and Tax-Free 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 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. The Tax Exempt Fund and the Tax-Free 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 51 101 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 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. ALABAMA TAXES Section 40-18-14(2)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(2)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). 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. The foregoing discussion is based on tax laws and regulations which are in effect as of the date of this Prospectus; such laws and regulations may be changed by legislative or administrative actions. The foregoing is also intended only as a brief summary of some of the important 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, 52 102 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 ruling confirming this tax treatment is being sought 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. Potential investors are urged to consult with their Florida tax counsel concerning their own tax situation. THE CAPITAL APPRECIATION FUNDS The net income of each of the Capital Appreciation Funds will be declared monthly as a dividend to Shareholders at the close of business on the day of declaration. Dividends will generally be paid monthly. Distributable net realized capital gains are distributed at least annually to Shareholders of record. A Shareholder will automatically receive all income dividends and capital gains distributions in additional full and fractional Shares unless the Shareholder elects to receive such dividends or distributions in cash. Dividends and distributions are reinvested without a sales charge as of the ex-dividend date using the net asset value determined on that date and are credited to a Shareholder's account on the payment date. Reinvested dividends and distributions receive the same tax treatment as dividends and distributions paid in cash. Dividends are generally taxable when received. However, dividends declared in October, November, or December to Shareholders of record during those months and paid during the following January are treated for tax purposes as if they were received by each Shareholder on December 31 of the prior year. Elections to receive dividends or distributions in cash, or any revocation thereof, must be made in writing to the Transfer Agent at 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. A distribution to a Shareholder of net investment income (generally the Fund's ordinary income) and the excess, if any, of net short-term capital gain over net long-term loss will be taxable to the Shareholder as ordinary income. The 70% dividends-received deduction for corporations generally will apply to the Fund's distributions to corporations to the extent such distributions represent amounts that would qualify for the dividends-received deduction when received by the Fund if the Fund were a regular corporation and are designated by the Fund as qualifying for the dividends-received deduction. A distribution by a Capital Appreciation Fund of the excess of net long-term capital gain over net short-term capital loss designated by such Fund as a capital gain dividend is taxable to Shareholders as long-term capital gain, 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 a Capital Appreciation Fund, the impact of dividends or capital gains distributions which are expected to be declared or have been declared, but not paid, should be carefully considered. Dividends or capital gains distributions paid after a purchase of Shares are subject to federal income taxes, although in some circumstances the dividend or distribution may be, as an economic matter, a return of capital. A Shareholder 53 103 should consult his or her own advisor for any special advice. Dividends received by a Shareholder that are derived from a Capital Appreciation Fund's investments in U.S. government obligations may not be entitled to the exemptions from state and local income taxes that would be available if the Shareholder had purchased U.S. government obligations directly. A Shareholder will generally recognize capital gain or loss on the sale or exchange of shares in a Capital Appreciation Fund. If a Shareholder receives a capital gain dividend with respect to a Share of a Capital Appreciation Fund and such Share is held for six months or less, any loss on the sale or exchange of such Share shall be treated as a long-term capital loss to the extent of the capital gain dividend. 54 104 MANAGEMENT OF AMSOUTH MUTUAL FUNDS TRUSTEES OF THE TRUST Overall responsibility for management of the Trust rests with the Board of Trustees of the Trust, who are elected by the Shareholders of the Trust. There are currently six Trustees, two of whom are "interested persons" of the Trust within the meaning of that term under the Investment Company Act of 1940. The Trustees, in turn, elect the officers of the Trust to supervise actively its day-to-day operations. The Trustees of the Trust, their current addresses, and principal occupations during the past five years are as follows (if no address is listed, the address is 3435 Stelzer Road, Columbus, Ohio 43219):
POSITION(S) HELD PRINCIPAL OCCUPATION NAME AND ADDRESS WITH THE TRUST DURING THE PAST 5 YEARS - ------------------------------ ------------------ ------------------------------------------- George R. Landreth* Chairman From December 1992 to present, employee of BISYS Fund Services BISYS Fund Services, Limited Partnership; 3435 Stelzer Road from July 1991 to December 1992, employee Columbus, OH 43219 of PNC Financial Corp.; from October 1984 to July 1991, employee of The Central Trust Co., N.A. Dr. Dick D. Briggs, Jr. Trustee From 1981 to present, Professor and Vice 459 DER Building Chairman, Department of Medicine, 1808 7th Avenue South University of Alabama at Birmingham School UAB Medical Center of Medicine; December 1995, to present, Birmingham, Alabama 35294 Physician, University of Alabama Health Services Foundation; from June 1988 to October 1992, President, Chief Executive Officer and Medical Director, University of Alabama Health Services Foundation Wendell D. Cleaver Trustee From September 3, 1993 to present, retired; 209 Lakewood Drive, West from December 1988 to August, 1993, Mobile, Alabama 36608 Executive Vice President, Chief Operating Officer and Director, Mobile Gas Service Corporation J. David Huber* Trustee From June 1987 to present, employee of BISYS Fund Services BISYS Fund Services, Limited Partnership 3435 Stelzer Road Columbus, OH 43219 Homer H. Turner, Jr. Trustee From June 1991 to present, retired; until 729 Cary Drive June 1991, Vice President, Birmingham Auburn, Alabama 36830 Division, Alabama Power Company James H. Woodward, Jr. Trustee From 1996 to present, Trustee of The The University of North Sessions Group; from July 1989 to present, Carolina at Charlotte Chancellor, The University of North Charlotte, North Carolina Carolina at Charlotte; until July 1989, 28223 Senior Vice President, University College, University of Alabama at Birmingham
- ------------ * Indicates an "interested person" of the Trust as defined in the Investment Company Act of 1940. 55 105 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 Ohio, Inc. receives any compensation from the Trust for acting as a Trustee. The officers of the Trust (see the Statement of Additional Information) receive no compensation directly from the Trust for performing the duties of their offices. BISYS Fund Services receives fees from the Trust for acting as Administrator and BISYS Fund Services Ohio, Inc. receives fees from the Trust for acting as Transfer Agent for and for providing fund accounting services to the Trust. Messrs. Huber and Landreth are employees and executive officers of BISYS Fund Services. INVESTMENT ADVISOR AmSouth is the Advisor of each Fund of the Trust. AmSouth is the bank affiliate of AmSouth Bancorporation, one of the largest banking institutions headquartered in the midsouth region. AmSouth Bancorporation reported assets as of December 31, 1996 of $18.4 billion and operated 272 banking offices in Alabama, Florida, Georgia and Tennessee. AmSouth has provided investment management services through its Trust Investment Department since 1915. As of December 31, 1996, AmSouth and its affiliates had over $7.1 billion in assets under discretionary management and provided custody services for an additional $13.4 billion in securities. AmSouth is the largest provider of trust services in Alabama. AmSouth serves as administrator for over $12 billion in bond issues, and its Trust Natural Resources and Real Estate Department is a major manager of timberland, mineral, oil and gas properties and other real estate interests. Subject to the general supervision of the Trust's Board of Trustees and in accordance with the respective investment objectives and restrictions of the Funds, the Advisor manages the Funds (except with respect to the Equity Income Fund), makes decisions with respect to and places orders for all purchases and sales of their investment securities, and maintains their records relating to such purchases and sales. Brian B. Sullivan, CFA is the portfolio manager for the Bond Fund and, as such, has had primary responsibility for the day-to-day portfolio management of the Bond Fund since 1992. Mr. Sullivan has been a portfolio manager at AmSouth since 1984, and is currently Senior Vice President and Trust Investment Officer in charge of fixed income investments. John P. Boston, CFA, is the portfolio manager for the Limited Maturity Fund since August, 1995, and of the Government Income Fund since inception and, as such, has primary responsibility for the day-to-day portfolio management of the Limited Maturity and Government Income Funds. Mr. Boston has been associated with AmSouth's Trust Investment Group for over five years and is currently a Vice President and Trust Investment Officer. Dorothy E. Thomas, CFA, is the portfolio manager for the Municipal Bond Fund and since May 15, 1997 is the portfolio manager for the Florida Fund, and as such, has primary responsibility for the day-to-day management of each Fund's portfolio. Ms. Thomas has been associated with AmSouth's Trust Investment Group for over ten years and is currently Vice President and Trust Investment Officer. Pedro Verdu, CFA, is the portfolio manager for each Capital Appreciation Fund (except the Equity Income Fund) and, as such, has had primary responsibility for the day-to-day portfolio management of each of these Funds since their inception. Mr. Verdu has twenty-four years of experience as an analyst and portfolio manager; he is currently the Director of Equity Investing at AmSouth. Under investment advisory agreements between the Trust and the Advisor, the fee payable to the Advisor by each Fund for investment advisory services is the lesser of (a) a fee computed daily and paid monthly at the annual rate of: forty one hundredths of one percent (.40%) of each Money Market Fund's average daily net assets; sixty-five 56 106 one-hundredths of one percent (.65%) of each Income Fund's average daily net assets; eighty one-hundredths of one percent (.80%) of each of the Equity, Regional Equity, Balanced, Equity Income and Capital Growth Fund's average daily net assets; and ninety one-hundredths of one percent (.90%) of the Small Cap Fund's average daily net assets; or (b) such fee as may from time to time be agreed upon in writing by the Trust and the Advisor. With respect to the Capital Appreciation Funds, while this fee may be higher than the advisory fee paid by most mutual funds, it is believed to be comparable to advisory fees paid by many funds having similar objectives and policies. A fee agreed to in writing from time to time by the Trust and the Advisor may be significantly lower than the fee calculated at the annual rate and the effect of such lower fee would be to lower a Fund's expenses and increase the net income of the Fund during the period when such lower fee is in effect. During the Trust's fiscal year ended July 31, 1996, the Advisor received investment advisory fees amounting to .40% of the Prime Obligation Fund's average net assets, .40% of the AmSouth U.S. Treasury Fund's average net assets and .20% of the Tax Exempt Fund's average net assets, after voluntary fee reductions with respect to the Tax Exempt Fund. During the Trust's fiscal year ended July 31, 1996, after voluntary fee reductions, the Advisor received investment advisory fees amounting to 0.50% of the Bond Fund's average net assets, .50% of the Limited Maturity Fund's average net assets, .30% of the Government Income Fund's average net assets, and .30% of the Florida Fund's average net assets. The Municipal Bond Fund had not commenced operations as of July 31, 1996. During the Trust's fiscal year ended July 31, 1996, the Advisor received investment advisory fees amounting to .80% of the Equity Fund's average daily net assets, .80% of the Regional Equity Fund's average daily net assets and .75% of the Balanced Fund's average daily net assets after voluntary fee reductions with respect to the Balanced Fund. INVESTMENT SUB-ADVISORS Rockhaven Asset Management, LLC ("Rockhaven") serves as sub-advisor to the Equity Income Fund pursuant to a Sub-Advisory Agreement with the Advisor ("Sub-Advisor"). Under the Sub-Advisory Agreement, the Sub-Advisor manages the Fund, selects investments, and places all order for purchases and sales of securities, subject to the general supervision of the Trust's Board of Trustees and the Advisor in accordance with the Fund's investment objective, policies, and restrictions. Rockhaven is 50% owned by AmSouth and 50% owned by Mr. Christopher H. Wiles. Rockhaven was organized in 1997 to perform advisory services for investment companies and has its principal offices at 100 First Avenue, Suite 1050, Pittsburgh, PA 15222. For its services and expenses incurred under the Sub-Advisory Agreement, the SubAdvisor is entitled to a fee, payable by the Advisor. The fee is computed daily and paid monthly at the annual rate of forty-eight one-hundredths of one percent (.48%) of the Fund's average daily net assets or such lower fee as may be agreed upon in writing by the Advisor and Sub-Advisor. Mr. Wiles is the portfolio manager for the Equity Income Fund, and, as such, has the primary responsibility for the day-to-day portfolio management of the Fund. Mr. Wiles is the President and Chief Investment Officer of Rockhaven. From August 1, 1991 to January 31, 1997, he was the portfolio manager of the Federated Equity Income Fund. The cumulative total return for the Federated Equity Income Fund from August 1, 1991 through January 31, 1997 was 138.72%. The cumulative total return for the same period for the Standard & Poor's Composite Stock Price Index ("S&P 500 Index") was 135.09%. At January 31, 1997, the 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 returns for the one-year, 57 107 three-year, and five-year periods ended January 31, 1997 and for the entire period during which Mr. Wiles managed that fund compared with the performance of the S&P 500 Index were:
FEDERATED S&P 500 LIPPER EQUITY EQUITY INCOME FUND(a)(b) INDEX(c) INCOME FUND INDEX(d) ------------------------ -------- -------------------- One Year.................................... 23.03% 26.34% 19.48% Three Years................................. 16.93% 20.72% Five Years.................................. 16.38% 17.02% August 1, 1991 through January 31, 1997..... 17.11% 16.78%
- ------------ (a) Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. (b) During the period from August 1, 1991 through January 31, 1997, the operating expense ratio of the Federated Equity Income Fund ranged from .95% to 1.05% of the Fund's average daily net assets. (c) 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. (d) The Lipper Equity Income Fund Index is equally weighted and composed of the largest mutual funds within its investment objective. These funds seek high current income and growth of income through investing 60% or more of their respective portfolios in equity securities. HISTORICAL PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. The Federated Equity Income Fund is a separate fund and its historical performance is not indicative of the potential performance of the AmSouth Equity Income Fund. Share prices and investment returns will fluctuate reflecting market conditions, as well as changes in company-specific fundamentals of portfolio securities. Christopher Wiles was the Federated Equity Income Fund's portfolio manager from August 1, 1991 to January 31, 1997. Mr. Wiles joined Federated Investors in 1990 and served as a Vice President of the Fund's investment advisor from 1992 and Senior Vice President from October, 1996 to January 31, 1997. Mr. Wiles served as Assistant Vice President of the Fund's investment advisor in 1991. Mr. Wiles is a Chartered Financial Analyst and received his M.B.A. in Finance from Cleveland State University. Peachtree Asset Management ("Peachtree") serves as investment sub-adviser to the Capital Growth Fund, pursuant to a Sub-Advisory Agreement with AmSouth. The Capital Growth Fund commenced operations on August 1, 1997. Under the Sub-Advisory Agreement, Peachtree manages the Fund, selects investments, and places all orders for purchases and sales of securities, subject to the general supervision of the Trust's Board of Trustees and AmSouth in accordance with the Fund's investment objectives, policies and restrictions. Peachtree is a division of Smith Barney Mutual Funds Management Inc. ("SBMFM"), a wholly-owned subsidiary of Smith Barney Holdings Inc., which in turn is a wholly-owned subsidiary of Travelers Group Inc. Peachtree has performed advisory services since 1994 for institutional clients, and has its principal offices at 303 Peachtree Street, N.E., Atlanta, GA 30308. SBMFM and its predecessors have been providing investment advisory services to mutual funds since 1968. As of December 31, 1996, SBMFM had aggregate assets under management of approximately $80 billion. For its services and expenses incurred under the Sub-Advisory Agreement, Peachtree is entitled to a fee payable by AmSouth, computed daily and paid monthly at the annual rate of forty-eight one-hundredths of one percent (.48%) of the Fund's 58 108 average daily net assets or such lower fee as may be agreed upon in writing by AmSouth and Peachtree. Dennis A. Johnson is the portfolio manager for the Capital Growth Fund, and, as such has the primary responsibility for the day-to-day portfolio management of the Fund. Mr. Johnson, who has been employed by Peachtree since 1994, is President and Chief Investment Officer of Peachtree. From 1989 to 1994, Mr. Johnson was Vice President and Portfolio Manager at Trusco Capital, the investment management subsidiary of Trust Company Bank, Atlanta, Georgia. ADMINISTRATOR AND DISTRIBUTOR ASO Service Company ("ASO") is the administrator for each Fund of the Trust and BISYS Fund Services ("BISYS") acts as the Trust's principal underwriter and distributor (the "Administrator" and the "Distributor," respectively). ASO is a wholly owned subsidiary of BISYS. BISYS is a subsidiary of The BISYS Group, Inc., 150 Clove Road, Little Falls, New Jersey 07424, a publicly owned company engaged in information processing, loan servicing and 401(k) administration and recordkeeping services to and through banking and other financial organizations. The Administrator generally assists in all aspects of the Funds' administration and operation. Under management and administration agreements between the Trust, the fee payable by each Fund to the Administrator for administration services is the lesser of (a) a fee computed at the annual rate of twenty one-hundredths of one percent (.20%) of such Income Fund's average daily net assets or (b) such fee as may from time to time be agreed upon by the Trust and the Administrator. A fee agreed to from time to time by the Trust and the Administrator may be significantly lower than the fee calculated at the annual rate and the effect of such lower fee would be to lower an Income Fund's expenses and increase the net income of the Fund during the period when such lower fee is in effect. ASO succeeded BISYS as Administrator on April 1, 1996. During the Trust's fiscal year ended July 31, 1996, BISYS and ASO received administration fees amounting to .20% of each Money Market Fund's average daily net assets. During the Trust's fiscal year ended July 31, 1996, BISYS and ASC received administration fees, after voluntary fee reductions, amounting to .12% of the Bond Fund's average daily net assets; .12% of the Limited Maturity Fund's average daily net assets; .10% of the Government Income Fund's average daily net assets; .10% of the Florida Fund's average daily net assets; .11% of the Equity Fund's average daily net assets, .12% of the Regional Equity Fund's average daily net assets, and .11% of the Balanced Fund's average daily net assets. SUB-ADMINISTRATORS AmSouth serves as a Sub-Administrator to the Trust. Pursuant to its current agreement with the Administrator, AmSouth has assumed certain of the Administrator's duties, for which AmSouth receives a fee, paid by the Administrator, calculated at an annual rate of up to ten one-hundredths of one percent (.10%) of each Fund's average daily net assets. BISYS Fund Services serves as a Sub-Administrator to the Trust. Pursuant to its agreement with the Administrator, BISYS is entitled to compensation as mutually agreed from time to time by it and the Administrator. EXPENSES AmSouth and the Administrator each bear all expenses in connection with the performance of their services as Advisor and Administrator, respectively, other than the cost of securities (including brokerage commissions, if any) purchased for an Fund. 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 Classic, Class B, and Premier Class of a Fund on the basis of the relative net asset value of each Class. At present, the only expenses that will be borne solely by Classic and Class B Shares, other than in accordance with the relative net asset value 59 109 of the Class, are expenses under the Servicing Plan with respect to the Classic Shares and under the Distribution Plan with respect to the Class B Shares. BANKING LAWS AmSouth believes that it possesses the legal authority to perform the investment advisory services for the Funds contemplated by its investment advisory agreement with the Trust and described in this Prospectus without violation of applicable banking laws and regulations, and has so represented in its investment advisory agreement with the Trust. Future changes in federal or state statutes and regulations relating to permissible activities of banks or bank holding companies and their subsidiaries and affiliates as well as further judicial or administrative decisions or interpretations of present and future statutes and regulations could change the manner in which AmSouth could continue to perform such services for the Trust. See "MANAGEMENT OF THE TRUST--Glass-Steagall Act" in the Statement of Additional Information for further discussion of applicable banking laws and regulations. GENERAL INFORMATION DESCRIPTION OF THE TRUST AND ITS SHARES The Trust was organized as a Massachusetts business trust on October 1, 1987. The Trust has an unlimited number of authorized shares of beneficial interest which may, without shareholder approval, be divided into an unlimited number of series of such shares, and which are presently divided into fourteen series of shares, one for each of the following Funds: the AmSouth Prime Obligations Fund, the AmSouth U.S. Treasury Fund, the AmSouth Tax Exempt Fund, the AmSouth Equity Fund, the AmSouth Regional Equity Fund, the AmSouth Capital Growth Fund, the AmSouth Small Cap Fund, the AmSouth Equity Income Fund, the AmSouth Bond Fund, the AmSouth Limited Maturity Fund, the AmSouth Municipal Bond Fund, the AmSouth Balanced Fund, the AmSouth Government Income Fund and the AmSouth Florida Tax-Free Fund. Each Fund, except the AmSouth Florida Tax-Free Fund, is diversified for purposes of the 1940 Act. Each Fund offers three classes of shares: Premier, Classic and Class B Shares, except the AmSouth U.S. Treasury Fund and Tax Exempt Fund which offer only Premier Shares and Classic Shares. As of the date of this prospectus, however, Class B Shares are not offered in the Limited Maturity Fund, Government Income Fund, Florida Fund and Municipal Bond Fund. Each Share represents an equal proportionate interest in a Fund with other Shares of the same series, and is entitled to such dividends and distributions out of the income earned on the assets belonging to that Fund as are declared at the discretion of the Trustees (see "Miscellaneous" below). Shares of the Trust are entitled to one vote per share (with proportional voting for fractional shares) on such matters as Shareholders are entitled to vote. Shareholders vote in the aggregate and not by series or class on all matters except (i) when required by the 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) only the holders of Classic Shares will be entitled to vote on matters submitted to Shareholder vote with regard to the Servicing Plan, and (iv) only the holders of Class B Shares will be entitled to vote on matters submitted to Shareholder vote with regard to the Distribution Plan. Overall responsibility for the management of the Trust is vested in the Board of Trustees. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS--Trustees of the Trust." Individual Trustees are elected by the Shareholders and may be removed by the Board of Trustees or Shareholders at a meeting held for such purpose in accordance with the provisions of the Declaration of Trust and the By-laws of the Trust and Massachusetts law. See "ADDITIONAL INFORMATION--Miscel- 60 110 laneous" in the Statement of Additional Information for further information. The Trust believes that as of August 21, 1997, AmSouth, 1901 Sixth Avenue North, Birmingham, AL 35203, was the Shareholder of record of 98.81% of the outstanding shares of the Premier Class of the Prime Obligations Fund, 98.98% of the outstanding shares of the Premier Class of the AmSouth U.S. Treasury Fund, and 98.98% of the Premier Class of the Tax Exempt Fund. As of August 21, 1997, AmSouth was the beneficial owner of approximately 76.79% of the outstanding shares of the Premier Shares of the Prime Obligations Fund, 11.55% of the outstanding shares of the Premier Shares of the AmSouth U.S. Treasury Fund and 69.27% of the outstanding shares of the Premier Shares of the Tax Exempt Fund, and may be deemed to be a "controlling person" of each of the Premier Shares of the Prime Obligations Fund and the Tax Exempt Fund within the meaning of the Investment Company Act of 1940. The Trust believes as of August 21, 1997, AmSouth, 1901 Sixth Avenue North, Birmingham, AL 35203, was the Shareholder of record of 98.01% of the outstanding shares of the Bond Fund, 97.51% of the outstanding shares of the Limited Maturity Fund, 88.18% of the outstanding shares of the Florida Fund; 94.92% of the outstanding shares of the Equity Fund; 68.22% of the outstanding shares of the Regional Equity Fund; and 86.78% of the outstanding shares of the Balanced Fund. As of August 21, 1997, AmSouth was the beneficial owner of approximately 72.49% of the outstanding shares of the Bond Fund, 57.28% of the outstanding shares of the Limited Maturity Fund; 61.73% of the outstanding shares of the Equity Fund; 54.67% of the outstanding shares of the Regional Equity Fund; and 81.58% of the outstanding shares of the Balanced Fund and may be deemed to be a "controlling person" of each of the above-mentioned Funds within the meaning of the Investment Company Act of 1940. CUSTODIAN As of April 17, 1997, AmSouth serves as custodian for the Trust ("Custodian"). Pursuant to the Custodian Agreement with the Trust, the Custodian receives compensation from each Fund for such services in an amount equal to an asset-based fee. TRANSFER AGENT AND FUND ACCOUNTING BISYS Funds Services Ohio, Inc. serves as transfer agent for and provides fund accounting services to the Trust. PERFORMANCE INFORMATION MUNICIPAL BOND FUND The Municipal Bond Fund commenced operations on July 1, 1997 subsequent to the transfer of assets by the Tax-Exempt Portfolio, a common trust fund, to the Municipal Bond Fund in exchange for shares of the Municipal Bond Fund. The Municipal Bond Fund's portfolio of investments on July 1, 1997 was the same as the portfolio of the Tax-Exempt Portfolio immediately prior to the transfer. The Tax-Exempt Portfolio is not a registered investment company as it is exempt from registration under the 1940 Act. Since, in a practical sense, the common trust fund constitutes a "predecessor" of the Fund, the Municipal Bond Fund calculates the performance for each Class of the Fund for periods commencing prior to the transfer of the Tax-Exempt Portfolio assets to the Municipal Bond Fund by including the Tax-Exempt Portfolio's total return adjusted to reflect the deduction of fees and expenses applicable to the Premier Shares of the Fund as stated in the Fee Table in this prospectus (i.e., adjusted to reflect anticipated expenses, net of management and administrative fee waivers). The Municipal Bond Fund from time to time may advertise certain investment performance figures, as discussed below. These figures are based on historical earnings, but past performance data is not necessarily indicative of future performance of the Fund. 61 111 COMPARATIVE PERFORMANCE INFORMATION REGARDING THE TAX-EXEMPT PORTFOLIO AND THE MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURN* FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ------------------------------------------------------------- ------ ------- ------- -------- Tax-Exempt Portfolio......................................... 5.45% 5.21% 4.69% 5.92%
- ------------ * Figures were calculated pursuant to a methodology established by the SEC and do not reflect an imposition of a sales charge given that Premier Shares of the Municipal Bond Fund are not subject to a sales charge. The above-mentioned performance data includes the performance of the Tax-Exempt Portfolio for the period before the Municipal Bond Fund commenced operations adjusted to reflect the deduction of fees and expenses applicable to the Premier Shares of the Municipal Bond Fund (i.e., adjusted to reflect anticipated expenses, net of management and administrative fee waivers). The Tax-Exempt Portfolio was not registered under the 1940 Act and therefore was not subject to certain investment restrictions, limitations and diversification requirements imposed by the Act and the Code. If the Tax-Exempt Portfolio had been registered under the 1940 Act, its performance may have been adversely affected. The investment objective, restrictions and guidelines of the Municipal Bond Fund are substantially similar to the Tax Exempt Portfolio and both were managed by the same personnel. MONEY MARKET FUNDS From time to time, the Money Market Funds' annualized "yield" and "effective yield" and total return may be presented in advertisements and sales literature. The "yield" of a Money Market Fund is based upon the income earned by the Money Market Fund over a seven-day period and then annualized, i.e. the income earned in the period is assumed to be earned every seven days over a 52-week period and is stated as a percentage of the investment. The "effective yield" of a Money Market Fund is calculated similarly but when annualized, the income earned by the investment is assumed to be reinvested in Shares of the Fund and thus compounded in the course of a 52-week period. The effective yield will be higher than the yield because of the compounding effect of this assumed reinvestment. The Tax Exempt Fund may also present its "tax equivalent yield" and "tax equivalent effective yield" which reflect the amount of income subject to federal income taxation that a taxpayer in a stated tax bracket would have to earn in order to obtain the same after-tax income as that derived from the yield and effective yield, respectively, of the Tax Exempt Fund. The tax equivalent yield and tax equivalent effective yield will be significantly higher than the yield and effective yield of the Tax Exempt Fund. Total return is calculated for the past year, five years (if applicable) and the period since the establishment of a Money Market Fund. Average annual total return is measured by comparing the value of an investment in a Money Market Fund at the beginning of the relevant period to the redemption value of the investment at the end of the period (assuming immediate reinvestment of any dividends or capital gains distributions) and annualizing the result. Aggregate total return is calculated similarly to average annual total return except that the return figure is aggregated over the relevant period instead of annualized. INCOME FUNDS AND CAPITAL APPRECIATION FUNDS From time to time performance information for the Premier Shares of a Fund showing its total return and/or yield may be presented in advertisements, sales literature and Shareholder reports. Total return will be calculated for the past year, five years (if applicable) and the period since the establishment of a Fund. Average annual total return is measured by comparing the value of an investment in a Fund at the beginning of the relevant period to the redemption value of the investment at the end of the period (assuming the investor paid the maximum sales load on the investment and assuming 62 112 immediate reinvestment of any dividends or capital gains distributions) and annualizing the difference. Aggregate total return is calculated similarly to average annual total return except that the return figure is aggregated over the relevant period instead of annualized. Yield will be computed by dividing a Fund's net investment income per share earned during a recent one-month period by the Fund's per share maximum offering price (reduced by any undeclared earned income expected to be paid shortly as a dividend) on the last day of the period and annualizing the result. Each Fund may also present its total return and/or yield excluding the effect of the sales charge. The Tax-Free Funds may also present its "tax equivalent yield" which reflects the amount of income subject to federal income taxation that a taxpayer in a stated tax bracket would have to earn in order to obtain the same after-tax income as that derived from the yield of the Funds. The tax equivalent yield will be significantly higher than the yield of the Tax-Free Funds. GENERAL Yield, effective yield, tax-equivalent yield, and total return will be calculated separately for each Class of Shares. Because Premier Shares are not subject to a distribution and/or shareholder services fee, the yield and total return for Premier Shares will be higher than that of the Classic and Class B Shares for the same period. Investors may also judge the performance of each Fund by comparing its performance to the performance of other mutual funds with comparable investment objectives and policies through various mutual fund or market indices and data such as that provided by Lipper Analytical Services, Inc. Comparisons may also be made to indices or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week, American Banker, Fortune, Institutional Investor, Ibbotson Associates, Inc., Morningstar Inc., CDA/Wiesenberger, Pensions and Investments, U.S.A. Today, and local newspapers. 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 each Fund's performance 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 Fund, operating expenses and market conditions. Yields and total return of each Fund will fluctuate. Any fees charged by AmSouth with respect to accounts investing in Shares of a Fund will not be included in performance calculations. MISCELLANEOUS Shareholders will receive unaudited semi-annual reports and annual reports audited by independent public accountants. As used in this Prospectus and in the Statement of Additional Information, "assets belonging to a Fund" means the consideration received by the 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 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 63 113 time of allocation. The timing of allocations of general assets and general liabilities and expenses of the Trust to particular Funds will be determined by the Board of Trustees of the Trust and will be in accordance with generally accepted accounting principles. Determinations by the Board of Trustees of the Trust as to the timing of the allocation of general liabilities and expenses and as to the timing and allocable portion of any general assets with respect to a particular Fund are conclusive. As used in this Prospectus and in the Statement of Additional Information, a "vote of a majority of the outstanding Shares" of the Trust or a particular Fund means the affirmative vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more of the votes of Shareholders of the Trust or such Fund present at such meeting at which the holders of more than 50% of the votes attributable to the Shareholders of record of the Trust or such Fund are represented in person or by proxy, or (b) the holders of more than 50% of the outstanding votes of Shareholders of the Trust or such Fund. Under Massachusetts law, Shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Trust's Declaration of Trust disclaims Shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in every agreement, obligation or instrument entered into or executed by the Trust or the Trustees. The Declaration of Trust provides for indemnification out of a Fund's property for all loss and expense of any Shareholder of such Fund held liable on account of being or having been a Shareholder. Thus, the risk of a Shareholder incurring financial loss on account of Shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations. Inquiries regarding the Trust may be directed in writing to the Trust at P.O. Box 182733, Columbus, Ohio 43218-2733, or by calling toll free (800) 451-8382. 64 114 AMSOUTH MUTUAL FUNDS INVESTMENT ADVISOR [AMSOUTH LOGO] AmSouth Bank 1901 Sixth Avenue North Birmingham, AL 35203 INVESTMENT SUB-ADVISORS (Equity Income Fund only) Rockhaven Asset Management, LLC 100 First Avenue, Suite 1050 Pittsburgh, PA 15222 (Capital Growth Fund only) Peachtree Asset Management A Division of Smith Barney Inc. One Peachtree Center Atlanta, GA 30308 DISTRIBUTOR BISYS Fund Services, Limited Partnership 3435 Stelzer Road Columbus, OH 43219 ADMINISTRATOR ASO Services Company 3435 Stelzer Road Columbus, OH 43219 LEGAL COUNSEL Ropes & Gray One Franklin Square 1301 K Street, N.W. Suite 800 East Washington, DC 20005-3333 TRANSFER AGENT BISYS Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 AUDITORS Coopers & Lybrand L.L.P. 100 East Broad Street Columbus, OH 43215 TABLE OF CONTENTS
Page ---- Fee Table...................................... 3 Financial Highlights........................... 6 Investment Objective and Policies.............. 17 Investment Techniques.......................... 39 Investment Restrictions........................ 41 Valuation of Shares............................ 43 How to Purchase and Redeem Shares.............. 44 Dividends and Taxes............................ 49 Management of the AmSouth Mutual Funds......... 55 General Information............................ 60
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. AS4P090197 115 AMSOUTH MUTUAL FUNDS ==================== [AMSOUTH(R) LOGO] AMSOUTH BANK Investment Advisor P R E M I E R S H A R E S [AMSOUTH MUTUAL FUNDS LOGO] NOT FDIC INSURED BISYS FUND SERVICES, DISTRIBUTOR Prospectus dated September 1, 1997 116 AMSOUTH MUTUAL FUNDS CAPITAL APPRECIATION FUNDS CLASSIC SHARES AND CLASS B SHARES 3435 Stelzer Road For current yield, purchase, and redemption Columbus, Ohio 43219 information, call (800) 451-8382
The Capital Appreciation Funds (the "Capital Appreciation Funds") are six of fourteen series of units of beneficial interest ("Shares") each representing interests in one of fourteen separate investment funds (the "Funds") of AmSouth Mutual Funds (the "Trust"), an open-end management investment company. Each Capital Appreciation Fund has its own investment objective and the net asset value per share of each Capital Appreciation Fund will fluctuate as the value of such Capital Appreciation Fund's investment portfolio changes in response to changing market conditions and other factors. Each Capital Appreciation Fund offers Premier Shares, Classic Shares and Class B Shares. The Shares of the Capital Appreciation Funds outstanding on August 31, 1997, were redesignated as Classic Shares. Currently, Shares are not being offered in the Small Cap Fund. AMSOUTH EQUITY FUND (the "Equity Fund") seeks growth of capital by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stocks. The production of income is an incidental objective. The Advisor will seek opportunities for the Equity Fund in securities that are believed to represent investment value. AMSOUTH REGIONAL EQUITY FUND (the "Regional Equity Fund") seeks growth of capital by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks, such as convertible bonds and convertible preferred stocks, of companies headquartered in the Southern Region of the United States. The Southern Region of the United States includes Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee and Virginia. The production of income is an incidental objective. The Advisor will seek opportunities for the Regional Equity Fund in securities that are believed to represent investment value. AMSOUTH BALANCED FUND (the "Balanced Fund") seeks to obtain long-term capital growth and produce a reasonable amount of current income through a moderately aggressive investment strategy. The Balanced Fund seeks to achieve this objective by investing in a broadly diversified portfolio of securities, including common stocks, preferred stocks and bonds. The Advisor will seek opportunities for the Balanced Fund in securities that are believed to represent investment value. AMSOUTH CAPITAL GROWTH FUND (the "Capital Growth Fund") seeks long-term capital appreciation and growth of income by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stocks. AMSOUTH SMALL CAP FUND (the "Small Cap Fund") seeks capital appreciation by investing primarily in a diversified portfolio of securities consisting of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stock. Any current income generated from these securities is incidental to the investment objective of the Fund. Under normal market conditions, the Fund will invest at least 65% of its total assets in common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stock of companies with a market capitalization of less than $1 billion. AMSOUTH EQUITY INCOME FUND (the "Equity Income Fund") seeks above average income and capital appreciation by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stock. Under normal market conditions, the Fund will invest at least 65% of its total assets in income-producing equity securities including common stock, preferred stock, and securities convertible into common stocks such as convertible bonds and convertible preferred stock. The portion of the Fund's total assets invested in common stock, 117 preferred stock, and convertible securities will vary according to the Fund's assessment of market and economic conditions and outlook. AmSouth Bank, Birmingham, Alabama ("AmSouth") acts as the investment advisor to each Capital Appreciation Fund ("Advisor"). Rockhaven Asset Management, LLC ("Rockhaven") acts as the investment sub-advisor to the Equity Income Fund. Peachtree Asset Management, LLC ("Rockhaven") acts as the investment sub-advisor to the Capital Growth Fund. BISYS Fund Services, Limited Partnership ("BISYS Fund Services"), Columbus, Ohio, acts as the Capital Appreciation Funds' distributor ("Distributor"). Each Capital Appreciation Fund has been divided into three classes of Shares, Premier Shares, Classic Shares and Class B Shares. The following investors qualify to purchase Premier Shares: (i) investors for whom AmSouth acts in a fiduciary, advisory, custodial, agency or similar capacity through an account with its Trust Department; (ii) investors who purchase Shares of a Fund through a 401(k) plan or a 403(b) plan which by its terms permits purchases of Shares; and (iii) orders placed on behalf of other investment companies distributed by the Distributor and its affiliated companies. All other investors are eligible to purchase Classic Shares or Class B Shares only. This Prospectus relates only to the Classic Shares and Class B Shares of the Capital Appreciation Funds, which are offered to the general public. Premier Shares of the Capital Appreciation Funds are offered through a separate prospectus. Interested persons who wish to obtain a copy of the prospectuses of the AmSouth Prime Obligations Fund, the AmSouth U.S. Treasury Fund, and the AmSouth Tax Exempt Fund (the "Money Market Funds"), and the AmSouth Bond Fund, the AmSouth Limited Maturity Fund, the AmSouth Government Income Fund, the AmSouth Municipal Bond Fund, and the AmSouth Florida Tax-Free Fund (the "Income Funds") may contact the Distributor at the telephone number shown above. Additional information about the Capital Appreciation Funds, contained in a Statement of Additional Information, has been filed with the Securities and Exchange Commission and is available upon request without charge by writing to the Trust at its address or by calling the Trust at the telephone number shown above. The Statement of Additional Information bears the same date as this Prospectus and is incorporated by reference in its entirety into this Prospectus. This Prospectus sets forth concisely the information about the Classic Shares and Class B Shares of the Capital Appreciation Funds that a prospective investor ought to know before investing. Investors should read this Prospectus and retain it for future reference. THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY AMSOUTH OR ANY OF ITS AFFILIATES. THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR BY ANY OTHER AGENCY. AN INVESTMENT IN THE TRUST'S SHARES INVOLVES INVESTMENT RISKS, INCLUDING LOSS OF PRINCIPAL. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this prospectus is September 1, 1997. 118 FEE TABLE
REGIONAL EQUITY EQUITY CAPITAL GROWTH SMALL CAP EQUITY INCOME FUND FUND BALANCED FUND FUND FUND FUND ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- CLASS B CLASS B CLASS B CLASS B CLASS B CLASS B CLASSIC SHARES CLASSIC SHARES CLASSIC SHARES CLASSIC SHARES CLASSIC SHARES CLASSIC SHARES ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- SHAREHOLDER TRANSACTION EXPENSES(1) Maximum Sales Load Imposed on Purchases (as a percentage of offering price).......... 4.50% 0% 4.50% 0% 4.50% 0% 4.50% 0% 4.50% 0% 4.50% 0% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).......... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as applicable)..... 0% 5.00% 0% 5.00% 0% 5.00% 0% 5.00% 0% 5.00% 0% 5.00% Redemption Fees (as a percentage of amount redeemed, if applicable)(2)... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Exchange Fee...... $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets) Management Fees.......... .80% .80% .80% .80% .80%(3) .80%(3) .80% .80% .90% .90% .80% .80% 12b-1 Fees...... .00% 1.00% .00% 1.00% .00% 1.00% .00% 1.00% .00% 1.00% .00% 1.00% Shareholder Servicing Fees.......... .25% .00% .25% .00% .25% .00% .25% .00% .25% .00% .25% .00% Other Expenses (after voluntary fee reduction)(4)... .22% .22% .25% .25% .24% .24% .27% .27% .27% .27% .27% .27% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Fund Operating Expenses(5) (after voluntary fee reduction).... 1.27% 2.02% 1.30% 2.05% 1.29% 2.04% 1.32% 2.07% 1.42% 2.17% 1.32% 2.07% ======== ========= ======== ========= ======== ========= ======== ========= ======== ========= ======== ======
- ------------ (1) Financial Institutions may charge a Customer's (as defined in the Prospectus) account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (See "HOW TO PURCHASE AND REDEEM SHARES--Purchases of Shares.") (2) A wire redemption charge is deducted from the amount of a wire redemption payment made at the request of a shareholder. (See "HOW TO PURCHASE AND REDEEM SHARES--Redemption by Telephone.") (3) Amounts have been restated to reflect current fees. (4) Absent the voluntary reduction of administration fees, Other Expenses would be 0.31% for the Equity Fund, 0.33% for the Regional Equity Fund and 0.31% for the Balanced Fund. Other Expenses for the Capital Growth Fund, Small Cap Fund, and Equity Income Fund are based on estimates for the current fiscal year. (5) In the absence of any voluntary reduction of administration fees, Total Fund Operating Expenses for the Classic Shares would be 1.36% for the Equity Fund, 1.38% for the Regional Equity Fund and 1.36% for the Balanced Fund. In the absence of any voluntary reduction of administration fees, Total Fund Operating Expenses for the Class B Shares would be 2.11% for the Equity Fund, 2.13% for the Regional Equity Fund and 2.11% for the Balanced Fund. 3 119 EXAMPLE: You would pay the following expenses on a $1,000 investment in Classic Shares, assuming (1) 5% annual return and (2) redemption at the end of each time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Equity Fund.............................................................. $ 57 $83 $ 112 $191 Regional Equity Fund..................................................... $ 58 $84 $ 113 $195 Balanced Fund............................................................ $ 58 $84 $ 113 $194 Capital Growth Fund...................................................... $ 58 $85 N/A N/A Small Cap Fund........................................................... $ 59 $88 N/A N/A Equity Income Fund....................................................... $ 58 $85 N/A N/A
- ------------ You would pay the following expenses on a $1,000 investment in Class B Shares, assuming (1) deduction of the applicable Contingent Deferred Sales Charge; and (2) 5% annual return.
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Equity Fund Assuming a complete redemption at end of period........................ $ 71 $ 93 $ 129 $216 Assuming no redemption................................................. $ 21 $ 63 $ 109 $216 Regional Equity Fund Assuming a complete redemption at end of period........................ $ 71 $ 94 $ 130 $218 Assuming no redemption................................................. $ 21 $ 64 $ 110 $218 Balanced Fund Assuming a complete redemption at end of period........................ $ 71 $ 94 $ 130 $217 Assuming no redemption................................................. $ 21 $ 64 $ 110 $217 Capital Growth Fund Assuming a complete redemption at end of period........................ $ 71 $ 95 N/A N/A Assuming no redemption................................................. $ 21 $ 65 N/A N/A Small Cap Fund Assuming a complete redemption at end of period........................ $ 72 $ 98 N/A N/A Assuming no redemption................................................. $ 22 $ 68 N/A N/A Equity Income Fund Assuming a complete redemption at end of period........................ $ 71 $ 95 N/A N/A Assuming no redemption................................................. $ 21 $ 65 N/A N/A
The purpose of the tables above is to assist a potential investor in understanding the various costs and expenses that an investor in the Classic Shares or Class B Shares of each Capital Appreciation Fund will bear directly or indirectly. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS" for a more complete discussion of annual operating expenses. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Long-term shareholders may pay more than the equivalent of the maximum front-end sales charges otherwise permitted by NASD Rules. The information set forth in the foregoing tables and examples relates only to Classic Shares and Class B Shares. The Trust also offers Premier Shares of each Capital Appreciation Fund which are subject to the same expenses except that there are no sales charges nor distribution or shareholder servicing expenses charged to Premier Shares. (See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS"-- "Investment Advisor" and "Distributor.") 4 120 FINANCIAL HIGHLIGHTS The tables below set forth certain financial information concerning the investment results for each of the Funds for the period from commencement of operations to January 31, 1997. The information from the commencement of operations to July 31, 1996 is a part of the financial statements audited by Coopers & Lybrand L.L.P., independent accountants for the Trust, whose report on the Trust's financial statements for the year ended July 31, 1996 appears in the Statement of Additional Information. The information for the period ended January 31, 1997 is unaudited. The Small Cap Fund, Capital Growth Fund, and Equity Income Fund had not commenced operations as of January 31, 1997. Further financial data is incorporated by reference into in the Statement of Additional Information.
EQUITY FUND ------------------------------------------------------------------------ DECEMBER 1, YEAR ENDED JULY 31, 1988 TO ------------------------------------------------------------------------ JULY 31, 1996 1995 1994 1993 1992 1991 1990 1989(A) SIX MONTHS -------- -------- -------- -------- -------- ------- ------- ----------- ENDED JANUARY 31, 1997 ----------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD... $ 17.62 $ 16.75 $ 14.82 $ 14.38 $ 13.40 $ 12.57 $ 11.99 $ 12.18 $ 10.00 ----------- -------- -------- -------- -------- -------- ------- ------- ----- INVESTMENT ACTIVITIES Net investment income.............. 0.16 0.33 0.33 0.28 0.28 0.32 0.36 0.37 0.22 Net realized and unrealized gains from investments.... 2.30 1.48 2.39 0.83 1.48 1.20 0.61 (0.17) 2.16 ----------- -------- -------- -------- -------- -------- ------- ------- ----- Total from Investment Activities.......... 2.46 1.81 2.72 1.11 1.76 1.52 0.97 0.20 2.38 ----------- -------- -------- -------- -------- -------- ------- ------- ----- DISTRIBUTIONS Net investment income.............. (0.17) (0.33) (0.32) (0.28) (0.29) (0.33) (0.37) (0.35) (0.20) Net realized gains.... (1.04) (0.61) (0.47) (0.39) (0.49) (0.36) (0.02) (0.04) -- ----------- -------- -------- -------- -------- -------- ------- ------- ----- Total Distributions... (1.21) (0.94) (0.79) (0.67) (0.78) (0.69) (0.39) (0.39) (0.20) ----------- -------- -------- -------- -------- -------- ------- ------- ----- NET ASSET VALUE, END OF PERIOD................ 1$8.87..... $ 17.62 $ 16.75 $ 14.82 $ 14.38 $ 13.40 $ 12.57 $ 11.99 $ 12.18 =============== ========= ========= ========= ========= ========= ======== ======== ============= Total Return (Excludes Sales Charge)....... 14.32%(c).. 11.09% 19.27% 7.90% 13.81% 12.94% 8.46% 1.66% 24.06%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)........ $ 419,009 $374,622 $275,757 $205,611 $153,074 $107,934 $32,406 $14,383 $ 5,476 Ratio of expenses to average net assets.............. 1.01%(b).. 1.02% 1.03% 0.94% 0.95% 1.01% 1.15% 1.11% 1.16%(b) Ratio of net investment income to average net assets.............. 1.71%(b) 1.86% 2.17% 1.93% 2.08% 2.50% 3.16% 3.16% 2.91%(b) Ratio of expenses to average net assets*............. 1.09%(b).. 1.11% 1.11% 1.11% 1.13% 1.15% 1.26% 1.41% 2.34%(b) Ratio of net investment income to average net assets*............. 1.63%(b) 1.77% 2.09% 1.76% 1.90% 2.36% 3.04% 2.86% 1.73%(b) PORTFOLIO TURNOVER..... 11.94% 19.11% 19.46% 11.37% 15.12% 113.12% 15.78% 14.89% 4.03% Average commission rate paid(d)........ $ 0.0668 $ 0.0700 -- -- -- -- -- -- --
- ------------ * 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) Annualized. (c) Not annualized. (d) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of shares purchased and sold by the Fund for which commissions were charged. 5 121
REGIONAL EQUITY FUND ----------------------------------------------------------------- DECEMBER 1, YEAR ENDED JULY 31, 1988 TO ----------------------------------------------------------------- JULY 31, 1996 1995 1994 1993 1992 1991 1990 1989(A) SIX MONTHS ------- ------- ------- ------- ------- ------ ------ ----------- ENDED JANUARY 31, 1997 ----------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD............... $ 20.95 $ 18.94 $ 16.68 $ 16.74 $ 14.86 $ 13.44 $12.45 $11.64 $ 10.00 ----------- ------- ------- ------- ------- ------- ------ ------ ----------- INVESTMENT ACTIVITIES Net investment income... 0.15 0.26 0.23 0.23 0.19 0.23 0.26 0.23 0.14 Net realized and unrealized gains from investments........... 3.79 2.20 2.26 0.58 2.09 2.34 1.20 0.84 1.64 ----------- ------- ------- ------- ------- ------- ------ ------ ----------- Total from Investment Activities............ 3.94 2.46 2.49 0.81 2.28 2.57 1.46 1.07 1.78 ----------- ------- ------- ------- ------- ------- ------ ------ ----------- DISTRIBUTIONS Net investment income... (0.15) (0.26) (0.23) (0.23) (0.20) (0.23) (0.26) (0.22) (0.14) Net realized gains...... (0.49) (0.19) -- (0.41) (0.20) (0.92) (0.21) (0.04) -- ------- ----------- In excess of net realized gains........ -- -- -- (0.23) -- -- -- -- -- ----------- ------- ------- ------- ------- ------- ------ ------ ----------- Total Distributions..... (0.64)...... (0.45) (0.23) (0.87) (0.40) (1.15) (0.47) (0.26) (0.14) ----------- ------- ------- ------- ------- ------- ------ ------ ----------- NET ASSET VALUE, END OF PERIOD.................. 2$4.25..... $ 20.95 $ 18.94 $ 16.68 $ 16.74 $ 14.86 $13.44 $12.45 $ 11.64 =========== ======= ======= ======= ======= ======= ====== ====== =========== Total Return (Excludes Sales Charge)......... 18.96%(c)... 13.10% 15.10% 4.87% 15.53% 20.66% 12.52% 9.41% 17.79%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000).......... $ 120,448 $93,584 $68,501 $54,744 $41,347 $15,707 $7,853 $3,161 $ 2,523 Ratio of expenses to average net assets.... 1.03%(b)... 1.05% 1.07% 0.79% 0.80% 0.91% 0.79% 1.22% 1.41%(b) Ratio of net investment income to average net assets................ 1.22%(b) 1.30% 1.35% 1.36% 1.17% 1.61% 2.21% 1.92% 1.98%(b) Ratio of expenses to average net assets*... 1.11%(b) 1.13% 1.15% 1.24% 1.28% 1.36% 1.58% 2.32% 2.65%(b) Ratio of net investment income to average net assets*............... 1.14%(b) 1.22% 1.27% 0.90% 0.69% 1.16% 1.42% 0.82% 0.74%(b) PORTFOLIO TURNOVER........ 7.45%...... 8.22% 14.25% 5.83% 10.22% 24.99% 14.41% 14.00% 1.13% Average commission rate paid(d)................. 0$.0829.... $0.0827 -- -- -- -- -- -- --
- ------------ * 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) Annualized. (c) Not annualized. (d) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of shares purchased and sold by the Fund for which commissions were charged. 6 122
BALANCED FUND ----------------------------------------------- DECEMBER 19, YEAR ENDED JULY 31, 1991 TO ----------------------------------------------- JULY 31, 1996 1995 1994 1993 1992(A) -------- -------- -------- -------- ------------ SIX MONTHS ENDED JANUARY 31, 1997 ----------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD............................. $ 13.03 $ 12.76 $ 11.81 $ 11.86 $ 11.12 $ 10.00 -------- -------- -------- -------- -------- -------- INVESTMENT ACTIVITIES Net investment income.............. 0.25 0.47 0.47 0.42 0.44 0.27 Net realized and unrealized gains from investments................. 0.99 0.58 1.24 0.18 0.80 1.09 -------- -------- -------- -------- -------- -------- Total from Investment Activities... 1.24 1.05 1.71 0.60 1.24 1.36 -------- -------- -------- -------- -------- -------- DISTRIBUTIONS Net investment income.............. (0.27) (0.47) (0.46) (0.42) (0.45) (0.24) Net realized gains................. (0.58) (0.31) (0.30) (0.23) (0.05) -- -------- -------- -------- -------- -------- -------- Total Distributions................ (0.85) (0.78) (0.76) (0.65) (0.50) (0.24) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD....... $ 13.42 $ 13.03 $ 12.76 $ 11.81 $ 11.86 $ 11.12 ======== ======== ======== ======== ======== ======== Total Return (Excludes Sales Charge).......................... 9.73%(c) 8.37% 15.27% 5.13% 11.47% 13.71%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)............................ $ 355,980 $338,425 $295,509 $236,306 $179,134 $143,813 Ratio of expenses to average net assets........................... 1.02%(b) 0.98% 0.94% 0.84% 0.84% 0.83%(b) Ratio of net investment income to average net assets............... 3.62%(b) 3.61% 3.91% 3.56% 3.90% 4.45%(b) Ratio of expenses to average net assets*.......................... 1.10%(b) 1.11% 1.12% 1.11% 1.12% 1.17%(b) Ratio of net investment income to average net assets*.............. 3.54%(b) 3.48% 3.73% 3.28% 3.62% 4.10%(b) PORTFOLIO TURNOVER................... 13.57% 20.47% 16.97% 14.43% 11.09% 23.18% Average commission rate paid(d).... $ 0.0760 $ 0.0773 -- -- -- --
- ------------ * 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) Annualized. (c) Not annualized. (d) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of shares purchased and sold by the Fund for which commissions were charged. 7 123
EQUITY INCOME FUND ---------------- SIX MONTHS ENDED JULY 31, 1997 (UNAUDITED) ---------------- NET ASSET VALUE, BEGINNING OF PERIOD................................. $ 10.00 ======== INVESTMENT ACTIVITIES Net Investment income.............................................. 0.07 Net realized and unrealized gains from investments................. 1.71 -------- Total from Investment Activities................................... 1.78 ======== DISTRIBUTIONS Net investment income.............................................. (0.06) Net realized gains................................................. 0.00 -------- Total Distributions................................................ (0.06) ======== NET ASSET VALUE, END OF PERIOD....................................... $ 11.72 ======== Total Return (Excludes Sales Charge)................................. 17.81%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000).................................. $ 22,273 Ratio of expenses to average net assets............................ 1.28%(b) Ratio of net investment income to average net assets............... 2.11%(b) Ratio of expenses to average net assets*........................... 1.49%(b) Ratio of net investment income to average net assets*.............. 1.89%(b) PORTFOLIO TURNOVER................................................... 27.38% Average commission rate paid(d).................................... $ 0.0600
- ------------ * 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) Annualized. (c) Not annualized. (d) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of shares purchased and sold by the Fund for which commissions were charged. 8 124 INVESTMENT OBJECTIVES AND POLICIES The investment objective of a Capital Appreciation Fund may not be changed without a majority of the outstanding shares of that Fund (as defined in "GENERAL INFORMATION--Miscellaneous"). There can be no assurance that the investment objectives of any of the Capital Appreciation Funds will be achieved. THE EQUITY FUND AND THE REGIONAL EQUITY FUND seek capital growth by investing primarily in a diversified portfolio of common stock and securities convertible into common stock, such as convertible bonds and convertible preferred stock. In the case of the Regional Equity Fund, such securities must be issued by companies headquartered in the Southern Region of the United States which includes Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee and Virginia. The production of current income is an incidental objective of both the Equity Fund and the Regional Equity Fund. THE BALANCED FUND seeks to obtain long-term capital growth and produce a reasonable amount of current income through a moderately aggressive investment strategy. The Balanced Fund seeks to achieve this objective by investing in a broadly diversified portfolio of securities, including common stocks, preferred stocks and bonds. THE CAPITAL GROWTH FUND seeks long-term capital appreciation and growth of income by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stocks. THE SMALL CAP FUND seeks capital appreciation by investing primarily in a diversified portfolio of securities consisting of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stocks. Any current income generated from these securities is incidental to the investment objective of the Fund. Under normal market conditions, the Fund will invest at least 65% of its total assets in common stocks and securities convertible into common stocks of companies with a market capitalization of less than $1 billion determined at the time the security is purchased. THE EQUITY INCOME 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. Under normal market conditions, the Fund will invest at least 65% of its total assets in income-producing equity securities including common stock, preferred stock, and securities convertible into common stocks such as convertible bonds and convertible preferred stock. The portion of the Fund's total assets invested in common stock, preferred stock, and convertible securities will vary according to the Fund's assessment of market and economic conditions and outlook. The Advisor will seek to invest in equity securities which are believed to represent investment value. Factors which the Advisor may consider in selecting equity securities include industry and company fundamentals, historical price relationships, and/or underlying asset value. With respect to the Equity, Regional Equity, and Balanced Funds, the Advisor will use a variety of economic projections, technical analysis, and earnings projections in formulating individual stock purchase and sale decisions. The Advisor will select investments that it believes have basic investment value which will eventually be recognized by other investors, thus increasing their value to the Funds. In the selection of the investments for the Equity, Regional Equity, and Balanced Funds, the Advisor may therefore be making investment decisions which could be contrary to the present expectations of other professional investors. These decisions may involve greater risks compared to other mutual funds, of either (a) more accurate assessment by other investors, in which case losses may be incurred by a Fund, or (b) long delay in investor recognition of the accuracy of the investment decisions of a Fund, in which case invested capital of a Capital Appreciation Fund in an individual security 9 125 or group of securities may not appreciate for an extended period. In managing the Capital Growth Fund and Small Cap Fund, the Advisor will seek securities with potential to produce above-average earnings growth. Issuers include companies with a history of above-average growth or companies that are expected to enter periods of above-average growth or are positioned in emerging growth industries. Should the expected growth potential of such companies fail to be realized, a loss may be incurred. The equity securities in which the Capital Appreciation Funds may invest may be subject to wider fluctuations in value than some other forms of investment. Depending upon the performance of a Capital Appreciation Fund's investments, the net asset value per Share of such Fund may decrease instead of increase. Each Capital Appreciation Fund may provide current income. The Balanced Fund and the Equity Income Fund are expected to produce a higher level of current income than the other Capital Appreciation Funds. Most companies in which the Equity, Regional Equity, Balanced, Capital Growth, and Equity Income Funds will invest will be listed on national securities exchanges. Stocks held by the Small Cap Fund will frequently be traded over the counter. THE EQUITY FUND will normally invest at least 80% of the value of its total assets in common stocks and securities convertible into common stocks, such as convertible bonds and convertible preferred stocks, believed by the Advisor to be undervalued. Under normal market conditions, the Equity Fund may also invest up to 20% of the value of its total assets in preferred stocks, corporate bonds, notes, and warrants, and obligations with maturities of 12 months or less such as commercial paper (including variable amount master demand notes), bankers' acceptances, certificates of deposit, repurchase agreements, money market mutual funds, obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and demand and time deposits of domestic and foreign banks and savings and loan associations. If deemed appropriate for temporary defensive purposes, the Equity Fund may increase its holdings in short-term obligations to over 20% of its total assets and may also hold uninvested cash pending investment. The Fund may also write covered call options. See "Options." THE REGIONAL EQUITY FUND will normally invest at least 65% of the value of its total assets in common stocks and securities convertible into common stocks believed by the Advisor to be undervalued of companies headquartered in the Southern Region as defined above. Under normal market conditions, the Regional Equity Fund may also invest up to 35% of the value of its total assets in common stocks and securities convertible into common stock of companies headquartered outside the Southern Region, preferred stocks, corporate bonds, notes, and warrants, and obligations with maturities of 12 months or less such as commercial paper (including variable amount master demand notes), bankers' acceptances, certificates of deposit, repurchase agreements, money market mutual funds, obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and demand and time deposits of domestic and foreign banks and savings and loan associations. If deemed appropriate for temporary defensive purposes, the Regional Equity Fund may increase its holdings in short-term obligations to over 35% of its total assets and may also hold uninvested cash pending investment. The Regional Equity Fund may also write covered call options. See "Options." The Regional Equity Fund will normally invest at least 65% of the value of its total assets in common stock and securities convertible into common stock of companies headquartered in the Southern Region. There can be no assurance that the economy of the Southern Region or the companies headquartered in the Southern Region will grow in the future or that a company headquartered in the Southern Region whose assets, revenues or employees are located substantially outside of the Southern Region will share in any economic growth of the Southern Region. Additionally, any localized negative economic factors or possible physical disasters in the 10 126 Southern Region area could have a much greater impact on the Regional Equity Fund's assets than on similar funds whose investments are geographically more diverse. THE BALANCED FUND will normally invest in equity securities consisting of common stocks but may also invest in other equity-type securities such as warrants, preferred stocks and convertible debt instruments. The Fund's equity investments will be in companies with a favorable outlook and believed by the Advisor to be undervalued. The Balanced Fund's debt securities will consist of securities such as bonds, notes, debentures and money market instruments. The average dollar-weighted portfolio maturity of debt securities held by the Balanced Fund will vary according to market conditions and interest rate cycles and will range between 1 year and 30 years under normal market conditions. The Balanced Fund's debt securities will consist of high grade securities, which are those securities rated in one of the three highest rating categories by a nationally recognized statistical rating organization (an "NRSRO") at the time of purchase, or if not rated, found the by the Advisor under guidelines established by the Trust's Board of Trustees to be of comparable quality. (For a further description of these bond ratings, see the Appendix to the Trust's Statement of Additional Information.) In the event that the rating of any debt securities held by the Balanced Fund falls below the third highest by an NRSRO the Fund will not be obligated to dispose of such obligations and may continue to hold such obligations if, in the opinion of the Advisor, such investment is considered appropriate under the circumstances. The Balanced Fund may also write covered call options. See "Options." It is a fundamental policy of the Balanced Fund that it will invest at least 25% of its total assets in fixed-income securities. For this purpose, fixed-income securities include debt securities, preferred stock and that portion of the value of securities convertible into common stock, including convertible preferred stock and convertible debt, which is attributable to the fixed-income characteristics of those securities. The portion of the Balanced Fund's assets invested in equity and debt securities will vary in accordance with economic conditions, the general level of common stock prices, interest rates and other relevant considerations, including the risks associated with each investment medium. Although the Balanced Fund seeks to reduce the risks associated with any one investment medium by utilizing a variety of investments, performance will depend upon additional factors such as timing and mix and the ability of the Advisor to judge and react to changing market conditions. THE CAPITAL GROWTH FUND will normally invest at least 65% of the value of its total assets in common stocks and securities convertible into common stocks, such as convertible bonds and convertible preferred stocks, believed by the Advisor to have attractive potential for growth. Under normal market conditions, the Capital Growth Fund may also invest up to 35% of the value of their total assets in preferred stocks, corporate bonds, notes, and warrants, and obligations with maturities of 12 months or less such as commercial paper (including variable amount master demand notes), bankers' acceptances, certificates of deposit, repurchase agreements, money market mutual funds, obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and demand and time deposits of domestic and foreign banks and savings and loan associations. If deemed appropriate for temporary defensive purposes, the Capital Growth Fund may increase its holdings in short-term obligations to over 35% of their total assets and may also hold uninvested cash pending investment. The Capital Growth Fund may also write covered call options. See "Options." THE SMALL CAP FUND will normally invest at least 65% of its total assets in common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stock of companies with a market capitalization of less than $1 billion determined at the time the security is purchased. Under normal market conditions, the Small Cap Fund may invest up to 35% of the value of its total assets in common stocks and securities convertible into common stocks of companies with a 11 127 market capitalization of greater than $1 billion determined at the time the security is purchased, preferred stocks, corporate bonds, notes, and warrants, and obligations with maturities of 12 months or less such as commercial paper (including variable amount master demand notes), bankers' acceptances, certificates of deposit, repurchase agreements, money market mutual funds, obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and demand and time deposits of domestic and foreign banks and savings and loan associations. If deemed appropriate for temporary defensive purposes, the Small Cap Fund may increase its holdings in short-term obligations to over 35% of its total assets and may also hold uninvested cash pending investment. The Small Cap Fund may also write covered call options. See "Options." While small capital company securities may offer a greater capital appreciation potential than investments in mid- or large-cap company securities, they may also present greater risks. Small capital company securities tend to be more sensitive to changes in earnings expectations and have lower trading volumes than mid-to large-cap company securities and, as a result, they may experience more abrupt and erratic price movements. Any current income produced by a security is not a primary factor in the selection of investments. The Small Cap Fund may also invest in investment grade debt securities, that is, securities rated "BBB" or higher by an NRSRO at the time of purchase. If the rating of a security falls below investment grade, the Advisor will consider whatever action is appropriate consistent with the Fund's investment objectives and policies. See the Appendix to the Statement of Additional Information for a discussion of rating categories. The Small Cap Fund is managed in accordance with a value philosophy. This approach consists of developing a diversified portfolio of securities consistent with the Fund's investment objective and selected primarily on the basis of the Advisor's judgment that the securities have an underlying value, or potential value, which exceeds their current prices. The basis and quantification of the economic worth, or basic value of individual companies reflects the Advisor's assessment of a company's assets and the company's prospects for earning growth over the next 1 1/2-to-3 years. The Advisor relies primarily on the knowledge, experience and judgment of its own research staff, but also receives and uses information from a variety of outside sources, including brokerage firms, electronic data bases, specialized research firms and technical journals. THE EQUITY INCOME FUND will normally invest at least 65% of the value of its total assets in income-producing equity securities such as common stocks, preferred stocks, and securities convertible into common stocks, such as convertible bonds and convertible preferred stocks. The portion of the Fund's total assets invested in common stocks, preferred stocks, and convertible securities will vary according to the Sub-Advisor's assessment of market and economic conditions and outlook. Under normal market conditions, the Equity Income Fund may also invest up to 35% of the value of its total assets in corporate bonds, notes, and warrants, and obligations with maturities of 12 months or less such as commercial paper (including variable amount master demand notes), bankers' acceptances, certificates of deposit, repurchase agreements, money market mutual funds, obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and demand and time deposits of domestic and foreign banks and savings and loan associations. If deemed appropriate for temporary defensive purposes, the Equity Income Fund may increase its holdings in short-term obligations to over 35% of its total assets and may also hold uninvested cash pending investment. The Equity Income Fund may also write covered call options. See "Options." The Equity Income Fund's stock selection emphasizes those common stocks in each sector that have good value, attractive yield, and dividend growth potential. The Fund will utilize convertible securities because such securities typically offer higher yields and good potential for capital appreciation. 12 128 FOREIGN INVESTMENTS Each of the Capital Appreciation Funds may invest in foreign securities through the purchase of American Depository Receipts or the purchase of securities on the Toronto Stock Exchange, but will not do so if immediately after a purchase and as a result of the purchase the total value of such foreign securities owned by such Fund would exceed 25% (20% for the Balanced Fund) of the value of the total assets of such Fund. Each of the Capital Appreciation Funds may also invest in securities issued by foreign branches of U.S. banks and foreign banks and in Canadian Commercial Paper and Europaper. Investment in foreign securities is subject to special risks, such as future adverse political and economic developments, possible seizure, currency blockage, nationalization, or expropriation of foreign investments, less stringent disclosure requirements, the possible establishment of exchange controls or taxation at the source and the adoption of other foreign governmental restrictions. Additional risks include currency exchange risks, less publicly available information, the risk that companies may not be subject to the accounting, auditing and financial reporting standards and requirements of U.S. companies, the risk that foreign securities markets may have less volume and therefore less liquidity and greater price volatility than U.S. securities, and the risk that custodian and brokerage costs may be higher. CONVERTIBLE SECURITIES Each of the Capital Appreciation Funds may invest in convertible securities. Convertible securities are fixed income-securities which may be exchanged or converted into a predetermined number of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities. Each Capital Appreciation Fund other than the Balanced Fund may invest in convertible securities rated "BBB" or higher by an NRSRO at the time of investment, or if unrated, of comparable quality. The Equity Income Fund may invest in convertible securities rated "BB" or lower by an NRSRO at the time of investment, or if unrated, of comparable quality. The Balanced Fund may invest in convertible securities rated "A" or higher by an NRSRO or, if unrated, of comparable quality. If a convertible security falls below these minimum ratings after a Fund has purchased it, a 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 Equity Income 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 pay- 13 129 ments 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 Equity Income Fund's net asset value can be expected to decrease as long-term interest rates rise and to increase as long-term rates fall. In addition, lower rated securities may be more difficult to dispose of or to value than high-rated, lower-yielding securities. The Sub-Advisor attempts to reduce the risks described above through diversification of the portfolio and by credit analysis of each issuer as well as by monitoring broad economic trends and corporate and legislative developments. Convertible bonds and convertible preferred stocks are fixed-income securities that generally retain the investment characteristics of fixed-income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed-income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities, and, therefore, have a claim to assets of the corporation prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same company. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. The Capital Appreciation Funds will exchange or convert the convertible securities held in portfolio into shares of the underlying common stock in instances in which, in the opinion of the Advisor or Sub-Advisor, the investment characteristics of the underlying common shares will assist a Fund in achieving its investment objectives. Otherwise, a Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor or Sub-Advisor evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital 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. WHEN-ISSUED SECURITIES Each of the Capital Appreciation Funds may also purchase securities on a "when-issued" basis. When-issued securities are securities purchased for delivery beyond the normal settlement date at a stated price and yield, and thereby involve a risk that the yield obtained in the transaction will be less than those available in the market when delivery takes place. The Capital Appreciation Funds will generally not pay for such securities or start earning interest on them until they are received. When a Capital Appreciation Fund agrees to purchase securities on a "when-issued" basis, the Trust's custodian will set aside cash or liquid securities equal to the amount of the commitment in a segregated account. Securities purchased on a "when-issued" basis are recorded as an asset and are subject to changes in value based upon changes in the general level of interest rates. Each of the Capital Appreciation Funds expects that commitments to purchase "when-issued" securities will not exceed 25% of the value of its total assets under normal market conditions, and that a commitment to purchase "when-issued" securities will not exceed 60 days. In the event its commitment to purchase "when-issued" securities ever exceeded 25% of the 14 130 value of its total assets, a Capital Appreciation Fund's liquidity and the Advisor's or Sub-Advisor's ability to manage it might be adversely affected. The Capital Appreciation Funds do not intend to purchase "when-issued" securities for speculative purposes, but only for the purpose of acquiring portfolio securities. OPTIONS Each of the Capital Appreciation Funds may engage in writing call options from time to time as the Advisor or Sub-Advisor deems to be appropriate. Options are written solely as covered call options (options on securities owned by the Fund). Such options must be issued by the Options Clearing Corporation and may or may not be listed on a national securities exchange. In order to close out an option position, a Capital Appreciation Fund will enter into a "closing purchase transaction"--the purchase of a call option on the same security with the same exercise price and expiration date as any call option which it may previously have written on any particular securities. When the portfolio security is sold, the Capital Appreciation Fund effects a closing purchase transaction so as to close out any existing call option on that security. If the Capital Appreciation Fund is unable to effect a closing purchase transaction, it will not be able to sell the underlying security until the option expires or the Capital Appreciation Fund delivers the underlying security upon exercise. When writing a covered call option, a Capital Appreciation Fund, in return for the premium, gives up the opportunity for profit from a price increase in the underlying security above the exercise price, but retains the risk of loss should the price of the security decline. The Balanced Fund may purchase put options from time to time as the Advisor deems to be appropriate. A put is a right to sell a specified security (or securities) within a specified period of time at a specified exercise price. Puts may be acquired by the Balanced 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. The Balanced Fund may sell, transfer, or assign a put only in conjunction with the sale, transfer, or assignment of the underlying security or securities. The amount payable to the Balanced Fund upon its exercise of a "put" is normally (i) the Balanced 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 accreted market or original issue discount during the period the Balanced Fund owned the securities, plus (ii) all interest accrued on the securities since the last interest payment date during that period. The Balanced 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, the 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 Balanced Fund intends to enter into puts only with dealers, banks, and broker-dealers which, in the Advisor's opinion, present minimal credit risks. REPURCHASE AGREEMENTS Securities held by the Capital Appreciation Funds may be subject to repurchase agreements. If the seller under a repurchase agreement were to default on its repurchase obligation or become insolvent, the Capital Appreciation Fund would suffer a loss to the extent that the proceeds from a sale of the underlying portfolio securities were less than the repurchase price under the agreement, or to the extent that the disposition of such securities by the Capital Appreciation Fund were delayed pending court action. Additionally, if the seller should be involved in bankruptcy or insolvency proceedings, the Capital Appreciation Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Capital Appreciation Fund is treated as an unsecured creditor and required to return the underlying security to the seller's estate. 15 131 REVERSE REPURCHASE AGREEMENTS Each of the Capital Appreciation Funds may borrow funds for temporary purposes by entering into reverse repurchase agreements in accordance with the investment restrictions described below. Pursuant to such agreements, a Capital Appreciation Fund would sell portfolio securities to financial institutions such as banks and broker-dealers, and agree to repurchase them at a mutually agreed-upon date and price. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Capital Appreciation Fund may decline below the price at which the Fund is obligated to repurchase the securities. REAL ESTATE INVESTMENT TRUSTS The Capital Growth Fund, Small Cap Fund, and Equity Income Fund may invest in real estate investment trusts. Real estate investment trusts are sensitive to factors such as changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, overbuilding, and the management skill and creditworthiness of the issuer. Real estate may also be affected by tax and regulatory requirements, such as those relating to the environment. OTHER INVESTMENT PRACTICES Each Capital Appreciation Fund may invest up to 5% of the value of its total assets in the securities of any one money market mutual fund including Shares of the AmSouth Prime Obligations Fund and the AmSouth U.S. Treasury Fund (the "AmSouth Money Market Funds"), provided that no more than 10% of a Capital Appreciation Fund's total assets may be invested in the securities of money market mutual funds in the aggregate. In order to avoid the imposition of additional fees as a result of investments by the Capital Appreciation Funds in the AmSouth Money Market Funds, the Advisor and the Administrator will reduce that portion of their usual service fees from each Capital Appreciation Fund by an amount equal to their service fees from the AmSouth Money Market Funds that are attributable to those Capital Appreciation Fund investments. The Advisor and the Administrator will promptly forward such fees to the Capital Appreciation Funds. Each Capital Appreciation Fund will incur additional expenses due to the duplication of expenses as a result of investing in securities of other unaffiliated money market mutual funds. Additional restrictions regarding the Capital Appreciation Funds' investments in the securities of an unaffiliated money market fund and/or the AmSouth Prime Obligations Fund and the AmSouth U.S. Treasury Fund are contained in the Statement of Additional Information. In order to generate additional income, each Capital Appreciation Fund may, from time to time, lend its portfolio securities to broker-dealers, banks or institutional borrowers of securities which are not affiliated directly or indirectly with the Trust. While the lending of securities may subject a Capital Appreciation Fund to certain risks, such as delays or the inability to regain the securities in the event the borrower were to default on its lending agreement or enter into bankruptcy, the Capital Appreciation Fund will receive 100% collateral in the form of cash or other liquid securities. This collateral will be valued daily by the Advisor or Sub-Advisor and should the market value of the loaned securities increase, the borrower will furnish additional collateral to the Capital Appreciation Fund. During the time portfolio securities are on loan, the borrower pays the Capital Appreciation Fund any dividends or interest paid on such securities. Loans are subject to termination by the Capital Appreciation Funds or the borrower at any time. While the Capital Appreciation Funds do not have the right to vote securities on loan, the Capital Appreciation Funds intend to terminate the loan and regain the right to vote if that is considered important with respect to the investment. The Capital Appreciation Funds will only enter into loan arrangements with broker-dealers, banks or other institutions which the Advisor or Sub-Advisor has determined are creditworthy under guidelines established by the Trust's Board of Trustees. Each Capital Appreciation Fund may engage in the technique of short-term trading. Such trading involves the selling of securities held for a short 16 132 time, ranging from several months to less than a day. The object of such short-term trading is to increase the potential for capital appreciation and/or income of the Capital Appreciation Fund in order to take advantage of what the Advisor or Sub-Advisor believes are changes in market, industry or individual company conditions or outlook. Any such trading would increase the turnover rate of a Capital Appreciation Fund and its transaction costs. Each Capital Appreciation Fund will not invest more than 15% of its net assets in time deposits with maturities in excess of seven days which are subject to penalties upon early withdrawal. The portfolio turnover of each Capital Appreciation Fund may vary greatly from year to year as well as within a particular year. High turnover rates will generally result in higher transaction costs and higher levels of taxable realized gains to the Fund's shareholders. Portfolio turnover for the Capital Growth Fund, Small Cap Fund, and Equity Income Fund is not expected to exceed 200% in the coming year. INVESTMENT RESTRICTIONS Each of the Capital Appreciation Funds is subject to a number of investment restrictions that may be changed only by a vote of a majority of the outstanding shares of that Fund (see "GENERAL INFORMATION--Miscellaneous" in this prospectus). No Capital Appreciation Fund may: 1. Purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, if, immediately after such purchase, more than 5% of the value of such Capital Appreciation Fund's total assets would be invested in such issuer, or such Capital Appreciation Fund would hold more than 10% of any class of securities of the issuer or more than 10% of the outstanding voting securities of the issuer, except that up to 25% of the value of each Capital Appreciation Fund's total assets may be invested without regard to such limitations. There is no limit to the percentage of assets that may be invested in U.S. Treasury bills, notes, or other obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities. 2. Purchase any securities which would cause 25% or more of the value of such Capital Appreciation Fund's total assets at the time of purchase to be invested in securities of one or more issuers conducting their principal business activities in the same industry, provided that (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities and repurchase agreements secured by obligations of the U.S. Government or its agencies or instrumentalities; (b) wholly-owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of their parents; and (c) utilities will be divided according to their services. For example, gas, gas transmission, electric and gas, electric, and telephone will each be considered a separate industry. 3. Borrow money or issue senior securities, except that each Capital Appreciation Fund may borrow from banks or enter into reverse repurchase agreements for temporary purposes in amounts up to 10% of the value of its total assets at the time of such borrowing; or mortgage, pledge, or hypothecate any assets, except in connection with any such borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the value of such Capital Appreciation Fund's total assets at the time of its borrowing. A Capital Appreciation Fund will not purchase securities while borrowings (including reverse repurchase agreements) in excess of 5% of its total assets are outstanding. 4. Make loans, except that each Capital Appreciation Fund may purchase or hold debt securities and lend portfolio securities in accordance with its investment objective and policies, and may enter into repurchase agreements. 17 133 VALUATION OF SHARES The net asset value of each Capital Appreciation Fund is determined and its Shares are priced as of 4:00 p.m., Eastern Time (the "Valuation Time") on each Business Day of such Fund. As used herein a "Business Day" constitutes any day on which the New York Stock Exchange (the "NYSE") is open for trading and the Federal Reserve Bank of Atlanta is open, except days on which there are not sufficient changes in the value of the Fund's portfolio securities that the Fund's net asset value might be materially affected, or days during which no Shares are tendered for redemption and no orders to purchase Shares are received. Currently, either the NYSE or the Federal Reserve Bank of Atlanta is closed on the customary national business holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of pricing sales and redemptions is calculated by dividing the value of all securities and other assets belonging to a Capital Appreciation Fund, less the liabilities charged to that Class, by the number of the outstanding Shares of that Class. The net asset value per Share of each Capital Appreciation Fund will fluctuate as the value of its investment portfolio changes. The securities in each Capital Appreciation Fund will be valued at market value. If market quotations are not available, the securities will be valued by a method which the Board of Trustees of the Trust believes accurately reflects fair value. For further information about valuation of investments in the Capital Appreciation Funds, see the Statement of Additional Information. HOW TO PURCHASE AND REDEEM SHARES DISTRIBUTOR Shares in each of the Capital Appreciation Funds are sold on a continuous basis by the Trust's distributor, BISYS Fund Services (the "Distributor"). The principal office of the Distributor is 3435 Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares, contact the Trust at (800) 451-8382. Each Capital Appreciation Fund has been divided into three classes of Shares, Premier Shares, Classic Shares and Class B Shares. The three classes of a particular Fund represent interests in the same investments and are identical in all respects except that (i) Classic Shares bear the expense of the fee under the Trust's Shareholder Servicing Plan (the "Servicing Plan"), which will cause the Classic Shares to have a higher expense ratio and to pay lower dividends than those of the Premier Shares, (ii) Class B Shares bear the expense of the fee under the Trust's Distribution and Shareholder Services Plan (the "Distribution Plan"), which will cause the Class B Shares to have a higher expense ratio and to pay a lower dividend than those of the Classic Shares or Premier Shares, (iii) Classic Shares have certain exclusive voting rights with respect to the Servicing Plan and Class B Shares have certain exclusive voting rights with respect to the Distribution Plan, and (iv) Classic Shares are subject to a front-end sales charge and Class B Shares are subject to a contingent deferred sales charge. The following investors qualify to purchase Premier Shares: (i) investors for whom AmSouth acts in a fiduciary, advisory, custodial, agency or similar capacity through an account with its Trust Department; (ii) investors who purchase Shares of a Fund through a 401(k) plan or a 403(b) plan which by its terms permits purchases of Shares; and (iii) orders placed on behalf of other investment companies distributed by the Distributor and its affiliated companies. All other investors are eligible to purchase Classic Shares or Class B Shares only. 18 134 PURCHASES OF CLASSIC SHARES AND CLASS B SHARES Shares of the Capital Appreciation Funds may be purchased through procedures established by the Distributor in connection with requirements of qualified accounts maintained by or on behalf of certain persons ("Customers") by AmSouth or financial institutions that provide certain administrative support services for their customers or account holders (collectively, "Financial Institutions"). These procedures may include instructions under which a Customer's account is "swept" automatically no less frequently than weekly and amounts in excess of a minimum amount agreed upon by a Financial Institution and its Customer are invested by the Distributor in Shares of the Capital Appreciation Funds. These procedures may also include transactions whereby AmSouth as agent purchases Shares of the Capital Appreciation Funds in amounts that correspond to the market value of securities sold to the Capital Appreciation Funds by AmSouth as agent. Shares of the Trust sold to Financial Institutions acting in a fiduciary, advisory, custodial, agency, or other similar capacity on behalf of Customers will normally be held of record by the Financial Institutions. With respect to Shares so sold, it is the responsibility of the particular Financial Institution to transmit purchase or redemption orders to the Distributor and to deliver federal funds for purchase on a timely basis. Beneficial ownership of the Shares will be recorded by the Financial Institutions and reflected in the account statements provided by the Financial Institutions to Customers. Depending upon the terms of a particular Customer account, the Financial Institutions may charge a Customer's account fees for automatic investment and other cash management services provided in connection with investment in the Capital Appreciation Funds. Information concerning these services and any charges can be obtained from the Financial Institutions. This Prospectus should be read in conjunction with any such information received from the Financial Institutions. Investors may also purchase Classic Shares and Class B Shares of a Capital Appreciation Fund by completing and signing an Account Registration Form and mailing it, together with a check (or other negotiable bank draft or money order) in at least the minimum initial purchase amount, payable to the Trust, in care of AmSouth Mutual Funds, P.O. Box 182733, Columbus, Ohio 43218-2733. Subsequent purchases of Classic Shares or Class B Shares of a Capital Appreciation Fund may be made at any time by mailing a check (or other negotiable bank draft or money order) payable to the Trust, to the above address. If an Account Registration Form has been previously received by the Distributor, investors may also purchase Classic Shares and Class B Shares either by telephone or by wiring funds to the Trust's custodian. Telephone orders may be placed by calling the Trust at (800) 451-8382. Payment for Shares ordered by telephone may be made by check and must be received by the Trust's custodian within three days of the telephone order. If payment is not received within three days or a check timely received does not clear, the purchase will be canceled and the investor could be liable for any losses or fees incurred. In the case of purchases of Shares effected by wiring funds to the Trust's custodian, investors must call the Trust at (800) 451-8382 to obtain instructions regarding the bank account number into which the funds should be wired and other pertinent information. Investors may also purchase Classic Shares and Class B Shares by arranging systematic monthly, bi-monthly or quarterly investments into the Funds with the Trust's Automatic Investment Plan ("AIP"). The minimum investment amounts are $50 per transfer and the maximum amount with respect to any transfer is $100,000. After investors give the Trust proper authorization, their bank accounts, which must be with banks that are members of the Automated Clearing House, will be debited accordingly to purchase Shares. Investors will receive a confirmation from the Trust for every transaction, and a withdrawal will appear on their bank statements. To participate in AIP, investors must complete the appropriate sections of the Account Registration 19 135 form or call for instructions. This form may be obtained by calling the Trust at (800) 451-8382. The amount investors specify will automatically be invested in Shares at the specified Fund's public offering price per Share next determined after the debit is made. To change the frequency or amount invested, written instructions must be received by the Trust at least seven Business Days in advance of the next transfer. If the bank or bank account number is changed, instructions must be received by the Trust at least 20 Business Days in advance. In order to change a bank or bank account number, investors also must have their signature guaranteed by a bank, broker, dealer, credit union, securities exchange, securities association, clearing agency or savings association, as those terms are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 (an "Eligible Guarantor Institution"). Signature guarantees are described more fully under "REDEMPTION BY MAIL" below. If there are insufficient funds in the investor's designated bank account to cover the Shares purchased using AIP, the investor's bank may charge the investor a fee or may refuse to honor the transfer instruction (in which case no Fund Shares will be purchased). Investors should check with their banks to determine whether they are members of the Automated Clearing House and whether their banks charge a fee for transferring funds through the Automated Clearing House. Expenses incurred by the Funds related to AIP are borne by the Funds and therefore there is no direct charge by the Funds to investors for use of these services. Classic Shares and Class B Shares of each Capital Appreciation Fund are purchased at the public offering price per Share, which is the net asset value per Share (see "VALUATION OF SHARES") next determined after receipt by the Distributor of an order in good form to purchase Shares plus the applicable sales charge at the time of purchase in the case of Classic Shares as described below. Purchases of Shares of a Capital Appreciation Fund will be effected only on a Business Day (as defined in "VALUATION OF SHARES") of such Fund. An order received prior to the Valuation Time on any Business Day will be executed based on the net asset value determined as of the Valuation Time on the date of receipt. An order received after the Valuation Time on any Business Day will be executed based on the net asset value determined as of the next Business Day. In case of orders for the purchase of Shares placed through a broker-dealer, the applicable public offering price will be calculated with reference to the net asset value as so determined, but only if the broker-dealer receives the order prior to the Valuation Time for that day and transmits it to the Distributor prior to its close of business that same day (normally 4:00 p.m. Eastern Time). The broker-dealer is responsible for transmitting such orders by close of business. If the broker-dealer fails to do so, the investor's right to that day's closing price must be settled between the investor and the broker-dealer. The minimum investment is $1,000 for the initial purchase of Classic Shares and Class B Shares of a Capital Appreciation Fund by an investor. There is no minimum investment for subsequent purchases; however, as described above, the minimum subsequent investment when using AIP is $50 per transfer. The minimum initial investment amount may be waived if purchases are made in connection with Individual Retirement Accounts, Keogh plans or similar plans. For information on IRAs or Keoghs or similar plans, contact AmSouth at 800-451-8382. The maximum investment is $250,000 for total purchases of Class B Shares. There is no limit on the amount of Classic Shares that may be purchased. The Trust reserves the right to reject any order for the purchase of its Shares in whole or in part, including purchases made with foreign and third party checks. Every Shareholder will receive a confirmation of each new transaction in his or her account, which will also show the total number of Shares of the particular Fund owned by the Shareholder. In the case of Classic Shares and Class B Shares held of 20 136 record by Financial Institutions but beneficially owned by a Customer, confirmations of purchases, exchanges, and redemptions of Classic Shares or Class B Shares by a Financial Institution will be sent to the Customer by the Financial Institution. Shareholders may rely on these statements in lieu of certificates. Certificates representing Shares will not be issued. SALES CHARGE--CLASSIC SHARES The public offering price of a Classic Share of a Capital Appreciation Fund equals its net asset value plus a sales charge. BISYS receives this sales charge as Distributor and may re-allow a portion of it as dealer discounts and brokerage commissions. However, BISYS, at its sole discretion, may pay certain dealers all or part of the portion of the sales charges it receives. A broker or dealer who receives a reallowance in excess of 90% of the sales charge may be deemed to be an "underwriter" for purposes of the Securities Act of 1933.
SALES CHARGE AS DEALER A PERCENTAGE OF SALES CHARGE AS ALLOWANCE NET AMOUNT A PERCENTAGE OF AS A PERCENTAGE AMOUNT OF PURCHASE INVESTED OFFERING PRICE OF OFFERING PRICE - ---------------------------------------------------- --------------- --------------- ----------------- Less than $50,000................................... 4.71% 4.50% 4.05% $50,000 but less than $100,000...................... 4.17% 4.00% 3.60% $100,000 but less than $250,000..................... 3.09% 3.00% 2.70% $250,000 but less than $500,000..................... 2.04% 2.00% 1.80% $500,000 but less than $1,000,000................... 1.01% 1.00% .90% $1,000,000 or more.................................. -0-* -0-* -0-*
- --------- * Classic Shares are offered at net asset value without an initial sales charge but are subject to a Contingent Deferred Sales Charge equal to 1% of the lesser of the value of the Shares redeemed (exclusive of reinvested dividends and capital gains distributions) or the total cost of such Shares in the event of a Share redemption within twelve months following the purchase of $1 million or more in Classic Shares. The Distributor will provide additional compensation in an amount up to 1.00% of the offering price of Classic Shares of the Funds for sales of $1 million to $5 million and 0.50% for sales over $5 million. From time to time dealers who receive dealer discounts and broker commissions from the Distributor may reallow all or a portion of such dealer discounts and broker commissions to other dealers or brokers. The sales charges set forth in the table above are applicable to purchases made at one time by any purchaser (a "Purchaser"), which includes: (i) an individual, his or her spouse and children under the age of 21; (ii) a trustee or other fiduciary of a single trust estate or single fiduciary account; or (iii) any other organized group of persons, whether incorporated or not, provided that such organization has been in existence for at least six months and has some purpose other than the purchase of redeemable securities of a registered investment company. In order to qualify for a lower sales charge, all orders from a Purchaser will have to be placed through a single investment dealer and identified at the time of purchase as originating from the same Purchaser, although such orders may be placed into more than one discrete account which identifies the Purchasers. SALES CHARGE WAIVERS The following classes of investors may purchase Classic Shares of a Capital Appreciation Fund with no sales charge in the manner described below (which may be changed or eliminated at any time by the Distributor): 21 137 (1) Existing Shareholders of a Capital Appreciation Fund upon the reinvestment of dividend and capital gain distributions; (2) Officers, trustees, directors, employees and retired employees of the Trust, AmSouth Bancorporation and its affiliates, and BISYS Fund Services and its affiliates (and spouses and children of each of the foregoing); (3) Employees (and their spouses and children under the age of 21) of any brokerdealer with which the Distributor enters into a dealer agreement to sell Shares of the Funds; (4) Investors who purchase Shares of a Fund through a payroll deduction plan; and (5) Investors who purchase Shares of a Capital Appreciation Fund through certain broker-dealers, registered investment advisors and other financial institutions that have entered into an agreement with the Distributor, which includes a requirement that such shares be sold for the benefit of clients participating in a "wrap account," asset allocation or a similar program under which such clients pay a fee to such broker-dealer, registered investment advisor or other financial institution. From time to time, for special promotional purposes, the Distributor may offer special concessions to enable investors to purchase shares of a Fund offered by the Trust at net asset value without payment of a front-end charge. To qualify for a net asset value purchase, the investor must pay for such purchase with the proceeds from the redemption of shares of a non-affiliated mutual fund on which a front-end sales charge was paid. A qualifying purchase of shares must occur within 30 days of prior redemption and must be evidenced by a confirmation of the redemption transaction. At the time of purchase, the investment representative must notify the Distributor that the purchase qualifies for a purchase at net asset value and provide sufficient information to permit confirmation of qualification. Proceeds from the redemption of shares on which no front-end sales charge was paid do not qualify for a purchase at net asset value. The Distributor may also periodically waive the sales charge for all investors with respect to any Capital Appreciation Fund. LETTER OF INTENT By checking the Letter of Intent box on the account application, a shareholder becomes eligible for reduced sales charges applicable to the total amount invested in Classic Shares of a Capital Appreciation Fund over a 13-month period (beginning up to 90 days prior to the date indicated on the account application). The Trust's Transfer Agent will hold in escrow 5% of the amount indicated for payment of the higher sales charge if a shareholder does not purchase the full amount indicated on the account application. Upon completion of the total minimum investment specified on the account application, the escrow will be released, and an adjustment will be made to reflect any reduced sales charge applicable to shares purchased during the 90-day period prior to submission of the account application. Additionally, if the total purchases within the 13-month period exceed the amount specified, an adjustment will be made to reflect further reduced sales charges applicable to such purchases. All such adjustments will be made at the conclusion of the 13-month period in the form of additional shares credited to the shareholder's account at the then current Public Offering Price applicable to a single purchase of the total amount of the total purchases. If total purchases are less than the amount specified, escrowed shares may be involuntarily redeemed to pay the additional sales charge. Checking a Letter of Intent box does not bind an investor to purchase, or the Fund to sell, the full amount indicated at the sales load in effect at the time of signing, but an investor must complete the intended purchase to obtain the reduced sales load. For further information about Letters of Intent, interested investors should contact the Trust at (800) 451-8382. This program, however, may be modified or eliminated at any time or from time to time by the Distributor without notice. 22 138 CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION A Purchaser may qualify for a reduced sales charge by combining concurrent purchases of Classic Shares of a Capital Appreciation Fund and one or more of the other Funds of the Trust sold with a sales charge or by combining a current purchase of Classic Shares of a Capital Appreciation Fund with prior purchases of Classic Shares of any Fund of the Trust sold subject to a sales charge. The applicable sales charge is based on the sum of (i) the Purchaser's current purchase of shares of any Fund sold with a sales charge plus (ii) the then current net asset value of all Shares held by the Purchaser in any Fund sold with a sales charge. To receive the applicable public offering price pursuant to the right of accumulation Shareholders must at the time of purchase provide the Transfer Agent or the Distributor with sufficient information to permit confirmation of qualification. Accumulation privileges may be amended or terminated without notice at any time by the Distributor. SALES CHARGE--CLASS B SHARES Class B Shares are not subject to a sales charge when they are purchased, but are subject to a sales charge (the "Contingent Deferred Sales Charge") if a Shareholder redeems them prior to the sixth anniversary of purchase. When a Shareholder purchases Class B Shares, the full purchase amount is invested directly in the applicable Fund. Class B Shares of each Fund are subject to an ongoing distribution and shareholder service fee at an annual rate of 1.00% of such Fund's average daily net assets as provided in the Distribution Plan (described below under "The Distributor"). This ongoing fee will cause Class B Shares to have a higher expense ratio and to pay lower dividends than Classic Shares. Class B Shares convert automatically to Classic Shares after eight years, commencing from the end of the calendar month in which the purchase order was accepted under the circumstances and subject to the qualifications described in this Prospectus. Proceeds from the Contingent Deferred Sales Charge and the distribution and shareholder service fees under the Distribution Plan are payable to the Distributor to defray the expenses of advance brokerage commissions and expenses related to providing distribution-related and Shareholder services to the Fund in connection with the sale of the Class B Shares, such as the payment of compensation to dealers and agents selling Class B Shares. A dealer commission of 4.00% of the original purchase price of the Class B Shares of the Fund will be paid to financial institutions and intermediaries. However, the Distributor may, in its sole discretion, pay a higher dealer commission. CONTINGENT DEFERRED SALES CHARGE If the Shareholder redeems Class B Shares prior to the sixth anniversary of purchase, the Shareholder will pay a Contingent Deferred Sales Charge at the rates set forth below. The Contingent Deferred Sales Charge is assessed on an amount equal to the lesser of the then-current market value or the cost of the Shares being redeemed. Accordingly, no sales charge is imposed on increases in net asset value above the initial purchase price. In addition, no charge is assessed on Shares derived from reinvestment of dividends or capital gain distributions. The amount of the Contingent Deferred Sales Charge, if any, varies depending on the number of years from the time of payment for the purchase of Class B Shares until the time of redemption of such Shares. Solely for purposes of determining the number of years from the time of any payment for the purchase of Shares, all payments during a month 23 139 are aggregated and deemed to have been made on the first day of the month.
CONTINGENT DEFERRED SALES CHARGE AS A YEAR(S) PERCENTAGE 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% 6-7... None 7-8... None
In determining whether a particular redemption is subject to a Contingent Deferred Sales Charge, it is assumed that the redemption is first of any Classic Shares in the Shareholder's Fund account (unless the Shareholder elects to have Class B Shares redeemed first) or Shares representing capital appreciation, next of Shares acquired pursuant to reinvestment of dividends and capital gain distributions, and finally of other Shares held by the Shareholder for the longest period of time. This method should result in the lowest possible sales charge. To provide an example, assume you purchased 100 Shares at $10 per share (a total cost of $1,000) and prior to the second anniversary after purchase, the net asset value per share is $12 and during such time you have acquired 10 additional Shares through dividends paid in Shares. If you then make your first redemption of 50 Shares (proceeds of $600), 10 Shares will not be subject to charge because you received them as dividends. With respect to the remaining 40 Shares, the charge is applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds is subject to a Contingent Deferred Sales Charge at a rate of 4.00% (the applicable rate prior to the second anniversary after purchase). The Contingent Deferred Sales Charge is waived on redemption of Shares: (i) following the death or disability (as defined in the Code) of a Shareholder or a participant or beneficiary of a qualifying retirement plan if redemption is made within one year of such death or disability; or (ii) to the extent that the redemption represents a minimum required distribution from an Individual Retirement Account or other qualifying retirement plan to a Shareholder who has attained the age of 70 1/2. A Shareholder or his or her representative should contact the Transfer Agent to determine whether a retirement plan qualifies for a waiver and must notify the Transfer Agent prior to the time of redemption if such circumstances exist and the Shareholder is eligible for this waiver. In addition, the following circumstances are not deemed to result in a "redemption" of Class B Shares for purposes of the assessment of a Contingent Deferred Sales Charge, which is therefore waived: (i) plans of reorganization of the Fund, such as mergers, asset acquisitions and exchange offers to which the Fund is a party; or (ii) exchanges for Class B Shares of other Funds of the Trust as described under "Exchange Privilege." CONVERSION FEATURE Class B Shares include all Shares purchased pursuant to the Contingent Deferred Sales Charge which have been outstanding for less than the period ending eight years after the end of the month in which the shares were purchased. At the end of this period, Class B Shares will automatically convert to Classic Shares and will be subject to the lower distribution and Shareholder service fees charged to Classic Shares. Such conversion will be on the basis of the relative net asset values of the two classes, without the imposition of any sales charge, fee or other charge. The conversion is not a taxable event to a Shareholder. For purposes of conversion to Classic Shares, shares received as dividends and other distributions paid on Class B Shares in a Shareholder's Fund account will be considered to be held in a separate sub-account. Each time any Class B Shares in a Shareholder's Fund account (other than those in the sub-account) convert to Classic Shares, a pro-rata portion of the Class B Shares in the sub-account will also convert to Classic Shares. 24 140 If a Shareholder effects one or more exchanges among Class B Shares of the Funds of the Trust during the eight-year period, the Trust will aggregate the holding periods for the shares of each Fund of the Trust for purposes of calculating that eight-year period. Because the per share net asset value of the Classic Shares may be higher than that of the Class B Shares at the time of conversion, a Shareholder may receive fewer Classic Shares than the number of Class B Shares converted, although the dollar value will be the same. ADDITIONAL INFORMATION REGARDING BROKER COMPENSATION The Distributor, at its expense, will also provide additional compensation to dealers in connection with sales of Classic Shares and Class B Shares of any of the Funds. Such compensation will include financial assistance to dealers in connection with conferences, sales or training programs for their employees, seminars for the public, advertising campaigns regarding one or more Funds of the Trust, and/or other dealer-sponsored special events. In some instances, this compensation will be made available only to certain dealers whose representatives have sold a significant amount of such Shares. Compensation will include payment for travel expenses, including lodging, incurred in connection with trips taken by invited registered representatives and members of their families to locations within or outside the United States for meetings or seminars of a business nature. Compensation will also include the following types of non-cash compensation offered through sales contests: (1) vacation trips, including the provision of travel arrangements and lodging at luxury resorts at an exotic location, (2) tickets for entertainment events (such as concerts, cruises and sporting events) and (3) merchandise (such as clothing, trophies, clocks and pens). Dealers may not use sales of a Fund's Shares to qualify for this compensation to the extent such may be prohibited by the laws of any state or any self-regulatory agency, such as the National Association of Securities Dealers, Inc. None of the aforementioned compensation is paid for by any Fund or its Shareholders. EXCHANGE PRIVILEGE CLASSIC SHARES Classic Shares of each Fund may be exchanged for Classic Shares of the other Funds, provided that the Shareholder making the exchange is eligible on the date of the exchange to purchase Classic Shares (with certain exceptions and subject to the terms and conditions described in this prospectus). Classic Shares may not be exchanged for Class B Shares of the other Funds, and may be exchanged for Premier Shares of the other Funds only if the Shareholder becomes eligible to purchase Premier Shares. Shareholders may exchange their Classic Shares for Classic Shares of a Fund with the same or lower sales charge on the basis of the relative net asset value of the Classic Shares exchanged. Shareholders may exchange their Classic Shares for Classic Shares of a Fund with a higher sales charge by paying the difference between the two sales charges. Shareholders may also exchange Classic Shares of a Money Market Fund, for which no sales load was paid, for Classic Shares of a variable net asset value Fund ("Variable NAV Fund"). Under such circumstances, the cost of the acquired Classic Shares will be the net asset value per share plus the appropriate sales load. If Classic Shares of a Money Market Fund were acquired in a previous exchange involving Shares of a Variable NAV Fund, then such Shares of the Money Market Fund may be exchanged for Shares of a Variable NAV Fund without payment of any additional sales load within a twelve month period. Under such circumstances, the Shareholder must notify the Distributor that a sales load was originally paid. Depending upon the terms of a particular Customer account, a Participating Organization may charge a fee with regard to such an exchange. Information about such charges will be supplied by the Participating Organization. CLASS B Class B Shares of each Fund may be exchanged for Class B Shares of the other Funds on the basis of relative net asset value per Class B Share, without the payment of any Contingent Deferred Sales Charge which might otherwise be due upon re- 25 141 demption of the outstanding Class B Shares. Investors should note that, as of the date of this prospectus, Class B Shares were not yet being offered in the Government Income Fund, Limited Maturity Fund, Florida Fund and Municipal Bond Fund, thus, no exchanges may be effected for Class B Shares of these Funds. For purposes of computing the Contingent Deferred Sales Charge that may be payable upon a disposition of the newly acquired Class B Shares, the holding period for outstanding Class B Shares of the Fund from which the exchange was made is "tacked" to the holding period of the newly acquired Class B Shares. For purposes of calculating the eight-year holding period applicable to the newly acquired Class B Shares, the newly acquired Class B Shares shall be deemed to have been issued on the date of receipt of the Shareholder's order to purchase the outstanding Class B Shares of the Fund from which the exchange was made. Class B Shares may not be exchanged for Classic Shares of the other Funds, and may be exchanged for Premier Shares of the other Funds only if the Shareholder becomes eligible to purchase Premier Shares. A Contingent Deferred Sales Charge will apply as described in "How To Purchase and Redeem Shares" -- "Class B Shares" to exchanges of Class B Shares for Premier Shares. ADDITIONAL INFORMATION ABOUT EXCHANGES An exchange is considered to be a sale of Shares for federal income tax purposes on which a Shareholder may realize a capital gain or loss. In general, if a Shareholder exchanges Capital Appreciation Fund Shares for Shares of another Fund without paying a sales charge, the gain or loss on the sale of the Capital Appreciation Fund Shares will be calculated without taking into account the sales charge paid on the Capital Appreciation Fund Shares if the Shares were held less than 91 days. The sales charge will instead be added to the basis of the Fund Shares acquired in the exchange. The application of this rule will increase the gain or reduce the loss that the Shareholder would otherwise recognize on the exchange of the Shares of the Capital Appreciation Fund. Before an exchange can be effected, a Shareholder must receive a current prospectus of the Fund and class into which the Shares are exchanged. An exchange may be made by calling the Trust at (800) 451-8382 or by mailing written instructions to the Transfer Agent. Exchange privileges may be exercised only in those states where Shares of such other Funds of the Trust may legally be sold, and may be amended or terminated at any time upon sixty (60) days' notice. The Trust's exchange privilege is not intended to afford shareholders a way to speculate on short-term movements in the market. Accordingly, in order to prevent excessive use of the exchange privilege that may potentially disrupt the management of the Trust and increase transaction costs, the Trust has established a policy of limiting excessive exchange activity. Exchange activity will not be deemed excessive if limited to four substantive exchange redemptions from a Fund during any calendar year. AUTO EXCHANGE AmSouth Mutual Funds Auto Exchange enables Shareholders to make regular, automatic withdrawals from Classic Shares and Class B Shares of the AmSouth Prime Obligations Fund and use those proceeds to benefit from dollar-cost-averaging by automatically making purchases of shares of the same Class of another AmSouth Mutual Fund. With shareholder authorization, the Trust's transfer agent will withdraw the amount specified (subject to the applicable minimums) from the shareholder's Prime Obligations Fund account and will automatically invest that amount in Classic Shares or Class B Shares of the AmSouth Mutual Fund designated by the Shareholder at the public offering price on the date of such deduction. In order to participate in the Auto Exchange, Shareholders must have a minimum initial purchase of $10,000 in their Prime Obligations Fund account and maintain a minimum account balance of $1,000. To participate in the Auto Exchange, Shareholders should complete the appropriate section of the Account Registration Form, which can be acquired by calling the Distributor. To change the Auto 26 142 Exchange instructions or to discontinue the feature, a Shareholder must send a written request to the AmSouth Mutual Funds, P.O. Box 182733, Columbus, OH 43218-2733. The Auto Exchange may be amended or terminated without notice at any time by the Distributor. DIRECTED DIVIDEND OPTION Shareholders can elect to have dividend distributions (capital gains, dividends, dividends and capital gains) paid by check or reinvested within the Fund or reinvested in other AmSouth Mutual Funds of the same shareholder registration without a sales charge. To participate in the Directed Dividend Option, a shareholder must maintain a minimum balance of $1,000 in each Fund into which he or she plans to reinvest dividends. The Directed Dividend Option may be modified or terminated without notice. In addition, the Trust may suspend a shareholder's Directed Dividend Option without notice if the account balance is less than the minimum $1,000. Participation in the Option may be terminated or changed by the shareholder at anytime by writing the Distributor. The Directed Dividend Option is not available to participants in an AmSouth Mutual Funds IRA. REDEMPTION OF SHARES Shareholders may redeem their Classic Shares without charge, and their Class B Shares subject to the applicable Contingent Deferred Sales Charge, on any day that net asset value is calculated (see "VALUATION OF SHARES") Shares may ordinarily be redeemed by mail or by telephone. However, all or part of a Customer's Shares may be redeemed in accordance with instructions and limitations pertaining to his or her account at a Financial Institution. For example, if a Customer has agreed with a Financial Institution to maintain a minimum balance in his or her account with the Financial Institution, and the balance in that account falls below that minimum, the Customer may be obliged to redeem, or the Financial Institution may redeem for and on behalf of the Customer, all or part of the Customer's Shares of a Fund of the Trust to the extent necessary to maintain the required minimum balance. REDEMPTION BY MAIL A written request for redemption must be received by the Transfer Agent in order to constitute a valid tender for redemption. The Transfer Agent will require a signature guarantee by an eligible guarantor institution. For purposes of this policy, the term "eligible guarantor institution" shall include banks, brokers, dealers, credit unions, securities exchanges and associations, clearing agencies and savings associations as those terms are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. The Transfer Agent reserves the right to reject any signature guarantee if (1) it has reason to believe that the signature is not genuine, (2) it has reason to believe that the transaction would otherwise be improper, or (3) the guarantor institution is a broker or dealer that is neither a member of a clearing corporation nor maintains net capital of at least $100,000. The signature guarantee requirement will be waived if the following conditions apply: (1) the redemption check is payable to the Shareholder(s) of record; and (2) the redemption check is mailed to the Shareholder(s) at the address of record or the proceeds are either mailed or wired to a financial institution account previously designated. There is no charge for having redemption requests mailed to a designated bank account. REDEMPTION BY TELEPHONE A Shareholder may have the payment of redemption requests wired or mailed directly to a domestic commercial bank account previously designated by the Shareholder on the Account Registration Form. Under most circumstances, such payments will be transmitted on the next Business Day following receipt of a valid request for redemption. Such wire redemption requests may be made by the Shareholder by telephone to the Transfer Agent. The Transfer Agent may reduce the amount of a wire redemption payment from the then maximum wire redemption charge. Such charge is presently $7.00 for each wire redemption. There is no charge for having payment of redemption requests mailed or 27 143 sent via Automated Clearing House to a designated bank account. For telephone redemptions, call the Trust at (800) 451-8382. The Trust will employ reasonable procedures to confirm that instructions communicated by telephone are genuine; if these procedures are not followed, the Trust may be liable for any losses due to unauthorized or fraudulent instructions. These procedures include recording all phone conversations, sending confirmations to Shareholders within 72 hours of the telephone transaction, verifying the account name and a shareholder's account number or tax identification number and sending redemption proceeds only to the address of record or to a previously authorized account. During periods of significant economic or market change, telephone redemptions may be difficult to complete. If a Shareholder is unable to contact the Distributor by telephone, a Shareholder may also mail the redemption request to the Distributor at the address listed above under "HOW TO REDEEM SHARES--Redemption by Mail." PAYMENTS TO SHAREHOLDERS Redemption orders are effected at the net asset value per Share next determined after the Shares are properly tendered for redemption, as described above. The proceeds paid upon redemption of Shares in a Capital Appreciation Fund may be more or less than the amount invested. Payment to Shareholders for Shares redeemed will be made within seven days after receipt by the Transfer Agent of the request for redemption. However, to the greatest extent possible, the Trust will attempt to honor requests from Shareholders for next Business Day payments upon redemption of Shares if the request for redemption is received by the Transfer Agent before the Valuation Time on a Business Day or, if the request for redemption is received after the Valuation Time to honor requests for payment within two Business Days, unless it would be disadvantageous to the Trust or the Shareholders of the particular Capital Appreciation Fund to sell or liquidate portfolio securities in an amount sufficient to satisfy requests for payments in that manner. At various times, the Trust may be requested to redeem Shares for which it has not yet received good payment. In such circumstances, the Trust may delay the forwarding of proceeds only until payment has been collected for the purchase of such Shares which may take up to 15 days or more. To avoid delay in payment upon redemption shortly after purchasing Shares, investors should purchase Shares by certified or bank check or by wire transfer. The Trust intends to pay cash for all Shares redeemed, but under abnormal conditions which make payment in cash unwise, the Trust may make payment wholly or partly in portfolio securities at their then market value equal to the redemption price. In such cases, an investor may incur brokerage costs in converting such securities to cash. Due to the relatively high cost of handling small investments, the Trust reserves the right to redeem, at net asset value, the Shares of any Shareholder if, because of redemptions of Shares by or on behalf of the Shareholder, the account of such Shareholder in any Capital Appreciation Fund has a value of less than $250. Accordingly, an investor purchasing Shares of a Capital Appreciation Fund in only the minimum investment amount may be subject to such involuntary redemption if he or she thereafter redeems some of his or her Shares. Before the Trust exercises its right to redeem such Shares and to send the proceeds to the Shareholder, the Shareholder will be given notice that the value of the Shares of a Capital Appreciation Fund in his or her account is less than the minimum amount and will be allowed 60 days to make an additional investment in an amount which will increase the value of the account to at least $250. See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of Additional Information for examples of when the Trust may suspend the right of redemption or redeem Shares involuntarily if it appears appropriate to do so in light of the Trust's responsibilities under the Investment Company Act of 1940. 28 144 DIVIDENDS AND TAXES The net income of each of the Capital Appreciation Funds will be declared monthly as a dividend to Shareholders at the close of business on the day of declaration. Dividends will generally be paid monthly. Distributable net realized capital gains are distributed at least annually to Shareholders of record. A Shareholder will automatically receive all income dividends and capital gains distributions in additional full and fractional Shares unless the Shareholder elects to receive such dividends or distributions in cash. Dividends and distributions are reinvested without a sales charge as of the ex-dividend date using the net asset value determined on that date and are credited to a Shareholder's account on the payment date. Reinvested dividends and distributions receive the same tax treatment as dividends and distributions paid in cash. Dividends are generally taxable when received. However, dividends declared in October, November, or December to Shareholders of record during those months and paid during the following January are treated for tax purposes as if they were received by each Shareholder on December 31 of the prior year. Elections to receive dividends or distributions in cash, or any revocation thereof, must be made in writing to the Transfer Agent at 3435 Stelzer Road, Columbus, Ohio 43219, and will become effective with respect to dividends and distributions having record dates after its receipt by the Transfer Agent. Each of the Capital Appreciation Funds is treated as a separate entity for Federal income tax purposes. Each of the Capital Appreciation Funds intends to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code"). If they so qualify, the Capital Appreciation Funds will not have to pay federal income taxes on net income and net capital gain income that they distribute to shareholders. Regulated investment companies are also subject to a federal excise tax if they do not distribute their income on a timely basis. The Capital Appreciation Funds intend to avoid paying federal income and excise taxes by timely distributing substantially all their net income and net investment capital gain income. A distribution to a Shareholder of net investment income (generally the Fund's ordinary income) and the excess, if any, of net short-term capital gain over net long-term loss will be taxable to the Shareholder as ordinary income. The 70% dividends-received deduction for corporations generally will apply to the Fund's distributions to corporations to the extent such distributions represent amounts that would qualify for the dividends-received deduction when received by the Fund if the Fund were a regular corporation and are designated by the Fund as qualifying for the dividends-received deduction. A distribution by a Capital Appreciation Fund of the excess of net long-term capital gain over net short-term capital loss designated by such Fund as a capital gain dividend is taxable to Shareholders as long-term capital gain, regardless of how long the Shareholder has held Shares in such Fund. Such distributions are not eligible for the dividends-received deduction. The amount of dividends payable with respect to the Premier Shares will exceed dividends on Classic Shares, and the amount of dividends on Classic Shares will exceed the dividends on Class B Shares, as a result of the Shareholder Services Plan fee applicable to Classic Shares and the Distribution and Shareholder Services Plan fee applicable to Class B Shares. Prior to purchasing Shares of a Capital Appreciation Fund, the impact of dividends or capital gains distributions which are expected to be declared or have been declared, but not paid, should be carefully considered. Dividends or capital gains distributions paid after a purchase of Shares are subject to federal income taxes, although in some circumstances the dividend or distribution may be, as an economic matter, a return of capital. A Shareholder should consult his or her own advisor for any special advice. Dividends received by a Shareholder that are derived from a Capital Appreciation Fund's investments in U.S. government obligations may not be entitled to the exemptions from state and local 29 145 income taxes that would be available if the Shareholder had purchased U.S. government obligations directly. A Shareholder will generally recognize capital gain or loss on the sale or exchange of shares in a Capital Appreciation Fund. If a Shareholder receives a capital gain dividend with respect to a Share of a Capital Appreciation Fund and such Share is held for six months or less, any loss on the sale or exchange of such Share shall be treated as a long-term capital loss to the extent of the capital gain dividend. The foregoing discussion is limited to federal income tax consequences and is based on tax laws and regulations which are in effect as of the date of this Prospectus; such laws and regulations may be changed by legislative or administrative actions. The foregoing is also intended only as a brief summary of some of the important tax considerations generally affecting the Capital Appreciation Funds and their Shareholders. Potential investors in the Capital Appreciation Funds are urged to consult their tax advisors concerning their own tax situation and concerning the application of state and local taxes which may differ from the federal income tax consequences described above. Shareholders will be advised at least annually as to the character for federal income tax purposes of distributions made during the year. Additional Information regarding federal taxes is contained in the Statement of Additional Information under "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION--Additional Tax Information." 30 146 MANAGEMENT OF AMSOUTH MUTUAL FUNDS TRUSTEES OF THE TRUST Overall responsibility for management of the Trust rests with the Board of Trustees of the Trust, who are elected by the Shareholders of the Trust. There are currently six Trustees, two of whom are "interested persons" of the Trust within the meaning of that term under the Investment Company Act of 1940. The Trustees, in turn, elect the officers of the Trust to supervise actively its day-to-day operations. The Trustees of the Trust, their current addresses, and principal occupations during the past five years are as follows (if no address is listed, the address is 3435 Stelzer Road, Columbus, Ohio 43219):
POSITION(S) HELD PRINCIPAL OCCUPATION NAME AND ADDRESS WITH THE TRUST DURING THE PAST 5 YEARS - ------------------------------ ------------------ ------------------------------------------- George R. Landreth* Chairman From December 1992 to present, employee of BISYS Fund Services BISYS Fund Services, Limited Partnership; 3435 Stelzer Road from July 1991 to December 1992, employee Columbus, Ohio 43219 of PNC Financial Corp.; from October 1984 to July 1991, employee of The Central Trust Co., N.A. Dr. Dick D. Briggs, Jr. Trustee From 1981 to present, Professor and Vice 459 DER Building Chairman, Dept. of Medicine, Univ. of 1808 7th Avenue South Alabama at Birmingham School of Medicine; UAB Medical Center from December 1995 to present, Physician, Birmingham, Alabama 35294 University of Alabama Health Services Foundation; from 1988 to 1992, President, CEO and Medical Director, Univ. of Alabama Health Services Foundation Wendell D. Cleaver Trustee From September 3, 1993 to present, retired; 209 Lakewood Drive, West from December, 1988 to August, 1993, Mobile, Alabama 36608 Executive Vice President, Chief Operating Officer and Director, Mobile Gas Service Corporation J. David Huber* Trustee From June 1987 to present, employee of 3435 Stelzer Road BISYS Fund Services, Limited Partnership Columbus, Ohio 43219 Homer H. Turner, Jr. Trustee From June 1991 to present, retired; until 729 Cary Drive June 1991, Vice President, Birmingham Auburn, Alabama 36830 Division, Alabama Power Company James H. Woodward, Jr. Trustee From July 1989 to present, Chancellor, The The University of North University of North Carolina at Charlotte; Carolina at Charlotte until July 1989, Senior Vice President, Charlotte, North Carolina University College, University of Alabama 28223 at Birmingham
- ------------ * Indicates an "interested person" of the Trust as defined in the Investment Company Act of 1940. 31 147 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 Ohio, Inc. receives any compensation from the Trust for acting as a Trustee. The officers of the Trust (see the Statement of Additional Information) receive no compensation directly from the Trust for performing the duties of their offices. BISYS Fund Services receives fees from the Trust for acting as Administrator and BISYS Fund Services Ohio, Inc. receives fees from the Trust for acting as Transfer Agent for and for providing fund accounting services to the Trust. Messrs. Huber and Landreth are executive officers and employees of BISYS Fund Services. INVESTMENT ADVISOR AmSouth is the Advisor of each Fund of the Trust. AmSouth is the bank affiliate of AmSouth Bancorporation, one of the largest banking institutions headquartered in the midsouth region. AmSouth Bancorporation reported assets as of December 31, 1996 of $18.4 billion and operated 272 banking offices in Alabama, Florida, Georgia and Tennessee. AmSouth has provided investment management services through its Trust Investment Department since 1915. As of December 31, 1996, AmSouth and its affiliates had over $7.1 billion in assets under discretionary management and provided custody services for an additional $13.4 billion in securities. AmSouth is the largest provider of trust services in Alabama. AmSouth serves as administrator for over $12 billion in bond issues, and its Trust Natural Resources and Real Estate Department is a major manager of timberland, mineral, oil and gas properties and other real estate interests. Subject to the general supervision of the Trust's Board of Trustees and in accordance with the respective investment objectives and restrictions of the Capital Appreciation Funds, the Advisor manages the Capital Appreciation Funds (except for the Equity Income Fund), and therefore makes decisions with respect to and places orders for all purchases and sales of their investment securities, and maintains their records relating to such purchases and sales. Pedro Verdu, CFA, is the portfolio manager for each Capital Appreciation Fund (except the Equity Income Fund) and, as such, has had primary responsibility for the day-to- day portfolio management of each of these Funds since their inception. Mr. Verdu has twenty-four years of experience as an analyst and portfolio manager; he is currently the Director of Equity Investing at AmSouth. Under an investment advisory agreement between the Trust and the Advisor, the fee payable to the Advisor by the Equity, Regional Equity, Balanced, Equity Income, and Capital Growth Funds for investment advisory services is the lesser of (a) a fee computed daily and paid monthly at the annual rate of eighty one-hundredths of one percent (.80%) of such Fund's average daily net assets or (b) such fee as may from time to time be agreed upon in writing by the Trust and the Advisor. The fee payable for the Advisor by the Small Cap Fund for investment advisory services is the lesser of (a) a fee computed daily and paid monthly at the annual rate of ninety one-hundredths of one percent (.90%) of such Fund's average daily net assets or (b) such fee as may from time to time be agreed upon in writing by the Trust and the Advisor. While this fee is higher than the advisory fee paid by most mutual funds, it is believed to be comparable to advisory fees paid by many funds having similar objectives and policies. A fee agreed to in writing from time to time by the Trust and the Advisor may be significantly lower than the fee calculated at the annual rate and the effect of such lower fee would be to lower a Fund's expenses and increase the net income of the Fund during the period when such lower fee is in effect. During the Trust's fiscal year ended July 31, 1996, the Advisor received investment advisory fees amounting to .80% of the Equity Fund's average daily net assets, .80% of the Regional Equity Fund's average daily net assets and .75% of the Balanced Fund's average daily net assets after voluntary fee reductions with respect to the Balanced Fund. 32 148 INVESTMENT SUB-ADVISORS Rockhaven Asset Management, LLC ("Rockhaven") serves as Sub-Advisor to the Equity Income Fund pursuant to a Sub-Advisory Agreement with the Advisor. Under the SubAdvisory Agreement, the Sub-Advisor manages the Fund, selects investments, and places all order for purchases and sales of securities, subject to the general supervision of the Trust's Board of Trustees and the Advisor in accordance with the Fund's investment objective, policies, and restrictions. Rockhaven is 50% owned by AmSouth and 50% owned by Mr. Christopher H. Wiles. Rockhaven was organized in 1997 to perform advisory services for investment companies and has its principal offices at 100 First Avenue, Suite 1050, Pittsburgh, PA 15222. For its services and expenses incurred under the Sub-Advisory Agreement, the SubAdvisor is entitled to a fee, payable by the Advisor. The fee is computed daily and paid monthly at the annual rate of forty-eight one-hundredths of one percent (.48%) of the Fund's average daily net assets or such lower fee as may be agreed upon in writing by the Advisor and Sub-Advisor. Mr. Wiles is the portfolio manager for the Equity Income Fund, and, as such, has the primary responsibility for the day-to-day portfolio management of the Fund. Mr. Wiles is the President and Chief Investment Officer of Rockhaven. From August 1, 1991 to January 31, 1997, he was the portfolio manager of the Federated Equity Income Fund. The cumulative total return for the Federated Equity Income Fund from August 1, 1991 through January 31, 1997 was 138.72%. The cumulative total return for the same period for the Standard & Poor's Composite Stock Price Index ("S&P 500 Index") was 135.09%. At January 31, 1997, the 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 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 that fund compared with the performance of the S&P 500 Index were:
FEDERATED S&P 500 LIPPER EQUITY EQUITY INCOME FUND(A)(B) INDEX(C) INCOME FUND INDEX(D) ------------------------ ------- -------------------- One Year.................................... 23.03% 26.34% 19.48% Three Years................................. 16.93% 20.72% Five Years.................................. 16.38% 17.02% August 1, 1991 through January 31, 1997..... 17.11% 16.78%
(a) Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. (b) During the period from August 1, 1991 through January 31, 1997, the operating expense ratio of the Federated Equity Income Fund ranged from .95% to 1.05% of the Fund's average daily net assets. (c) 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. (d) The Lipper Equity Income Fund Index is equally weighted and composed of the largest mutual funds within its investment objective. These funds seek high current income and growth of income through investing 60% or more of their respective portfolios in equity securities. 33 149 HISTORICAL PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. The Federated Equity Income Fund is a separate fund and its historical performance is not indicative of the potential performance of the AmSouth Equity Income Fund. Share prices and investment returns will fluctuate reflecting market conditions, as well as changes in company-specific fundamentals of portfolio securities. Christopher Wiles was the Federated Equity Income Fund's portfolio manager from August 1, 1991 to January 31, 1997. Mr. Wiles joined Federate Investors in 1990 and served as a Vice President of the Fund's investment advisor from 1992 and Senior Vice President from October, 1996 to January 31, 1997. Mr. Wiles served as Assistant Vice President of the Fund's investment advisor in 1991. Mr. Wiles is a Chartered Financial Analyst and received his M.B.A. in Finance from Cleveland State University. Peachtree Asset Management ("Peachtree") serves as investment sub-adviser to the Capital Growth Fund, pursuant to a Sub-Advisory Agreement with AmSouth. The Capital Growth Fund commenced operations on August 1, 1997. Under the Sub-Advisory Agreement, Peachtree manages the Fund, selects investments, and places all orders for purchases and sales of securities, subject to the general supervision of the Trust's Board of Trustees and AmSouth in accordance with the Fund's investment objectives, policies and restrictions. Peachtree is a division of Smith Barney Mutual Funds Management Inc. ("SBMFM"), a wholly-owned subsidiary of Smith Barney Holdings Inc., which in turn is a wholly-owned subsidiary of Travelers Group Inc. Peachtree has performed advisory services since 1994 for institutional clients, and has its principal offices at 303 Peachtree Street, N.E., Atlanta, GA 30308. SBMFM and its predecessors have been providing investment advisory services to mutual funds since 1968. As of December 31, 1996, SBMFM had aggregate assets under management of approximately $80 billion. For its services and expenses incurred under the Sub-Advisory Agreement, Peachtree is entitled to a fee payable by AmSouth, computed daily and paid monthly at the annual rate of forty-eight one-hundredths of one percent (.48%) of the Fund's average daily net assets or such lower fee as may be agreed upon in writing by AmSouth and Peachtree. Dennis A. Johnson is the portfolio manager for the Capital Growth Fund, and, as such has the primary responsibility for the day-to-day portfolio management of the Fund. Mr. Johnson, who has been employed by Peachtree since 1994, is President and Chief Investment Officer of Peachtree. From 1989 to 1994, Mr. Johnson was Vice President and Portfolio Manager at Trusco Capital, the investment management subsidiary of Trust Company Bank, Atlanta, Georgia. ADMINISTRATOR ASO Services Company ("ASO") is the administrator for each Fund of the Trust (the "Administrator"). ASO is a wholly-owned subsidiary of BISYS. BISYS is a subsidiary of The BISYS Group, Inc., 150 Clove Road, Little Falls, New Jersey 07424, a publicly owned company engaged in information processing, loan servicing and 401(k) administration and recordkeeping services to and through banking and other financial organizations. The Administrator generally assists in all aspects of the Capital Appreciation Funds' administration and operation. Under a management and administration agreement between the Trust and the Administrator, the fee payable by each Capital Appreciation Fund to the Administrator for administration services is the lesser of (a) a fee computed at the annual rate of twenty one-hundredths of one percent (.20%) of such Capital Appreciation Fund's average daily net assets or (b) such fee as may from time to time be agreed upon by the Trust and the Administrator. A fee agreed to from time to time by the Trust and the Administrator may be significantly lower than the fee calculated at the annual rate and the effect of such lower fee would be to lower a Capital Appreciation Fund's expenses and increase the net income of the Fund during the period when such lower fee is in effect. 34 150 ASO succeeded BISYS as Administrator on April 1, 1996. During the Trust's fiscal year ended July 31, 1996, BISYS and ASO received administration fees, after voluntary fee reductions, amounting to .11% of the Equity Fund's average daily net assets, .12% of the Regional Equity Fund's average daily net assets and .11% of the Balanced Fund's average daily net assets. SUB-ADMINISTRATORS AmSouth serves as a Sub-Administrator to the Trust. Pursuant to its current agreement with the Administrator, AmSouth has assumed certain of the Administrator's duties, for which AmSouth receives a fee, paid by the Administrator, calculated at an annual rate of up to ten one-hundredths of one percent (.10%) of each Fund's average daily net assets. BISYS Fund Services serves as a Sub-Administrator to the Trust. Pursuant to its agreement with the Administrator, BISYS Fund Services is entitled to compensation as mutually agreed from time to time by it and the Administrator. DISTRIBUTOR BISYS Fund Services acts as the Trust's principal underwriter and distributor (the "Distributor") pursuant to a Distribution Agreement under which shares are sold on a continuous basis. Classic Shares of the Trust are subject to a Shareholder Servicing Plan (the "Servicing Plan") permitting payment of compensation to financial institutions that agree to provide certain administrative support services for their customers or account holders. Each Fund has entered into a specific arrangement with BISYS for the provision of such services by BISYS, and reimburses BISYS for its cost of providing these services, subject to a maximum annual rate of twenty-five one-hundredths of one percent (.25%) of the average daily net assets of the Classic Shares of each Fund. Under the Trust's Distribution and Shareholder Services Plan (the "Distribution Plan"), Class B Shares of a Fund will pay a monthly distribution fee to the Distributor as compensation for its services in connection with the Distribution Plan at an annual rate equal to one percent (1.00%) of the average daily net assets of Class B Shares of each Fund which includes Shareholder Servicing fee of .25% of the average daily net assets of the Class B Shares of each Fund. The Distributor may periodically waive all or a portion of the fee with respect to a Fund in order to increase the net investment income of the Fund available for distribution as dividends. The Distributor may apply the B Share Fee toward the following: (i) compensation for its services or expenses in connection with distribution assistance with respect to such Fund's B Shares; (ii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance companies, and investment counselors) as brokerage commissions in connection with the sale of such Fund's B Shares; and (iii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance companies, and investment counselors), broker-dealers, and the Distributor's affiliates and subsidiaries as compensation for services and/or reimbursement of expenses incurred in connection with distribution or shareholder services with respect to such Fund's B Shares. All payments by the Distributor for distribution assistance or shareholder services under the Distribution Plan will be made pursuant to an agreement (a "Servicing Agreement") between the Distributor and such bank, other financial institution or intermediary, broker-dealer, or affiliate or subsidiary of the Distributor (hereinafter referred to individually as "Participating Organizations"). A Servicing Agreement will relate to the provision of distribution assistance in connection with the distribution of a Fund's Class B Shares to the Participating Organization's customers on whose behalf the investment in such Shares is made and/or to the provision of shareholder services to the Participating Organization's customers owning a Fund's Class B Shares. Under the Distribution Plan, a Participating Organization may include AmSouth or a subsidiary bank or nonbank affiliates, or the subsidiaries or affiliates of those banks. A Servicing Agreement entered into 35 151 with a bank (or any of its subsidiaries or affiliates) will contain a representation that the bank (or subsidiary or affiliate) believes that it possesses the legal authority to perform the services contemplated by the Servicing Agreement without violation of applicable banking laws (including the Glass-Steagall Act) and regulations. The distribution fee will be payable without regard to whether the amount of the fee is more or less than the actual expenses incurred in a particular year by the Distributor in connection with distribution assistance or shareholder services rendered by the Distributor itself or incurred by the Distributor pursuant to the Servicing Agreements entered into under the Distribution Plan. If the amount of the distribution fee is greater than the Distributor's actual expenses incurred in a particular year (and the Distributor does not waive that portion of the distribution fee), the Distributor will realize a profit in that year from the distribution fee. If the amount of the distribution fee is less than the Distributor's actual expenses incurred in a particular year, the Distributor will realize a loss in that year under the Distribution Plan and will not recover from a Fund the excess of expenses for the year over the distribution fee, unless actual expenses incurred in a later year in which the Distribution Plan remains in effect were less than the distribution fee paid in that later year. The Glass-Steagall Act and other applicable laws prohibit banks generally from engaging in the business of underwriting securities, but in general do not prohibit banks from purchasing securities as agent for and upon the order of customers. Accordingly, the Trust will require banks acting as Participating Organizations to provide only those services which, in the banks' opinion, are consistent with the then current legal requirements. It is possible, however, that future legislative, judicial or administrative action affecting the securities activities of banks will cause the Trust to alter or discontinue its arrangements with banks that act as Participating Organizations, or change its method of operations. It is not anticipated, however, that any change in a Fund's method of operations would affect its net asset value per share or result in financial loss to any customer. EXPENSES AmSouth and the Administrator each bear all expenses in connection with the performance of their services as Advisor and Administrator, respectively, other than the cost of securities (including brokerage commissions, if any) purchased for a Capital Appreciation Fund. No Capital Appreciation Fund will bear, directly or indirectly, the cost of any activity primarily intended to result in the distribution of Shares of such Capital Appreciation Fund; such costs will be borne by the Distributor. As a general matter, expenses are allocated to the Premier, Classic, and Class B Shares of a Fund on the basis of the relative net asset value of each class. At present, the only expenses that will be borne solely by Classic and Class B Shares, other than in accordance with the relative net asset value of the class, are expenses under the Servicing Plan which relates only to the Classic Shares and the Distribution Plan which relates only to the Class B Shares. BANKING LAWS AmSouth believes that it possesses the legal authority to perform the investment advisory services for the Capital Appreciation Funds contemplated by its investment advisory agreement with the Trust and described in this Prospectus without violation of applicable banking laws and regulations, and has so represented in its investment advisory agreement with the Trust. Future changes in federal or state statutes and regulations relating to permissible activities of banks or bank holding companies and their subsidiaries and affiliates as well as further judicial or administrative decisions or interpretations of present and future statutes and regulations could change the manner in which AmSouth could continue to perform such services for the Trust. See "MANAGEMENT OF The Trust--Glass-Steagall Act" in the Statement of Additional Information for further discussion of applicable banking laws and regulations. 36 152 GENERAL INFORMATION DESCRIPTION OF THE TRUST AND ITS SHARES The Trust was organized as a Massachusetts business trust on October 1, 1987. The Trust has an unlimited number of authorized shares of beneficial interest which may, without shareholder approval, be divided into an unlimited number of series of such shares, and which are presently divided into fourteen series of shares, one for each of the following Funds: the AmSouth Prime Obligations Fund, the AmSouth U.S. Treasury Fund, the AmSouth Tax Exempt Fund, the AmSouth Equity Fund, the AmSouth Regional Equity Fund, the AmSouth Balanced Fund, the AmSouth Bond Fund, the AmSouth Limited Maturity Fund, the AmSouth Government Income Fund, the AmSouth Municipal Bond Fund, the AmSouth Florida TaxFree Fund, the AmSouth Capital Growth Fund, the AmSouth Small Cap Fund, and the AmSouth Equity Income Fund. Each Fund, except the AmSouth Florida Tax-Free Fund, is a diversified fund under the Investment Company Act of 1940, as amended. Each Fund offers three classes of Shares: Premier, Classic and Class B Shares, except for the AmSouth U.S. Treasury Fund and Tax Exempt Fund which offer only Premier Shares and Classic Shares. As of the date of this Prospectus, however, Class B Shares were not offered in Government Income Fund, Limited Maturity Fund, Florida Fund, and Municipal Bond Fund. Each Share represents an equal proportionate interest in a Fund with other Shares of the same series, and is entitled to such dividends and distributions out of the income earned on the assets belonging to that Fund as are declared at the discretion of the Trustees (see "Miscellaneous" below). Shares of the Trust are entitled to one vote per share (with proportional voting for fractional shares) on such matters as Shareholders are entitled to vote. Shareholders vote in the aggregate and not by series or class on all matters except (i) when required by the Investment Company Act of 1940, shares shall be voted by individual series or class, (ii) when the Trustees have determined that the matter affects only the interests of one or more series or class, and (iii) only the holders of Classic Shares will vote on matters submitted to shareholder vote with regard to the Servicing Plan and (iv) only the holders of Class B Shares will vote on matters submitted to shareholder vote with regard to the Distribution Plan. Overall responsibility for the management of the Trust is vested in the Board of Trustees. See "MANAGEMENT OF AmSouth Mutual Funds-- Trustees of the Trust." Individual Trustees are elected by the Shareholders and may be removed by the Board of Trustees or Shareholders at a meeting held for such purpose in accordance with the provisions of the Declaration of Trust and the By-laws of the Trust and Massachusetts law. See "ADDITIONAL INFORMATION--Miscellaneous" in the Statement of Additional Information for further information. As of August 21, 1997, AmSouth Bank, 1901 Sixth Avenue North, Birmingham, AL 35203, was the Shareholder of record of approximately 94.92% of the outstanding shares of the Equity Fund, 68.22% of the outstanding shares of the Regional Equity Fund, 86.78% of the outstanding shares of the Balanced Fund, and 19.58% of the outstanding shares of the Equity Income Fund. AmSouth Bank was the beneficial owner of approximately 61.73% of the outstanding shares of the Equity Fund, 54.67% of the outstanding shares of the Regional Equity Fund and 81.58% of the outstanding shares of the Balanced Fund, and may be deemed to be a "controlling person" of each of the above-mentioned Funds within the meaning of the Investment Company Act of 1940. CUSTODIAN As of April 17, 1997, AmSouth serves as custodian for the Trust ("Custodian"). Pursuant to the Custodian Agreement with the Trust, the Custodian receives compensation from each Fund for such services in an amount equal to an asset-based fee. 37 153 TRANSFER AGENT AND FUND ACCOUNTING BISYS Fund Services Ohio, Inc. serves as transfer agent for and provides fund accounting services to the Trust. PERFORMANCE INFORMATION From time to time performance information for the Classic Shares and Class B Shares of a Capital Appreciation Fund showing its total return and/or yield may be presented in advertisements and sales literature. Average annual total return will be calculated for the past year, five years (if applicable) and the period since the establishment of a Capital Appreciation Fund. Total return is measured by comparing the value of an investment in the Capital Appreciation Fund at the beginning of the relevant period to the redemption value of the investment at the end of the period (assuming the investor paid the maximum sales load on the investment and assuming immediate reinvestment of any dividends or capital gains distributions). Aggregate total return is calculated similarly to average total return except that the return figure is aggregated over the relevant period instead of annualized. Yield will be computed by dividing the Capital Appreciation Fund's net investment income per share earned during a recent one-month period by the Capital Appreciation Fund's per share maximum offering price (reduced by any undeclared earned income expected to be paid shortly as a dividend) on the last day of the period and annualizing the result. Yield, effective yield, and total return will be calculated separately for each Class of Shares. Because Classic Shares are subject to lower Shareholder Services fees than Class B Shares, the yield and total return for Classic Shares will be higher than that of the Class B Shares for the same period. Because Premier Shares are not subject to the Distribution and Shareholder Services fees, the yield and total return for Premier Shares will be higher than that of the Classic and Class B Shares for the same period. Investors may also judge the performance of each Capital Appreciation Fund by comparing its performance to the performance of other mutual funds with comparable investment objectives and policies through various mutual fund or market indices and data such as that provided by Lipper Analytical Services, Inc. Comparisons may also be made to indices or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week, American Banker, Fortune, Institutional Investor, Ibbotson Associates, Inc., Morning Star, Inc., CDA/Wiesenberger, Pensions and Investments, U.S.A. Today, and local newspapers and periodicals. In addition to performance information, general information about these Funds that appears in a publication such as those mentioned above may be included in advertisements, sales literature and in reports to Shareholders. Additional performance information is contained in the Trust's Annual Report, which is available free of charge by calling the number on the front page of the prospectus. Information about the performance of a Capital Appreciation Fund is based on the Capital Appreciation Fund's record up to a certain date and is not intended to indicate future performance. Yield and total return are functions of the type and quality of instruments held in a Capital Appreciation Fund, operating expenses, and marketing conditions. Any fees charged by a Financial Institution with respect to customer accounts investing in Shares of a Capital Appreciation Fund will not be included in performance calculations. MISCELLANEOUS Shareholders will receive unaudited semi-annual reports and annual reports audited by independent public accountants. As used in this Prospectus and in the Statement of Additional Information, "assets belonging to a Fund" means the consideration received by the Trust upon the issuance or sale of Shares in that Fund, together with all income, earnings, profits, and proceeds derived from the investment thereof, including any proceeds from the sale, exchange, or liquidation of such investments, and any funds or payments derived from any reinvestment of such proceeds, and any general assets of the Trust not 38 154 readily identified as belonging to a particular Fund that are allocated to that Fund by the Trust's Board of Trustees. The Board of Trustees may allocate such general assets in any manner it deems fair and equitable. It is anticipated that the factor that will be used by the Board of Trustees in making allocations of general assets to particular Funds will be the relative net assets of the respective Funds at the time of allocation. Assets belonging to a particular Fund are charged with the direct liabilities and expenses in respect of that Fund, and with a share of the general liabilities and expenses of the Trust not readily identified as belonging to a particular Fund that are allocated to that Fund in proportion to the relative net assets of the respective Funds at the time of allocation. The timing of allocations of general assets and general liabilities and expenses of the Trust to particular Funds will be determined by the Board of Trustees of the Trust and will be in accordance with generally accepted accounting principles. Determinations by the Board of Trustees of the Trust as to the timing of the allocation of general liabilities and expenses and as to the timing and allocable portion of any general assets with respect to a particular Fund are conclusive. As used in this Prospectus and in the Statement of Additional Information, a "vote of a majority of the outstanding Shares" of the Trust or a particular Fund means the affirmative vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more of the votes of Shareholders of the Trust or such Fund present at such meeting at which the holders of more than 50% of the votes attributable to the Shareholders of record of the Trust or such Fund are represented in person or by proxy, or (b) the holders of more than 50% of the outstanding votes of Shareholders of the Trust or such Fund. Under Massachusetts law, Shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Trust's Declaration of Trust disclaims Shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in every agreement, obligation or instrument entered into or executed by the Trust or the Trustees. The Declaration of Trust provides for indemnification out of a Fund's property for all loss and expense of any Shareholder of such Fund held liable on account of being or having been a Shareholder. Thus, the risk of a Shareholder incurring financial loss on account of Shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations. Inquiries regarding the Trust may be directed in writing to the Trust at P.O. Box 182733, Columbus, Ohio 43218-2733, or by calling toll free (800) 451-8382. 39 155 AMSOUTH MUTUAL FUNDS INVESTMENT ADVISOR LOGO AmSouth Bank 1901 Sixth Avenue North Birmingham, AL 35203 INVESTMENT SUB-ADVISORS (Equity Income Fund Only) Rockhaven Asset Management, LLC 100 First Avenue, Suite 1050 Pittsburgh, PA 15222 (Capital Growth Fund Only) Peachtree Asset Management A Division of Smith Barney Inc. One Peachtree Center Atlanta, GA 30308 ADMINISTRATOR ASO Services Company 3435 Stelzer Road Columbus, OH 43219 DISTRIBUTOR BISYS Fund Services, Limited Partnership 3435 Stelzer Road Columbus, OH 43219 LEGAL COUNSEL Ropes & Gray One Franklin Square 1301 K Street, N.W. Suite 800 East Washington, DC 20005-3333 TRANSFER AGENT BISYS Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 AUDITORS Coopers & Lybrand L.L.P. 100 East Broad Street Columbus, OH 43215 TABLE OF CONTENTS
Page ---- Fee Table...................................... 3 Financial Highlights........................... 5 Investment Objectives and Policies............. 9 Investment Restrictions........................ 17 Valuation of Shares............................ 18 How to Purchase and Redeem Shares.............. 18 Dividends and Taxes............................ 29 Management of AmSouth Mutual Funds............. 31 General Information............................ 37
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. AS3P090197 156 A M S O U T H M U T U A L F U N D S --------------------------------------- ======================================= [LOGO] AMSOUTH BANK Investment Advisor C A P I T A L APPRECIATION F U N D S A M S O U T H MUTUAL FUNDS NOT FDIC INSURED BISYS FUND SERVICES, DISTRIBUTOR Prospectus dated September 1, 1997 157 AMSOUTH MUTUAL FUNDS MONEY MARKET FUNDS CLASSIC SHARES AND CLASS B SHARES 3435 Stelzer Road For current yield, purchase, and redemption Columbus, Ohio 43219 information, call (800) 451-8382
The AmSouth Mutual Funds Money Market Funds (the "Money Market Funds") are three of fourteen series of units of beneficial interest ("Shares") each representing interests in one of fourteen separate investment funds (the "Funds") of AmSouth Mutual Funds (the "Trust"), an open-end management investment company. All securities or instruments in which the Money Market Funds invest have remaining maturities of 397 days or less. Each Money Market Fund seeks to maintain a constant net asset value of $1.00 per unit of beneficial interest, but there can be no assurance that net asset value will not vary. AMSOUTH PRIME OBLIGATIONS FUND (the "Prime Obligations Fund") seeks current income with liquidity and stability of principal. The Prime Obligations Fund invests in high quality United States dollar-denominated money market instruments and other high-quality United States dollar-denominated instruments. AMSOUTH U.S. TREASURY FUND (the "AmSouth U.S. Treasury Fund") seeks current income with liquidity and stability of principal. The AmSouth U.S. Treasury Fund invests exclusively in short-term obligations issued by the U.S. Treasury, some of which may be subject to repurchase agreements collateralized by U.S. Treasury obligations. AMSOUTH TAX EXEMPT FUND (the "Tax Exempt Fund") seeks to produce 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. The Tax Exempt Fund seeks to achieve this objective by investing in short-term high-quality obligations. While the Tax Exempt Fund may invest in short-term taxable obligations, under normal market conditions at least 80% of the Tax Exempt Fund's total assets will be invested in obligations exempt from federal income tax. AmSouth Bank, Birmingham, Alabama ("AmSouth"), acts as the investment advisor to each Money Market Fund ("Advisor"). BISYS Fund Services, Limited Partnership ("BISYS Fund Services"), Columbus, Ohio, acts as distributor to each Money Market Fund ("Distributor"). The Prime Obligations Fund has been divided into three classes of Shares: Premier Shares, Classic Shares, and Class B Shares and the AmSouth U.S. Treasury Fund and Tax Exempt Fund have been divided into two classes of Shares: Premier Shares and Classic Shares. The following investors qualify to purchase a Money Market Fund's Premier Shares: (i) investors for whom AmSouth acts in a fiduciary, advisory, custodial, agency or similar capacity through an account with its Trust Department; (ii) investors who purchase Shares of a Money Market Fund through a 401(k) plan or a 403(b) plan which by its terms permits purchases of Shares; and (iii) orders placed on behalf of other investment companies distributed by the Distributor and its affiliated companies. All other investors are eligible to purchase only Classic Shares of the Money Market Funds. Class B Shares of the Prime Obligations Fund only are available to Shareholders of Class B Shares of another Fund who wish to exchange their Class B Shares of such other Fund for Class B Shares of the Prime Obligations Fund. This Prospectus relates only to the Classic Shares of the Money Market Funds and Class B Shares of the Prime Obligations Fund which are offered to the general public. Through a separate Prospectus, the Trust also offers Premier Shares of the Money Market Funds. Interested persons who wish to obtain a copy of the prospectuses of the AmSouth Equity Fund, the AmSouth Regional Equity Fund, the AmSouth Balanced Fund, the AmSouth Capital Growth Fund, the AmSouth Small Cap Fund, and the AmSouth Equity Income 158 Fund (the "Capital Appreciation Funds"); the AmSouth Bond Fund, the AmSouth Limited Maturity Fund, the AmSouth Government Income Fund, the AmSouth Municipal Bond Fund, and the AmSouth Florida Tax-Free Fund (the "Income Funds") may contact the Distributor at the telephone number shown above. Additional information about the Money Market Funds, contained in a Statement of Additional Information, has been filed with the Securities and Exchange Commission and is available upon request without charge by writing to the Trust at its address or by calling the Trust at the telephone number shown above. The Statement of Additional Information bears the same date as this Prospectus and is incorporated by reference in its entirety into this Prospectus. This Prospectus sets forth concisely the information about the Classic Shares and Class B Shares of the Money Market Funds that a prospective investor ought to know before investing. Investors should read this Prospectus and retain it for future reference. THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY AMSOUTH OR ANY OF ITS AFFILIATES. THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR BY ANY OTHER AGENCY. AN INVESTMENT IN THE TRUST'S SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. ------------------------ AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION OF THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this Prospectus is September 1, 1997. 159 FEE TABLE
AMSOUTH TAX PRIME OBLIGATIONS U.S. TREASURY EXEMPT FUND FUND FUND ------------------ ------------- ------ CLASSIC CLASS B CLASSIC CLASSIC SHARES SHARES SHARES SHARES ------- ------- ------------- ------ SHAREHOLDER TRANSACTION EXPENSES(1) Maximum Sales Load Imposed on Purchases (as a percentage of offering price).......................... 0% 0% 0% 0% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).......................... 0% 0% 0% 0% Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as applicable)................. 0% 5.00% 0% 0% Redemption Fees (as a percentage of amount redeemed, if applicable)(2)............................................... 0% 0% 0% 0% Exchange Fee............................................... $ 0 $ 0 $ 0 $ 0 ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets) Management Fees (after voluntary fee reduction for the Tax Exempt Fund)(3).......................................... .40% .40% .40% .20% 12b-1 Fees................................................... .00% 1.00% .00% .00% Shareholder Servicing Fees(4) (after voluntary fee reductions for the Classic Shares)...... .10% .00% .10% .10% Other Expenses............................................... .31% .31% .32% .38% --- ---- --- --- Total Fund Operating Expenses(5) (after voluntary fee reductions for the Classic Shares)...... .81% 1.71% .82% .68% === ==== === ===
- --------------- (1) Financial Institutions may charge a Customer's (as defined in the Prospectus) account fees for automatic investment and other cash management services provided in connection with investment in a Money Market Fund. (See "HOW TO PURCHASE AND REDEEM SHARES -- Purchases of Shares.") (2) A wire redemption charge is deducted from the amount of a wire redemption payment made at the request of a shareholder. (See "HOW TO PURCHASE AND REDEEM SHARES -- Redemption by Telephone.") (3) Absent the voluntary reduction of investment advisory fees, Management Fees as a percentage of average net assets would be .40% for the Tax Exempt Fund. (See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS -- INVESTMENT ADVISOR.") (4) Absent the voluntary reduction of shareholder servicing fees, Shareholder Servicing Fees as a percentage of average net assets would be .25% for the Classic Shares of each Money Market Fund. (5) In the absence of any voluntary reduction in shareholder servicing and investment advisory fees, Total Fund Operating Expenses for the Classic Shares of the Prime Obligations Fund would be .96%, for the AmSouth U.S. Treasury Fund would be .97%, and for the Tax Exempt Fund would be 1.03%. 3 160 EXAMPLE You would pay the following expenses on a $1,000 investment in Classic Shares, assuming (1) 5% annual return and (2) redemption at the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Prime Obligations Fund.............................................. $8 $26 $45 $100 AmSouth U.S. Treasury Fund.......................................... $8 $26 $46 $101 Tax Exempt Fund..................................................... $7 $22 $38 $ 85
You would pay the following expenses on a $1,000 investment in Class B Shares, assuming (1) deduction of the applicable Contingent Deferred Sales Charge; and (2) 5% annual return.
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Prime Obligations Fund Assuming a complete redemption at end of period............................................................ $ 67 $84 $ 113 $178 Assuming no redemption............................................ $ 17 $54 $ 93 $178
The purpose of the tables above is to assist an investor in Classic Shares or Class B Shares of a Money Market Fund in understanding the various costs and expenses that an investor in a Fund will bear directly or indirectly. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS" for a more complete discussion of annual operating expenses of the Money Market Funds. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 4 161 FINANCIAL HIGHLIGHTS The tables below set forth certain financial information concerning the investment results for each of the Funds for the period of commencement of operations to January 31, 1997. The information from the commencement of operations to July 31, 1996 is a part of the financial statements audited by Coopers & Lybrand L.L.P., independent accountants for the Trust, whose report on the Trust's financial statements for the year ended July 31, 1996 appears in the Statement of Additional Information. The information for the period ended January 31, 1997 is unaudited. Further financial data is incorporated by reference into the Statement of Additional Information. PRIME OBLIGATIONS FUND
SIX MONTHS YEAR ENDED JULY 31, AUGUST 8, 1988 ENDED ------------------------------------------------------------------------------- TO JANUARY 31, 1997 1996 1995 1994 1993 1992 1991 1990 JULY 31, 1989(a) ---------------- ----------- -------- -------- -------- -------- -------- -------- ---------------- CLASSIC (b) CLASSIC (b) ---------------- ----------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD...... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 -------- -------- -------- -------- -------- -------- -------- -------- -------- INVESTMENT ACTIVITIES Net investment income.... 0.024 0.050 0 .050 0.029 0.027 0.042 0.067 0.079 0.084 -------- -------- -------- -------- -------- -------- -------- -------- -------- DISTRIBUTIONS Net investment income.... (0.024) (0.050) (0.050) (0.029) (0.027) (0.042) (0.067) (0.079) (0.084) -------- -------- -------- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ======== ======== ======== ======== ======== ======== ======== ======== ======== Total Return.... 2.41%(d) 5.07%(f) 5.14% 2.94% 2.76% 4.28% 6.87% 8.16% 8.72%(d) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)..... $108,985 $ 125,075 $617,673 $577,331 $456,428 $457,511 $307,873 $298,498 $293,749 Ratio of expenses to average net assets.... 0.78%(c) 0.81%(c) 0.69% 0.70% 0.71% 0.71% 0.72% 0.70% 0.58%(c) Ratio of net investment income to average net assets.... 4.73%(c) 4.61%(c) 5.04% 2.92% 2.73% 4.08% 6.61% 7.88% 8.69%(c) Ratio of expenses to average net assets*... 0.93%(c) 0.96%(c) (e) (e) (e) (e) (e) 0.72% 0.71%(c) Ratio of net investment income to average net assets*... 4.58%(c) 4.46%(c) (e) (e) (e) (e) (e) 7.86% 8.56%(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) Period from commencement of operations. (b) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Premier Shares, and the Fund commenced offering Classic Shares. (c) Annualized. (d) Not annualized. (e) There were no waivers during the period. (f) Represents total return for the Premier Shares for the period from August 1, 1995 to March 31, 1996 plus the total return for the Classic Shares for the period from April 1, 1996 to July 31, 1996. 5 162 AMSOUTH U.S. TREASURY FUND
SIX MONTHS YEAR ENDED JULY 31, SEPTEMBER 8, 1988 ENDED ----------------------------------------------------------------------------- TO JANUARY 31, 1997 1996 1995 1994 1993 1992 1991 1990 JULY 31, 1989(a) ---------------- ----------- -------- -------- -------- -------- -------- -------- ----------------- CLASSIC (b) CLASSIC (b) ---------------- ----------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD....... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ------- ------- -------- -------- -------- -------- -------- -------- -------- INVESTMENT ACTIVITIES Net investment income..... 0.023 0.048 0.048 0.028 0.027 0.041 0.064 0.077 0.075 ------- ------- -------- -------- -------- -------- -------- -------- -------- DISTRIBUTIONS Net investment income..... (0.023) (0.048) (0.048) (0.028) (0.027) (0.041) (0.064) (0.077) (0.075) ------- ------- -------- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD....... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ======= ======= ======== ======== ======== ======== ======== ======== ======== Total Return..... 2.28%(d) 4.90%(f) 4.90% 2.80% 2.69% 4.15% 6.58% 8.04% 7.75%(d) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000)...... $ 11,559 $12,263 $322,939 $300,603 $404,473 $339,666 $343,967 $239,291 $ 131,956 Ratio of expenses to average net assets..... 0.80%(c) 0.82%(c) 0.70% 0.71% 0.72% 0.73% 0.72% 0.68% 0.61%(c) Ratio of net investment income to average net assets..... 4.48%(c) 4.44%(c) 4.81% 2.77% 2.66% 4.08% 6.28% 7.73% 8.31%(c) Ratio of expenses to average net assets*.... 0.95%(c) 0.97%(c) (e) (e) (e) (e) (e) 0.73% 0.74%(c) Ratio of net investment income to average net assets*.... 4.33%(c) 4.29%(c) (e) (e) (e) (e) (e) 7.68% 8.18%(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) Period from commencement of operations. (b) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Premier Shares, and the Fund commenced offering Classic Shares. (c) Annualized. (d) Not annualized. (e) There were no waivers during the period. (f) Represents total return for the Premier Shares for the period from August 1, 1995 to March 31, 1996 plus the total return for the Classic Shares for the period from April 1, 1996 to July 31, 1996. 6 163 TAX EXEMPT FUND
SIX MONTHS YEAR ENDED JULY 31, JUNE 27, 1988 ENDED ------------------------------------------------------------------ TO JANUARY 31, 1997 1996 1995 1994 1993 1992 1991 JULY 31, 1990(a) ---------------- ----------- ------- ------- ------- ------- ------- ---------------- CLASSIC (b) CLASSIC (b) ---------------- ----------- (UNAUDITED) NET ASSET VALUE, BEGINNING OF PERIOD..... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ------- ------- ------- ------- ------- ------- ------- ------- INVESTMENT ACTIVITIES Net investment income... 0.149 0.031 0.032 0.019 0.021 0.030 0.046 0.011 ------- ------- ------- ------- ------- ------- ------- ------- DISTRIBUTIONS Net investment income... (0.149) (0.031) (0.032) (0.019) (0.021) (0.030) (0.046) (0.011) ------- ------- ------- ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD.................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ======= ======= ======= ======= ======= ======= ======= ======= Total Return............ 1.50%(d) 3.12%(e) 3.22% 1.95% 2.16% 3.12% 4.69% 0.54%(d) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000).......... $ 16,390 $17,116 $57,640 $60,923 $48,151 $38,392 $25,400 $ 28,246 Ratio of expenses to average net assets.... 0.61%(c) 0.68%(c) 0.54% 0.57% 0.49% 0.65% 0.52% 0.21%(c) Ratio of net investment income to average net assets................ 2.96%(c) 2.82%(c) 3.15% 1.93% 2.12% 2.98% 4.59% 5.70%(c) Ratio of expenses to average net assets*... 0.96%(c) 1.03%(c) 0.74% 0.77% 0.78% 0.77% 0.77% 0.81%(c) Ratio of net investment income to average net assets*............... 2.61%(c) 2.47%(c) 2.95% 1.73% 1.83% 2.86% 4.34% 5.10%(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) Period from commencement of operations. (b) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Premier Shares, and the Fund commenced offering Classic Shares. (c) Annualized. (d) Not annualized. (e) Represents the total return for the Premier Shares for the period from August 1, 1995 to March 31, 1996 plus the total return for the Classic Shares for the period from April 1, 1996 to July 31, 1996. 7 164 INVESTMENT OBJECTIVES AND POLICIES The investment objective of the Prime Obligations Fund and the AmSouth U.S. Treasury Fund is to seek current income with liquidity and stability of principal. The investment objective of the Tax Exempt Fund is to seek 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. Although the Prime Obligations Fund and the AmSouth U.S. Treasury Fund have the same Advisor and the same investment objective, their particular portfolio securities and yield will ordinarily differ due to differences in the types of investments permitted, cash flow, and the availability of particular portfolio investments. Market conditions and interest rates may affect the types and yields of securities held in each Fund. The investment objective of each Money Market Fund is fundamental and may not be changed without a vote of the outstanding Shares of that Fund (as defined below under "GENERAL INFORMATION -- Miscellaneous.") There can be, of course, no assurance that any Money Market Fund will achieve its investment objective. Changes in prevailing interest rates may affect the yield, and possibly the net asset value, of each Fund. Each of the Money Market Funds invests only in those securities and instruments considered by the Advisor to present minimal credit risks under guidelines established by the Trust's Board of Trustees. All securities or instruments in which each of the Money Market Funds invest have remaining maturities of 397 days or less, although instruments subject to repurchase agreements (and, in the case of the Tax Exempt Fund, certain variable rate and floating rate instruments subject to demand features) may bear longer maturities. The dollar-weighted average maturity of the securities in each Money Market Fund will not exceed 90 days. The Tax Exempt Fund is not intended to constitute a balanced investment program and is not designed for investors seeking capital appreciation. Investment in the Tax Exempt Fund would not be appropriate for tax-deferred plans, such as IRA and Keogh plans. Investors should consult a tax or other financial adviser to determine whether investment in the Tax Exempt Fund would be appropriate. THE PRIME OBLIGATIONS FUND invests in U.S. dollar-denominated, high-quality short-term debt instruments. Investments will be limited to those obligations which, at the time of purchase, (i) possess the highest short-term rating from at least two nationally recognized statistical rating organizations (an "NRSRO") (for example, commercial paper rated "A-1" by Standard & Poor's Corporation and "P-1" by Moody's Investors Service, Inc.) or one NRSRO if only rated by one NRSRO or (ii) do not possess a rating (i.e., are unrated) but are determined to be of comparable quality to the rated instruments eligible for purchase by the Fund under the guidelines adopted by the Trustees. The Statement of Additional Information contains further information concerning the rating and other requirements governing the Prime Obligation Fund's investments, including information relating to the treatment of securities subject to a tender or demand feature and securities deemed to possess a rating based on comparable rated securities of the same issuer. The Statement also identifies the NRSROs that may be utilized by the Advisor with respect to portfolio investments for the Fund and provides a description of the relevant ratings assigned by each such NRSRO. The Prime Obligations Fund will invest in a variety of U.S. Treasury obligations, differing in their interest rates, maturities, and times of issuance, and other obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities. Obligations of certain agencies and instrumentalities of the U.S. Government, such as the Government National Mortgage Association and the Export-Import Bank of the United States, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal National Mortgage Association, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Student Loan Marketing Association, are supported by the discretionary authority of the U.S. Government to purchase the 8 165 agency's obligations; still others, such as those of the Federal Farm Credit Bank or the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored agencies or instrumentalities if it is not obligated to do so by law. The Prime Obligations Fund will invest in the obligations of such agencies or instrumentalities only when the Advisor believes that the credit risk with respect thereto is minimal. The Prime Obligations Fund may invest in bankers' acceptances guaranteed by domestic and foreign banks if at the time of investment the guarantor bank has capital, surplus, and undivided profits in excess of $100,000,000 (as of the date of its most recently published financial statements). The Prime Obligations Fund may invest in certificates of deposit and demand and time deposits of domestic and foreign banks and savings and loan associations if (a) at the time of investment the depository institution has capital, surplus, and undivided profits in excess of $100,000,000 (as of the date of their most recently published financial statements) or (b) the principal amount of the instrument is insured in full by the Federal Deposit Insurance Corporation. The Prime Obligations Fund may also invest in Eurodollar Certificates of Deposits ("ECDs") which are U.S. dollar denominated certificates of deposit issued by offices of foreign and domestic banks located outside the United States; Eurodollar Time Deposits ("ETDs") which are U.S. dollar denominated deposits in a foreign branch of a U.S. bank or a foreign bank; Canadian Time Deposits ("CTDs") which are essentially the same as ETDs except they are issued by Canadian offices of major Canadian banks; and Yankee Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the United States. The Prime Obligations Fund will not invest in excess of 10% of its net assets in time deposits, including ETDs and CTDs but not including certificates of deposit, with maturities in excess of seven days which are subject to penalties upon early withdrawal. The Prime Obligations Fund may invest in commercial paper (including variable amount master demand notes) issued by U.S. or foreign corporations. The Prime Obligations Fund may also invest in Canadian Commercial Paper ("CCP"), which is commercial paper issued by a Canadian corporation or a Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S. dollar denominated commercial paper of a foreign issuer. Variable amount master demand notes in which the Prime Obligations Fund may invest are unsecured demand notes that permit the indebtedness thereunder to vary, and that provide for periodic adjustments in the interest rate according to the terms of the instrument. Because master demand notes are direct lending arrangements between the Prime Obligations Fund and the issuer, they are not normally traded. Although there is no secondary market in the notes, the Prime Obligations Fund may demand payment of principal and accrued interest at any time. While the notes are not typically rated by credit rating agencies, issuers of variable amount master demand notes (which are normally manufacturing, retail, financial, and other business concerns) must satisfy the same criteria as to quality as set forth above for commercial paper. The Advisor will consider the earning power, cash flow, and other liquidity ratios of the issuers of such notes and will continuously monitor their financial status and ability to meet payment on demand. In determining average weighted portfolio maturity, a variable amount master demand note will be deemed to have a maturity equal to the period of time remaining until the principal amount can be recovered from the issuer through demand. The period of time remaining until the principal amount can be recovered under a variable master demand note may not exceed seven days. Investments in ECDs, ETDs, CTDs, Yankee CDs, CCP, and Europaper may subject the Prime Obligations Fund to investment risks that differ in some respects from those related to investments in obligations of U.S. domestic issuers. Such risks 9 166 include future adverse political and economic developments, the possible imposition of foreign withholding taxes on interest income, possible seizure, currency blockage, nationalization, or expropriation of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely effect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and record keeping standards than those applicable to domestic branches of U.S. banks. The Prime Obligations Fund will acquire securities issued by foreign branches of U.S. banks, foreign banks, or other foreign issuers only when the Advisor believes that the risks associated with such instruments are minimal and only when such instruments are denominated and payable in United States dollars. The Prime Obligations Fund may invest in funding agreements ("Funding Agreements"), also known as guaranteed investment contracts, issued by insurance companies. Pursuant to such agreements, the Prime Obligations Fund invests an amount of cash with an insurance company and the insurance company credits such investment on a monthly basis with guaranteed interest which is based on an index. The Funding Agreements provide that this guaranteed interest will not be less than a certain minimum rate. The Funding Agreements provide for adjustment of the interest rate monthly and are considered variable rate instruments. The Prime Obligations Fund will only purchase a Funding Agreement (i) when the Advisor has determined, under guidelines established by the Board of Trustees, that the Funding Agreement presents minimal credit risks to the Prime Obligations Fund and is of comparable quality to instruments that are rated high quality by an NRSRO that is not an affiliated person, as defined in the Investment Company Act of 1940, of the issuer, or any insurer, guarantor, or provider of credit support for the instrument and (ii) if it may receive all principal of and accrued interest on a Funding Agreement at any time upon thirty days' written notice. Because the Prime Obligations Fund may not receive the principal amount of a Funding Agreement from the insurance company on seven days' notice or less, the Funding Agreement is considered an illiquid investment, and, together with other instruments in the Fund which are not readily marketable, may not exceed 10% of the Fund's net assets. In determining average weighted portfolio maturity, a Funding Agreement will be deemed to have a maturity equal to 30 days, representing the period of time remaining until the principal amount can be recovered through demand. The Prime Obligations Fund may invest in the securities of other money market funds that have similar policies and objectives, invest in securities of equal or higher short-term ratings, and are in compliance with Rule 2a-7 under the Investment Company Act of 1940. The Prime Obligations Fund may also invest in short-term municipal obligations. ASSET-BACKED SECURITIES The Prime Obligations Fund may invest in securities backed by automobile receivables and credit-card receivables and other securities backed by other types of receivables. Offerings of Certificates for Automobile Receivables ("CARS") are structured either as flow-through grantor trusts or as pay-through notes. CARS structured as flow-through instruments represent ownership interests in a fixed pool of receivables. CARS structured as pay-through notes are 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 10 167 two or three years, leading to rising prepayment rates as a pool becomes more seasoned. Certificates for Amortizing Revolving Debt ("CARDS") represent participation in a fixed pool of credit card accounts. CARDS pay "interest only" for a specified period. The CARDS principal balance remains constant during this period, while any cardholder repayments or new borrowings flow to the issuer's participation. Once the principal amortization phase begins, the balance declines with paydowns on the underlying portfolio. Cash flows on CARDS are certain during the interest-only period. After this initial interest-only period, the cash flow will depend on how fast cardholders repay their borrowings. Historically, monthly cardholder repayment rates have been relatively fast. As a consequence, CARDS amortize rapidly after the end of the interest-only period. During this amortization period, the principal payments on CARDS depend specifically on the method for allocating cardholder repayments to investors. In many cases, the investor's participation is based on the ratio of the CARDS' balance to the total credit card portfolio balance. This ratio can be adjusted monthly or can be based on the balances at the beginning of the amortization period. In some issues, investors are allocated most of the repayments, regardless of the CARDS' balance. This method results in especially fast amortization. Credit support for asset-backed securities may be based on the underlying assets or provided by a third party. Credit enhancement techniques include letters of credit, insurance bonds, limited guarantees (which are generally provided by the issuer), senior-subordinated structures and over collateralization. Asset-backed securities purchased by the Prime Obligations Fund will be subject to the same quality requirements as other securities purchased by the Fund. THE AMSOUTH U.S. TREASURY FUND invests exclusively in short-term United States dollar-denominated obligations issued by the U.S. Treasury. Such obligations may include "stripped" U.S. Treasury obligations such as Treasury Receipts issued by the U.S. Treasury representing either future interest or principal payments. Stripped Treasury Securities are sold at a deep discount because the buyer of those securities receives only the right to receive a future fixed payment on the security and does not receive any rights to periodic interest payments on the security. These securities may exhibit greater price volatility then ordinary debt securities because of the manner in which their principal and interest are returned to investors. Obligations purchased by the AmSouth U.S. Treasury Fund may be subject to repurchase agreements collateralized by the underlying U.S. Treasury obligation. THE TAX EXEMPT FUND invests primarily in bonds and 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 both exempt from federal income tax and not treated as a preference item for purposes of the federal alternative minimum tax for individuals ("Municipal Securities") and which generally have remaining maturities of one year or less. The Tax Exempt Fund may also invest up to 10% of the value of its total assets in the securities of money market mutual funds which invest primarily in obligations exempt from federal income tax. The Tax Exempt Fund will incur additional expenses due to the duplication of expenses as a result of investing in securities of such money market mutual funds. Additional restrictions on the Tax Exempt Fund's investments in the securities of such money market funds are contained in the Statement of Additional Information. As a fundamental policy, under normal market conditions at least 80% of the Tax Exempt 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 a fundamental policy that, under normal market conditions, the Tax Exempt 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"). At times, the 11 168 Advisor may determine that, because of unstable conditions in the markets for Municipal Securities, pursuing the Tax Exempt Fund's investment objective is inconsistent with the best interests of the Shareholders of the Tax Exempt Fund. At such times, the Advisor may use temporary defensive strategies differing from those designed to achieve the Tax Exempt Fund's investment objective, by increasing the Tax Exempt Fund's holdings in short-term Taxable Obligations to over 20% of the Tax Exempt Fund's total assets and by holding 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 meeting the Tax Exempt Fund's quality standards (as described below) for tax-exempt commercial paper. These obligations are described further in the Statement of Additional Information. The Tax Exempt Fund may also invest in private activity bonds ("industrial development bonds" under prior law). Interest on private activity bonds (and industrial development bonds) is fully tax-exempt only if the bonds fall within certain defined categories of qualified 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 for the purposes of this Prospectus if they do not have this effect regarding individuals. For additional information on the federal alternative minimum tax see "DIVIDENDS AND TAXES" below. The Tax Exempt Fund will invest only in those Municipal Securities and other obligations which are considered by the Advisor, pursuant to guidelines approved by the Board of Trustees, 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. The Statement of Additional Information contains further information concerning the rating and other requirements governing the Tax Exempt Fund's investments, including information relating to the treatment of securities subject to a tender or demand feature and securities deemed to possess a rating based on comparable rated securities of the same issuer. The Statement of Additional Information also identifies the NRSROs that may be utilized by the Advisor with respect to portfolio investments for the Fund and provides a description of the relevant ratings assigned by each such NRSRO. The two principal classifications of Municipal Securities which may be held by the Tax Exempt Fund are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities, or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed. Private activity bonds held by the Tax Exempt Fund are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved. Municipal Securities in which the Tax Exempt Fund may invest may also include "moral obligation" bonds, which are normally issued by special purpose public 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 12 169 commitment but not a legal obligation of the state or municipality that created the issuer. 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. The Tax Exempt Fund may acquire zero coupon obligations, which have greater price volatility than coupon obligations and which will not result in the payment of interest until maturity. Opinions relating to the validity of 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 Exempt Fund nor its Advisor will review the proceedings relating to the issuance of Municipal Securities or the basis for such opinions. Although the Tax Exempt Fund presently does not intend to do so on a regular basis, it may invest more than 25% of its total assets in Municipal Securities which 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. Examples of such securities are obligations the repayment of which is dependent upon similar types of projects or projects located in the same state. Such investments would be made only if deemed necessary or appropriate by the Advisor. To the extent that the Tax Exempt Fund's assets are concentrated in Municipal Securities that are so related, the Tax Exempt Fund will be subject to the peculiar risks presented by such Municipal Securities, such as negative developments in a particular industry or state, to a greater extent than it would be if the Tax Exempt Fund's assets were not so concentrated. The Tax Exempt Fund may also purchase Municipal Securities on a "when-issued" basis. "When-issued" securities are securities purchased for delivery beyond the normal settlement date at a stated price and yield thereby involving the risk that the yield obtained in the transaction will be less than that available in the market when delivery takes place. The Tax Exempt Fund will generally not pay for such securities and no income accrues on the securities until they are received. When the Tax Exempt Fund agrees to purchase securities on a "when-issued" basis, the Trust's custodian will set aside cash or liquid securities equal to the amount of the commitment in a segregated account. Securities purchased on a "when-issued" basis are recorded as an asset and are subject to changes in value based upon changes in the general level of interest rates. The Tax Exempt 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 by the Tax Exempt Fund to purchase "when-issued" securities will not exceed 60 days. In the event its commitments to purchase "when-issued" securities ever exceeded 25% of the value of its total assets, the Tax Exempt Fund's liquidity and the Advisor's ability to manage it might be adversely affected. The Tax Exempt Fund does not intend to purchase "when-issued" securities for speculative purposes but only for the purpose of acquiring portfolio securities. The Tax Exempt Fund may acquire "puts" with respect to Municipal Securities held in its portfolio. Under a put, the Tax Exempt Fund would have the right to sell a specified 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 Municipal Security. The Tax Exempt Fund will acquire puts solely to either facilitate portfolio liquidity, shorten the maturity of the underlying Municipal Securities, or permit the investment of the Tax Exempt Fund's funds at a more favorable rate of return. The aggregate price 13 170 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. REPURCHASE AGREEMENTS Securities held by the Money Market Funds may be subject to repurchase agreements. If the seller under a repurchase agreement were to default on its repurchase obligation or become insolvent, a Money Market Fund would suffer a loss to the extent that the proceeds from a sale of the underlying portfolio securities were less than the repurchase price under the agreement, or to the extent that the disposition of such securities by the Money Market Fund were delayed pending court action. Additionally, if the seller should be involved in bankruptcy or insolvency proceedings, the Money Market Fund may incur delays and costs in selling the underlying security or may suffer a loss of principal and interest if the Money Market Fund is treated as an unsecured creditor and required to return the underlying security to the seller's estate. Except as described below under "Investment Restrictions" there is no aggregate limitation on the amount of any Money Market Fund's total assets that may be invested in instruments which are subject to repurchase agreements. REVERSE REPURCHASE AGREEMENTS Each Money Market Fund may borrow funds for temporary purposes by entering into reverse repurchase agreements in accordance with the investment restrictions described below. Pursuant to such agreements, a Money Market Fund would sell portfolio securities to financial institutions such as banks and broker-dealers, and agree to repurchase them at a mutually agreed-upon date and price. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Money Market Fund may decline below the price at which the Money Market Fund is obligated to repurchase the securities. INVESTMENT RESTRICTIONS Each of the Money Market Funds is subject to a number of investment restrictions that may be changed only by a vote of a majority of the outstanding Shares of that Fund (see "GENERAL INFORMATION -- Miscellaneous" in this prospectus). PRIME OBLIGATIONS FUND THE 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 Obligations Fund's total assets would be invested in such issuer, except that 25% or less of the value of the Prime Obligations Fund's total assets may be invested without regard to such 5% limitation. There is no limit to the percentage of assets that may be invested in U.S. Treasury bills, notes, or other obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities. 2. Purchase any securities which would cause more than 25% of the value of the 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 United States 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 14 171 divided according to their services. For example, gas, gas transmission, electric and gas, electric, and telephone will each be considered a separate industry. AMSOUTH U.S. TREASURY FUND The AmSouth U.S. Treasury Fund may not purchase securities other than bills, notes, and bonds issued by the U.S. Treasury, certain of which securities may be subject to repurchase agreements collateralized by the underlying U.S. Treasury obligation. TAX EXEMPT FUND 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 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. PRIME OBLIGATIONS FUND, AMSOUTH U.S. TREASURY FUND AND TAX EXEMPT FUND The Prime Obligations Fund, the AmSouth U.S. Treasury Fund and the Tax Exempt Fund may not: 1. Borrow money or issue senior securities, except that each Money Market Fund may borrow from banks or enter into reverse repurchase agreements for temporary purposes in amounts up to 10% of the value of its total assets at the time of such borrowing; or mortgage, pledge, or hypothecate any assets, except in connection with any such borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the value of the Fund's total assets at the time of its borrowing. A Money Market Fund will not purchase securities while its borrowings (including reverse repurchase agreements) exceed 5% of its total assets. 2. Make loans, except that each Money Market Fund may purchase or hold debt instruments in accordance with its investment objective and policies, may lend portfolio securities in accordance with its investment objective and policies, and may enter into repurchase agreements. 15 172 VALUATION OF SHARES The net asset value of each of the Prime Obligations Fund and the AmSouth U.S. Treasury Fund is determined and its Shares are priced as of 1:00 p.m. and 4:00 p.m., Eastern Time (the "Valuation Times") on each Business Day of such Fund. The net asset value of the Tax Exempt Fund is determined and its Shares are priced as of 12:00 noon and 4:00 p.m., Eastern Time (the "Valuation Times") on each Business Day of the Fund. As used herein a "Business Day" constitutes any day on which the New York Stock Exchange (the "NYSE") is open for trading and the Federal Reserve Bank of Atlanta is open, except days on which there are not sufficient changes in the value of the Fund's portfolio securities that the Fund's net asset value might be materially affected, or days during which no Shares are tendered for redemption and no orders to purchase Shares are received. Currently, either the NYSE or the Federal Reserve Bank of Atlanta is closed on the customary national business holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of pricing sales and redemptions is calculated by dividing the value of all securities and other assets belonging to a Money Market Fund, less the liabilities charged to that Class, by the number of the outstanding Shares of that Class. The assets in each Money Market Fund are valued based upon the amortized cost method. Pursuant to rules and regulations of the Securities and Exchange Commission regarding the use of the amortized cost method, each Money Market Fund will maintain a dollar-weighted average portfolio maturity of 90 days or less. Although the Trust seeks to maintain each Money Market Fund's net asset value per share at $1.00, there can be no assurance that net asset value will not vary. HOW TO PURCHASE AND REDEEM SHARES DISTRIBUTOR Shares of the Money Market Funds are sold on a continuous basis by the Trust's distributor, BISYS Fund Services (the "Distributor"). The principal office of the Distributor is 3435 Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares, contact the Trust at (800) 451-8382. The Prime Obligations Fund offers three classes of Shares, Premier Shares, Classic Shares, and Class B Shares and the AmSouth U.S. Treasury Fund and the Tax Exempt Fund offer Classic Shares and Premier Shares. Class B Shares of the Prime Obligations Fund only are available to Shareholders of Class B Shares of another Fund who wish to exchange their Class B Shares of such other Fund for Class B Shares of the Prime Obligations Fund. The three Classes of Shares of a particular Fund represent interests in the same investments and are identical in all respects except that (i) Classic Shares bear the expense of the fee under the Trust's Shareholder Servicing Plan (the "Servicing Plan"), which will cause the Classic Shares to have a higher expense ratio and to pay lower dividends than those of the Premier Shares, (ii) Class B Shares bear the expense of the fee under the Trust's Distribution and Shareholder Services Plan (the "Distribution Plan"), which will cause the Class B Shares to have a higher expense ratio and to pay lower dividends than those of the Premier Shares and Classic Shares, (iii) Classic Shares have certain exclusive voting rights with respect to the Servicing Plan, and Class B Shares have certain exclusive voting rights with respect to the Distribution Plan, and (iv) Class B Shares are subject to a contingent deferred sales charge. The following investors qualify to purchase a Money Market Fund's Premier Shares: (i) investors for whom AmSouth acts in a fiduciary, advisory, custodial, agency or similar capacity through an account with its Trust Department; (ii) investors who purchase Shares of a Money Market Fund through 16 173 a 401(k) plan or a 403(b) plan which by its terms permits purchases of Shares; and (iii) orders placed on behalf of other investment companies distributed by the Distributor and its affiliated companies. All other investors are eligible to purchase Classic Shares only. PURCHASES OF CLASSIC SHARES Shares of the Money Market Funds may be purchased through procedures established by the Distributor in connection with requirements of qualified accounts maintained by or on behalf of certain persons ("Customers") by AmSouth or a financial institution that provides 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 Financial Institutions and their Customers are invested by the Distributor in Shares of a Money Market Fund. Shares of the Money Market Funds sold to Financial Institutions acting in a fiduciary, advisory, custodial, or other similar capacity on behalf of Customers will normally be held of record by Financial Institutions. With respect to Shares so sold, it is the responsibility of the particular Financial Institution to transmit purchase or redemption orders to the Distributor and to deliver federal funds for purchase on a timely basis. Beneficial ownership of the Shares will be recorded by the Financial Institution and reflected in the account statements provided by Financial Institutions to Customers. There is no sales charge imposed by the Trust in connection with the purchase of Classic Shares in a Money Market Fund. Sales charges apply to purchases of the other Funds of the Trust. 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 a Money Market Fund. Information concerning these services and any charges can be obtained from the Financial Institutions. This Prospectus should be read in conjunction with any such information received from the Financial Institutions. Investors may also purchase Classic Shares of a Money Market Fund by completing and signing an Account Registration Form and mailing it, together with a check (or other negotiable bank draft or money order) in at least the minimum initial purchase amount, payable to the Trust, in care of AmSouth Mutual Funds, P.O. Box 182733, Columbus, Ohio 43218-2733. Subsequent purchases of Classic Shares of a Money Market Fund may be made at any time by mailing a check (or other negotiable bank draft or money order) payable to the Trust, to the above address. If an Account Registration Form has been previously received by the Distributor, investors may also purchase Classic Shares either by telephone or by wiring funds to the 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 or by wiring funds to the Custodian. To make payment by wire, investors must call the Trust at (800) 451-8382 to obtain instructions regarding the bank account number into which the funds should be wired and other pertinent information. Investors may also purchase Classic Shares by arranging systematic monthly, bimonthly or quarterly investments into the Funds with the Trust's Automatic Investment Plan ("AIP"). The minimum investment amounts are $50 per transfer and the maximum amount with respect to any transfer is $100,000. After investors give the Trust proper authorization, their bank accounts, which must be with banks that are members of the Automated Clearing House, will be debited accordingly to purchase Shares. Investors will receive a confirmation from the Trust for every transaction, and a withdrawal will appear on their bank statements. To participate in AIP, investors must complete the appropriate sections of the Account Registration form or call for instructions. This form may be obtained by calling the Trust at (800) 451-8382. The amount investors specify will automatically be 17 174 invested in Shares at the specified Fund's net asset value per Share next determined after the debit is made. To change the frequency or amount invested, written instructions must be received by the Trust at least seven Business Days in advance of the next transfer. If the bank or bank account number is changed, instructions must be received by the Trust at least 20 Business Days in advance. In order to change a bank or bank account number, investors also must have their signature guaranteed by a bank, broker, dealer, credit union, securities exchange, securities association, clearing agency or savings association, as those terms are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 (an "Eligible Guarantor Institution"). Signature guarantees are described more fully under REDEMPTION BY MAIL below. If there are insufficient funds in the investor's designated bank account to cover the Shares purchased using AIP, the investor's bank may charge the investor a fee or may refuse to honor the transfer instruction (in which case no Fund Shares will be purchased). Investors should check with their banks to determine whether they are members of the Automated Clearing House and whether their banks charge a fee for transferring funds through the Automated Clearing House. Expenses incurred by the Funds related to AIP are borne by the Funds and therefore there is no direct charge by the Funds to investors for use of these services. Shares of the Money Market Funds are purchased at the appropriate net asset value per Share (see "VALUATION OF SHARES") next determined after receipt by the Distributor of an order in good form to purchase Shares. An order to purchase Shares will be deemed to have been received by the Distributor only when federal funds with respect thereto are available to the Trust's custodian for investment. Federal funds are monies credited to a bank's account within a Federal Reserve Bank. Payment for an order to purchase Shares which is transmitted by federal funds wire will be available the same day for investment by the Trust's custodian, if received prior to the last Valuation Time (see "VALUATION OF SHARES"). Payments transmitted by other means (such as by check drawn on a member of the Federal Reserve System) will normally be converted into federal funds within two banking days after receipt. The Trust strongly recommends that investors of substantial amounts use federal funds to purchase Shares. The minimum investment is $1,000 for the initial purchase of Classic Shares of a Money Market Fund by an investor. There is no minimum investment for subsequent purchases; however, as described above, the minimum subsequent investment when using AIP is $50 per transfer. The minimum initial investment amount may be waived if purchases are made in connection with Individual Retirement Accounts, Keogh plans or similar plans. For information on IRAs or Keoghs or similar plans, contact AmSouth at 800-451-8382. The maximum investment is $250,000 for total purchases of Class B Shares. There is no limitation on the amount of Classic Shares that may be purchased. Purchases of Shares of a Money Market Fund will be effected only on a Business Day (as defined in "VALUATION OF SHARES") of such Money Market Fund. An order received prior to a Valuation Time on any Business Day will be executed at the net asset value determined as of the next Valuation Time on the date of receipt. An order received after the last Valuation Time on any Business Day will be executed at the net asset value determined as of the next Valuation Time on the next Business Day. Shares of the Prime Obligations Fund and the AmSouth U.S. Treasury Fund purchased before 1:00 p.m., Eastern Time, begin earning dividends on the same Business Day. Shares of the Tax Exempt Fund purchased before 12:00 noon, Eastern Time, begin earning dividends on the same Business Day. All Shares of a Money Market Fund continue to earn dividends through the day before their redemption. The Trust reserves the right to reject any order for the purchase of its Shares in whole or in part, including purchases made with foreign and third party checks. 18 175 Every Shareholder will receive a confirmation of each new transaction in his or her account, which will also show the total number of Shares of the particular Fund owned by the Shareholder. In the case of Classic Shares held of record by Financial Institutions but beneficially owned by a Customer, confirmations of purchases, exchanges, and redemptions of Classic Shares by a Financial Institution will be sent to the Customer by the Financial Institution. Shareholders may rely on these statements in lieu of certificates. Certificates representing Shares will not be issued. SALES CHARGE -- CLASS B SHARES Class B Shares are not subject to a sales charge when they are purchased, but are subject to a sales charge (the "Contingent Deferred Sales Charge") if a Shareholder redeems them prior to the sixth anniversary of purchase. When a Shareholder purchases Class B Shares, the full purchase amount is invested directly in the applicable Fund. Class B Shares of each Fund are subject to an ongoing distribution and shareholder service fee at an annual rate of 1.00% of such Fund's average daily net assets as provided in the Distribution Plan (described below under "The Distributor"). This ongoing fee will cause Class B Shares to have a higher expense ratio and to pay lower dividends than Classic Shares. Class B Shares convert automatically to Classic Shares after eight years, commencing from the end of the calendar month in which the purchase order was accepted under the circumstances and subject to the qualifications described in this Prospectus. Proceeds from the Contingent Deferred Sales Charge and the distribution and shareholder service fees under the Distribution Plan are payable to the Distributor to defray the expenses of advance brokerage commissions and expenses related to providing distribution-related and Shareholder services to the Fund in connection with the sale of the Class B Shares, such as the payment of compensation to dealers and agents selling Class B Shares. A dealer commission of 4.00% of the original purchase price of the Class B Shares of the Fund will be paid to financial institutions and intermediaries. However, the Distributor may, in its sole discretion, pay a higher dealer commission. CONTINGENT DEFERRED SALES CHARGE If the Shareholder redeems Class B Shares prior to the sixth anniversary of purchase, the Shareholder will pay a Contingent Deferred Sales Charge at the rates set forth below. The Contingent Deferred Sales Charge is assessed on an amount equal to the lesser of the then-current market value or the cost of the Shares being redeemed. Accordingly, no sales charge is imposed on increases in net asset value above the initial purchase price. In addition, no charge is assessed on Shares derived from reinvestment of dividends or capital gain distributions. The amount of the Contingent Deferred Sales Charge, if any, varies depending on the number of years from the time of payment for the purchase of Class B Shares until the time of redemption of such Shares. Solely for purposes of determining the number of years from the time of any payment for the purchase of Shares, all payments during a month are aggregated and deemed to have been made on the first day of the month.
CONTINGENT DEFERRED SALES CHARGE AS A YEAR(S) PERCENTAGE 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% 6-7 None 7-8 None
In determining whether a particular redemption is subject to a Contingent Deferred Sales Charge, it is assumed that the redemption is first of any Classic Shares in the Shareholder's Fund account (unless the Shareholder elects to have Class B Shares redeemed first) or Shares representing capital appreciation, next of Shares acquired pursuant to reinvestment of dividends and capital gain distribu- 19 176 tions, and finally of other Shares held by the Shareholder for the longest period of time. This method should result in the lowest possible sales charge. The Contingent Deferred Sales Charge is waived on redemption of Shares: (i) following the death or disability (as defined in the Code) of a Shareholder or a participant or beneficiary of a qualifying retirement plan if redemption is made within one year of such death or disability; or (ii) to the extent that the redemption represents a minimum required distribution from an Individual Retirement Account or other qualifying retirement plan to a Shareholder who has attained the age of 70 1/2. A Shareholder or his or her representative should contact the Transfer Agent to determine whether a retirement plan qualifies for a waiver and must notify the Transfer Agent prior to the time of redemption if such circumstances exist and the Shareholder is eligible for this waiver. In addition, the following circumstances are not deemed to result in a "redemption" of Class B Shares for purposes of the assessment of a Contingent Deferred Sales Charge, which is therefore waived: (i) plans of reorganization of the Fund, such as mergers, asset acquisitions and exchange offers to which the Fund is a party; or (ii) exchanges for Class B Shares of other Funds of the Trust as described under "Exchange Privilege." CONVERSION FEATURE Class B Shares include all Shares purchased pursuant to the Contingent Deferred Sales Charge which have been outstanding for less than the period ending eight years after the end of the month in which the shares were purchased. At the end of this period, Class B Shares will automatically convert to Classic Shares and will be subject to the lower distribution and Shareholder service fees charged to Classic Shares. Such conversion will be on the basis of the relative net asset values of the two classes, without the imposition of any sales charge, fee or other charge. The conversion is not a taxable event to a Shareholder. For purposes of conversion to Classic Shares, shares received as dividends and other distributions paid on Class B Shares in a Shareholder's Fund account will be considered to be held in a separate sub-account. Each time any Class B Shares in a Shareholder's Fund account (other than those in the sub-account) convert to Classic Shares, a pro-rata portion of the Class B Shares in the sub-account will also convert to Classic Shares. If a Shareholder effects one or more exchanges among Class B Shares of the Funds of the Trust during the eight-year period, the Trust will aggregate the holding periods for the shares of each Fund of the Trust for purposes of calculating that eight-year period. Because the per share net asset value of the Classic Shares may be higher than that of the Class B Shares at the time of conversion, a Shareholder may receive fewer Classic Shares than the number of Class B Shares converted, although the dollar value will be the same. EXCHANGE PRIVILEGE CLASSIC SHARES Classic Shares of each Fund may be exchanged for Classic Shares of the other Funds, provided that the Shareholder making the exchange is eligible on the date of the exchange to purchase Classic Shares (with certain exceptions and subject to the terms and conditions described in this prospectus). Classic Shares may not be exchanged for Class B Shares of the other Funds, and may be exchanged for Premier Shares of the other Funds only if the Shareholder becomes eligible to purchase Premier Shares. Shareholders may exchange their Classic Shares for Classic Shares of a Fund with the same or lower sales charge on the basis of the relative net asset value of the Classic Shares exchanged. Shareholders may exchange their Classic Shares for Classic Shares of a Fund with a higher sales charge by paying the difference between the two sales charges. Shareholders may also exchange Classic Shares of a Money Market Fund, for which no sales load was paid, for Classic Shares of a variable net asset value Fund. Under such circumstances, the cost of the acquired Classic Shares will be the net asset value per share plus the appropriate sales load. If Classic Shares of a Money Market Fund were acquired in a previous exchange involving Shares of a variable net 20 177 asset value Fund, then such Shares of the Money Market Fund may be exchanged for Shares of a variable net asset value Fund without payment of any additional sales load within a twelve month period. Under such circumstances, the Shareholder must notify the Distributor that a sales load was originally paid. Depending upon the terms of a particular Customer account, a Participating Organization may charge a fee with regard to such an exchange. Information about such charges will be supplied by the Participating Organization. CLASS B SHARES Class B Shares of a Fund may be exchanged for Class B Shares of the other Funds on the basis of relative net asset value per Class B Share, without the payment of any Contingent Deferred Sales Charge which might otherwise be due upon redemption of the outstanding Class B Shares. Investors should note that, Class B Shares are not offered in the AmSouth U.S. Treasury Fund, Tax Exempt Fund, Government Income Fund, Limited Maturity Fund, Florida Fund, and Municipal Fund, thus, no exchanges may be effected for Class B Shares of these Funds. For purposes of computing the Contingent Deferred Sales Charge that may be payable upon a disposition of the newly acquired Class B Shares, the holding period for outstanding Class B Shares of the Fund from which the exchange was made is "tacked" to the holding period of the newly acquired Class B Shares. For purposes of calculating the eight year holding period applicable to the newly acquired Class B Shares, the newly acquired Class B Shares shall be deemed to have been issued on the date of receipt of the Shareholder's order to purchase the outstanding Class B Shares of the Fund from which the exchange was made. Class B Shares may not be exchanged for Classic Shares, and may be exchanged for Premier Shares only if the Shareholder becomes eligible to purchase Premier Shares. A Contingent Deferred Sales Charge will apply as described in "How To Purchase and Redeem Shares" -- "Class B Shares" to exchanges of Class B Shares for Premier Shares. ADDITIONAL INFORMATION ABOUT EXCHANGES An exchange is considered to be a sale of Shares for federal income tax purposes on which a Shareholder may realize a capital gain or loss. Before an exchange can be effected, a Shareholder must receive a current prospectus of the Fund and Class into which the Shares are exchanged. An exchange may be made by calling the Trust at (800) 451-8382 or by mailing written instructions to the Trust's transfer agent, BISYS Fund Services Ohio, Inc. ("Transfer Agent"), P.O. Box 182733, Columbus, Ohio 43218-2733. Exchange privileges may be exercised only in those states where Shares of such other Funds of the Trust may legally be sold, and may be amended or terminated at any time upon sixty (60) days' notice. AUTO EXCHANGE AmSouth Mutual Funds Auto Exchange enables Shareholders to make regular, automatic withdrawals from Classic Shares and Class B Shares of the AmSouth Prime Obligations Fund and use those proceeds to benefit from dollar-cost-averaging by automatically making purchases of shares of the same Class of another AmSouth Mutual Fund. With shareholder authorization, the Trust's transfer agent will withdraw the amount specified (subject to the applicable minimums) from the shareholder's AmSouth Prime Obligations Fund account and will automatically invest that amount in Classic Shares or Class B Shares of the AmSouth Mutual Fund designated by the Shareholder at the public offering price on the date of such deduction. In order to participate in the Auto Exchange, Shareholders must have a minimum initial purchase of $10,000 in their Prime Obligations Fund account and maintain a minimum account balance of $1,000. To participate in the Auto Exchange, Shareholders should complete the appropriate section of the Account Registration Form, which can be acquired by calling the Distributor. To change the Auto Exchange instructions or to discontinue the feature, a Shareholder must send a written request to the AmSouth Mutual Funds, P.O. Box 182733, Columbus, OH 43218-2733. The Auto Exchange may be 21 178 amended or terminated without notice at any time by the Distributor. REDEMPTION OF SHARES Shareholders may redeem their Classic Shares without charge, and their Class B Shares subject to the applicable Contingent Deferred Sales Charge, on any day that net asset value is calculated (see "VALUATION OF SHARES"). Shares may ordinarily be redeemed by mail or by telephone. However, all or part of a Customer's Shares may be redeemed in accordance with instructions and limitations pertaining to his or her account at a Financial Institution. For example, if a Customer has agreed with a Financial Institution to maintain a minimum balance in his or her account with the Financial Institution, and the balance in that account falls below that minimum, the Customer may be obliged to redeem, or the Financial Institution may redeem for and on behalf of the Customer, all or part of the Customer's Shares of a Fund of the Trust to the extent necessary to maintain the required minimum balance. REDEMPTION BY MAIL A written request for redemption must be received by the Transfer Agent in order to constitute a valid tender for redemption. The Transfer Agent will require a signature guarantee by an eligible guarantor institution. For purposes of this policy, the term "eligible guarantor institution" shall include banks, brokers, dealers, credit unions, securities exchanges and associations, clearing agencies and savings associations as those terms are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. The Transfer Agent reserves the right to reject any signature guarantee if (1) it has reason to believe that the signature is not genuine, (2) it has reason to believe that the transaction would otherwise be improper, or (3) the guarantor institution is a broker or dealer that is neither a member of a clearing corporation nor maintains net capital of at least $100,000. The signature guarantee requirement will be waived if the following conditions apply: (1) the redemption check is payable to the Shareholder(s) of record; and (2) the redemption check is mailed to the Shareholder(s) at the address of record or the proceeds are either mailed or wired to a financial institution account previously designated. There is no charge for having redemption requests mailed to a designated bank account. REDEMPTION BY TELEPHONE A Shareholder may have the payment of redemption requests wired or mailed directly to a domestic financial institution account previously designated by the Shareholder on the Account Registration Form. Under most circumstances, such payments will be transmitted on the next Business Day following receipt of a valid request for redemption. Such wire redemption requests may be made by the Shareholder by telephone to the Transfer Agent. The Transfer Agent may reduce the amount of a wire redemption payment from the then maximum wire redemption. Such charge is presently $7.00 for each wire redemption. There is no charge for having payment of redemption requests mailed or sent via the Automated Clearing House to a designated account. For telephone redemptions, call the Trust at (800) 451-8382. The Trust will employ reasonable procedures to confirm that instructions communicated by telephone are genuine; if these procedures are not followed, the Trust may be liable for any losses due to unauthorized or fraudulent instructions. These procedures include recording all phone conversations, sending confirmations to Shareholders within 72 hours of the telephone transaction, verifying the account name and a shareholder's account number or tax identification number and sending redemption proceeds only to the address of record or to a previously authorized account. During periods of significant economic or market change, telephone redemptions may be difficult to complete. If a Shareholder is unable to contact the Distributor by telephone, a Shareholder may also mail the redemption request to the Distributor at the address listed above under "HOW TO REDEEM SHARES -- Redemption by Mail." 22 179 DIRECTED DIVIDEND OPTION Shareholders can elect to have dividend distributions (capital gains, dividends, dividends and capital gains) paid by check or reinvested within the Fund or reinvested in other AmSouth Mutual Funds of the same shareholder registration without a sales charge. To participate in the Directed Dividend Option, a shareholder must maintain a minimum balance of $1,000 in each Fund into which he or she plans to reinvest dividends. The Directed Dividend Option may be modified or terminated without notice. In addition, the Trust may suspend a shareholder's Directed Dividend Option without notice if the account balance is less than the minimum $1,000. Participation in the Option may be terminated or changed by the shareholder at anytime by writing the Distributor. The Directed Dividend Option is not available to participants in an AmSouth Mutual Funds IRA. CHECK WRITING SERVICE A Shareholder may write checks on his or her Prime Obligations Fund account for $1,000 or more. Once a Shareholder has signed and returned a signature card, he or she will receive a supply of checks drawn on Huntington National Bank. The check may be made payable to any person, and the Shareholder's account will continue to earn dividends until the check clears. Because of the difficulty of determining in advance the exact value of a Fund account, a Shareholder should not use a check to close his or her account. The Shareholder's account will be charged a fee on stopping payment of a check upon the Shareholder's request or if the check cannot be honored because of insufficient funds or other valid reasons. PAYMENTS TO SHAREHOLDERS Redemption orders are effected at the net asset value per Share next determined after the Shares are properly tendered for redemption, as described above. Payment to Shareholders for Shares redeemed will be made within seven days after receipt by the Transfer Agent of the request for redemption. However, to the greatest extent possible, the Trust will attempt to honor requests from Shareholders for same day payments upon redemption of Shares if the request for redemption is received by the Transfer Agent before 12:00 noon, Eastern Time, on a Business Day or, if the request for redemption is received after 12:00 noon, Eastern Time, to honor requests for payment on the next Business Day, unless it would be disadvantageous to the Trust or the Shareholders of the particular Money Market Fund to sell or liquidate portfolio securities in an amount sufficient to satisfy requests for payments in that manner. At various times, the Trust may be requested to redeem Shares for which it has not yet received good payment. In such circumstances, the Trust may delay the forwarding of proceeds only until payment has been collected for the purchase of such Shares which may take up to 15 days or more. To avoid delay in payment upon redemption shortly after purchasing Shares, investors should purchase Shares by certified or bank check or by wire transfer. The Trust intends to pay cash for all Shares redeemed, but under abnormal conditions which make payment in cash unwise, the Trust may make payment wholly or partly in portfolio securities at their then market value equal to the redemption price. In such cases, an investor may incur brokerage costs in converting such securities to cash. Due to the relatively high cost of handling small investments, the Trust reserves the right to redeem, at net asset value, the Shares of any Shareholder if, because of redemptions of Shares by or on behalf of the Shareholder, the account of such Shareholder in any Money Market Fund has a value of less than $250. Accordingly, an investor purchasing Shares of a Money Market in only the minimum investment amount may be subject to such involuntary redemption if he or she thereafter redeems some of his or her Shares. Before the Trust exercises its right to redeem such Shares and to send the proceeds to the Shareholder, the Shareholder will be given notice that the value of the Shares of a Money Market Fund in his or her account is less than the minimum amount and will be allowed 60 days to make an additional investment in an amount which will increase the value of the account to at least $250. 23 180 See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" and "VALUATION -- Valuation of the Money Market Funds" in the Statement of Additional Information for examples of when the Trust may suspend the right of redemption or redeem Shares involuntarily if it appears appropriate to do so in light of the Trust's responsibilities under the Investment Company Act of 1940. DIVIDENDS AND TAXES 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. The net income attributable to a Fund's Classic Shares and the dividends payable on Classic Shares will be reduced by the shareholder service fee assessed against such Shares under the Shareholder Servicing Plan (see Administrator and Distributor below). Dividends will generally be paid monthly. Distributable net capital gains (if any) will be distributed at least annually. A Shareholder will automatically receive all income dividends and capital gains distributions in additional full and fractional Shares of the same class at net asset value as of the date of payment unless the Shareholder elects to receive such dividends or distributions in cash. Reinvested dividends receive the same tax treatment as dividends paid in cash. Such election, or any revocation thereof, must be made in writing to the Transfer Agent at P.O. Box 182733, Columbus, Ohio 43218-2733, and will become effective with respect to dividends and distributions having record dates after its receipt by the Transfer Agent. Dividends are paid in cash not later than seven Business Days after a Shareholder's complete redemption of his or her Shares. Dividends are generally taxable when received. However, dividends declared in October, November, or December to Shareholders of record during those months and paid during the following January are treated for tax purposes as if they were received by each Shareholder on December 31 of the prior year. Each Money Market Fund will be treated as a separate entity for federal income tax purposes. Each Money Market Fund intends to qualify for treatment as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code"). If qualified, a Money Market Fund will not have to pay federal taxes on amounts it distributes to Shareholders. Regulated investment companies are subject to a federal excise tax if they do not distribute their income on a timely basis. Each Money Market Fund intends to avoid paying federal income and excise taxes by timely distributing all its net income and substantially all its net capital gain income. Shareholders will be advised at least annually as to the character for federal income tax purposes of distributions made during the year. The amount of dividends payable with respect to the Premier Shares will exceed dividends on Classic Shares, and the amount of dividends on Classic Shares will exceed the dividends on Class B Shares, as a result of the Shareholder Services Plan fee applicable to Classic Shares and the Distribution and Shareholder Services Plan fee applicable to Class B Shares. PRIME OBLIGATIONS FUND AND AMSOUTH 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 the Prime Obligations Fund and the AmSouth U.S. Treasury Fund is expected to be interest income, it is anticipated that no distributions will qualify for the dividends received deduction for corporate shareholders. The Prime Obligations Fund and the AmSouth U.S. Treasury Fund 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 AmSouth U.S. Treasury Fund's investments in U.S. govern- 24 181 ment 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. TAX EXEMPT FUND The Tax Exempt Fund's Shareholders 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 Tax-Exempt Fund 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 the Tax Exempt Fund attributable to exempt-interest income 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 Tax Exempt Fund distributes exempt-interest dividends during the Shareholder's taxable year. It is anticipated that distributions from the Tax Exempt Fund will not be eligible for the dividends received deduction for corporate shareholders. Gains on the sale of Shares in the Tax Exempt Fund will be subject to federal, state and local taxes. If a Shareholder receives an exempt-interest dividend with respect to any Share of the 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. To the extent dividends paid to Shareholders are derived from taxable income (for example, from interest on certificates of deposit 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 alternative minimum taxable income of both individual and corporate Shareholders for the purpose of determining liability (if any) for the applicable alternative minimum tax. All tax-exempt interest dividends are required to be taken into account in calculating the alternative minimum taxable income of corporations. Additional information regarding federal taxes is contained in the Statement of Additional Information under "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION -- Additional Tax Information" and "Additional Tax Information Concerning the Tax Exempt Fund." The foregoing discussion is limited to federal income tax consequences and is based on tax laws and regulations which are in effect as of the date of this Prospectus; such laws and regulations may be changed by legislative or administrative actions. The foregoing is also intended only as a brief summary of some of the important tax considerations generally affecting the Money Market Funds and Shareholders. Potential investors are urged to consult their tax advisors concerning their own tax situations and concerning the application of state and local taxes which may differ from the federal income tax consequences described above. 25 182 MANAGEMENT OF AMSOUTH MUTUAL FUNDS TRUSTEES OF THE TRUST Overall responsibility for management of the Trust rests with the Board of Trustees of the Trust, who are elected by the Shareholders of the Trust. There are currently six Trustees, two of whom are "interested persons" of the Trust within the meaning of that term under the Investment Company Act of 1940. The Trustees, in turn, elect the officers of the Trust to supervise actively its day-to-day operations. The Trustees of the Trust, their current addresses, and principal occupations during the past five years are as follows (if no address is listed, the address is 3435 Stelzer Road, Columbus, Ohio 43219):
POSITION(S) HELD PRINCIPAL OCCUPATION NAME AND ADDRESS WITH THE TRUST DURING THE PAST 5 YEARS - ------------------------------ ------------------ ------------------------------------------- George R. Landreth* Chairman From December 1992 to present, employee of 3435 Stelzer Road BISYS Fund Services, Limited Partnership; Columbus, Ohio 43219 form July 1991 to December 1992, employee of PNC Financial Corp.; from October 1984 to July 1991, employee of The Central Trust Co., N.A. Dr. Dick D. Briggs, Jr. Trustee From 1981 to present, Professor and Vice 459 DER Building Chairman, Department of Medicine, 1808 7th Avenue South University of Alabama at Birmingham School UAB Medical Center of Medicine; December 1995 to present, Birmingham, Alabama 35294 Physician, University of Alabama Health Services Foundation; from June 1988 to October 1992, President, Chief Executive Officer and Medical Director, University of Alabama Health Services Foundation Wendell D. Cleaver Trustee From September, 1993 to present, retired; 209 Lakewood Drive, West from December 1988 to August, 1993, Mobile, Alabama 36608 Executive Vice President, Chief Operating Officer and Director, Mobile Gas Service Corporation J. David Huber* Trustee From June 1987 to present, employee of 3435 Stelzer Road BISYS Fund Services, Limited Partnership Columbus, Ohio 43219 Homer H. Turner, Jr. Trustee From June 1991 to present, retired; until 729 Cary Drive June 1991, Vice President, Birmingham Auburn, Alabama 36830 Division, Alabama Power Company James H. Woodward, Jr. Trustee From 1996 to present, Trustee of The The University of North Sessions Group; from July 1989 to present, Carolina at Charlotte Chancellor, The University of North Charlotte, North Carolina Carolina at Charlotte; until July 1989, 28223 Senior Vice President, University College, University of Alabama at Birmingham
- --------------- * Indicates an "interested person" of the Trust as defined in the Investment Company Act of 1940. 26 183 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 Ohio, Inc. receives any compensation from the Trust for acting as a Trustee. The officers of the Trust (see the Statement of Additional Information) receive no compensation directly from the Trust for performing the duties of their offices. BISYS Fund Services receives fees from the Trust for acting as Administrator and BISYS Fund Services Ohio, Inc. receives fees from the Trust for acting as Transfer Agent for and providing fund accounting services to the Trust. Messrs. Landreth and Huber are executive officers and employees of BISYS Fund Services. INVESTMENT ADVISOR AmSouth is the Advisor of each Fund of the Trust. AmSouth is the bank affiliate of AmSouth Bancorporation, one of the largest banking institutions headquartered in the midsouth region. AmSouth Bancorporation reported assets as of December 31, 1996 of $18.4 billion and operated 272 banking offices in Alabama, Florida, Georgia and Tennessee. AmSouth has provided investment management services through its Trust Investment Department since 1915. As of December 31, 1996, AmSouth and its affiliates had over $7.1 billion in assets under discretionary management and provided custody services for an additional $13.4 billion in securities. AmSouth is the largest provider of trust services in Alabama. AmSouth serves as administrator for over $12 billion in bond issues, and its Trust Natural Resources and Real Estate Department is a major manager of timberland, mineral, oil and gas properties and other real estate interests. Subject to the general supervision of the Trust's Board of Trustees and in accordance with the respective investment objectives and restrictions of the Money Market Funds, the Advisor manages the Money Market Funds, makes decisions with respect to and places orders for all purchases and sales of their investment securities, and maintains their records relating to such purchases and sales. Under an investment advisory agreement between the Trust and the Advisor, the fee payable to the Advisor by each Money Market Fund for investment advisory services is the lesser of (a) a fee computed daily and paid monthly at the annual rate of forty one-hundredths of one percent (.40%) of such Money Market Fund's average daily net assets or (b) such fee as may from time to time be agreed upon in writing by the Trust and the Advisor. A fee agreed to in writing from time to time by the Trust and the Advisor may be significantly lower than the fee calculated at the annual rate and the effect of such lower fee would be to lower a Money Market Fund's expenses and increase the net income of the Fund during the period when such lower fee is in effect. During the Trust's fiscal year ended July 31, 1996, the Advisor received investment advisory fees amounting to .40% of the Prime Obligation Fund's average daily net assets, .40% of the AmSouth U.S. Treasury Fund's average daily net assets and .20% of the Tax Exempt Fund's average daily net assets, after voluntary fee reductions with respect to the Tax Exempt Fund. ADMINISTRATOR ASO Services Company ("ASO") is the administrator for each Fund of the Trust (the "Administrator"). ASO is a wholly owned subsidiary of BISYS. BISYS is a subsidiary of The BISYS Group, Inc., 150 Clove Road, Little Falls, New Jersey 07424, a publicly owned company engaged in information processing, loan servicing and 401(k) administration and recordkeeping services to and through banking and other financial organizations. The Administrator generally assists in all aspects of the Money Market Funds' administration and operation. Under a management and administration agreement between the Trust and the Administrator, the fee payable by each Money Market Fund to the Administrator for administration services is the lesser of (a) a fee computed at the annual rate of twenty one-hundredths of one percent (.20%) of such Money Market Fund's average daily net assets 27 184 or (b) such fee as may from time to time be agreed upon by the Trust and the Administrator. A fee agreed to from time to time by the Trust and the Administrator may be significantly lower than the fee calculated at the annual rate and the effect of such lower fee would be to lower a Money Market Fund's expenses and increase the net income of the Fund during the period when such lower fee is in effect. ASO succeeded BISYS as Administrator on April 1, 1996. During the Trust's fiscal year ended July 31, 1996, BISYS and ASO received administration fees amounting to .20% of each Money Market Fund's average daily net assets. SUB-ADMINISTRATORS AmSouth serves as a Sub-Administrator to the Trust. Pursuant to its current agreement with the Administrator, the Sub-Administrator has assumed certain of the Administrator's duties, for which the Sub-Administrator receives a fee, paid by the Administrator, calculated at an annual rate of up to ten one-hundredths of one percent (.10%) of each Fund's average daily net assets. BISYS Fund Services serves as a Sub-Administrator to the Trust. Pursuant to its agreement with the Administrator, BISYS is entitled to compensation as mutually agreed from time to time by it and the Administrator. DISTRIBUTOR BISYS Fund Services acts as the Trust's principal underwriter and distributor (the "Distributor") pursuant to a Distribution Agreement under which shares are sold on a continuous basis. Classic Shares of the Trust are subject to a Shareholder Servicing Plan (the "Servicing Plan") permitting payment of compensation to financial institutions that agree to provide certain administrative support services for their customers or account holders. Each Fund has entered into a specific arrangement with BISYS for the provision of such services by BISYS, and reimburses BISYS for its cost of providing these services, subject to a maximum annual rate of twenty-five one-hundredths of one percent (0.25%) of the average daily net assets of the Classic Shares of each Fund. Under the Trust's Distribution and Shareholder Services Plan (the "Distribution Plan"), Class B Shares of a Fund will pay a monthly distribution fee to the Distributor as compensation for its services in connection with the Distribution Plan at an annual rate equal to one percent (1.00%) of the average daily net assets of Class B Shares of each Fund which includes a Shareholder Servicing fee of .25% of the average daily net assets of the Class B Shares of each Fund. The Distributor may periodically waive all or a portion of the fee with respect to a Fund in order to increase the net investment income of the Fund available for distribution as dividends. The Distributor may apply the B Share Fee toward the following: (i) compensation for its services or expenses in connection with distribution assistance with respect to such Fund's B Shares; (ii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance companies, and investment counselors) as brokerage commissions in connection with the sale of such Fund's B Shares; and (iii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance companies, and investment counselors), broker-dealers, and the Distributor's affiliates and subsidiaries as compensation for services and/or reimbursement of expenses incurred in connection with distribution or shareholder services with respect to such Fund's B Shares. All payments by the Distributor for distribution assistance or shareholder services under the Distribution Plan will be made pursuant to an agreement (a "Servicing Agreement") between the Distributor and such bank, other financial institution or intermediary, broker-dealer, or affiliate or subsidiary of the Distributor (hereinafter referred to individually as "Participating Organizations"). A Servicing Agreement will relate to the provision of distribution assistance in connection with the distribution of a Fund's Class B Shares to the Participating Organization's customers on whose behalf the investment in such Shares is made and/or to the provision of 28 185 shareholder services to the Participating Organization's customers owning a Fund's Class B Shares. Under the Distribution Plan, a Participating Organization may include AmSouth or a subsidiary bank or nonbank affiliates, or the subsidiaries or affiliates of those banks. A Servicing Agreement entered into with a bank (or any of its subsidiaries or affiliates) will contain a representation that the bank (or subsidiary or affiliate) believes that it possesses the legal authority to perform the services contemplated by the Servicing Agreement without violation of applicable banking laws (including the Glass-Steagall Act) and regulations. The distribution fee will be payable without regard to whether the amount of the fee is more or less than the actual expenses incurred in a particular year by the Distributor in connection with distribution assistance or shareholder services rendered by the Distributor itself or incurred by the Distributor pursuant to the Servicing Agreements entered into under the Distribution Plan. If the amount of the distribution fee is greater than the Distributor's actual expenses incurred in a particular year (and the Distributor does not waive that portion of the distribution fee), the Distributor will realize a profit in that year from the distribution fee. If the amount of the distribution fee is less than the Distributor's actual expenses incurred in a particular year, the Distributor will realize a loss in that year under the Distribution Plan and will not recover from a Fund the excess of expenses for the year over the distribution fee, unless actual expenses incurred in a later year in which the Distribution Plan remains in effect were less than the distribution fee paid in that later year. The Glass-Steagall Act and other applicable laws prohibit banks generally from engaging in the business of underwriting securities, but in general do not prohibit banks from purchasing securities as agent for and upon the order of customers. Accordingly, the Trust will require banks acting as Participating Organizations to provide only those services which, in the banks' opinion, are consistent with the then current legal requirements. It is possible, however, that future legislative, judicial or administrative action affecting the securities activities of banks will cause the Trust to alter or discontinue its arrangements with banks that act as Participating Organizations, or change its method of operations. It is not anticipated, however, that any change in a Fund's method of operations would affect its net asset value per share or result in financial loss to any customer. EXPENSES AmSouth and the Administrator each bear all expenses in connection with the performance of their services as Advisor and Administrator, respectively, other than the cost of securities (including brokerage commissions, if any) purchased for a Money Market Fund. No Money Market Fund will bear, directly or indirectly, the cost of any activity primarily intended to result in the distribution of Shares of such Money Market Fund; such costs will be borne by the Distributor. As a general matter, expenses are allocated to the Premier, Classic, and Class B Shares of a Fund on the basis of the relative net asset value of each class. At present, the only expenses that will be borne solely by Classic and Class B Shares, other than in accordance with the relative net asset value of the class, are expenses under the Trust's Servicing Plan which relates only to the Classic Shares and the Distribution Plan which relates only to the Class B Shares. BANKING LAWS AmSouth believes that it possesses the legal authority to perform the investment advisory services for the Money Market Funds contemplated by its investment advisory agreement with the Trust and described in this Prospectus without violation of applicable banking laws and regulations, and has so represented in its investment advisory agreement with the Trust. Future changes in federal or state statutes and regulations relating to permissible activities of banks or bank holding companies and their subsidiaries and affiliates as well as further judicial or administrative decisions or interpretations of present and future statutes and regulations could change the manner in which AmSouth could continue to perform such services for the Trust. See 29 186 "MANAGEMENT OF THE TRUST -- Glass Steagall Act" in the Statement of Additional Information for further discussion of applicable banking laws and regulations. GENERAL INFORMATION DESCRIPTION OF THE TRUST AND ITS SHARES The Trust was organized as a Massachusetts business trust on October 1, 1987. The Trust has an unlimited number of authorized shares of beneficial interest which may, without shareholder approval, be divided into an unlimited number of series of such shares, and which are presently divided into fourteen series of shares, one for each of the following Funds: the AmSouth Prime Obligations Fund, the AmSouth U.S. Treasury Fund, the AmSouth Tax Exempt Fund, the AmSouth Equity Fund, the AmSouth Regional Equity Fund, the AmSouth Bond Fund, the AmSouth Municipal Bond Fund, the AmSouth Limited Maturity Fund, the AmSouth Balanced Fund, the AmSouth Government Income Fund, the AmSouth Florida Tax-Free Fund, the AmSouth Capital Growth Fund, the AmSouth Small Cap Fund, and the AmSouth Equity Income Fund. Each Fund, except the AmSouth Florida Tax-Free Fund, is a diversified fund under the Investment Company Act of 1940, as amended. As of the date of this Prospectus, Shares were not yet being offered in the AmSouth Small Cap Fund. Each Fund has authorized three classes of Shares: Premier, Classic and Class B Shares, except for the AmSouth U.S. Treasury Fund and Tax-Exempt Fund which has authorized two classes of Shares: Premier and Classic Shares. However, Class B Shares are not currently offered in the AmSouth Limited Maturity Fund, the Government Income Fund, the Florida Fund, and the Municipal Bond Fund. Each Share represents an equal proportionate interest in a Fund with other Shares of the same series, and is entitled to such dividends and distributions out of the income earned on the assets belonging to that Fund as are declared at the discretion of the Trustees (see "Miscellaneous" below). Shares of the Trust are entitled to one vote per share (with proportional voting for fractional shares) on such matters as Shareholders are entitled to vote. Shareholders vote in the aggregate and not by series or class on all matters except (i) when required by the Investment Company Act of 1940, shares shall be voted by individual series or class, (ii) when the Trustees have determined that the matter affects only the interests of one or more series or class, (iii) only the holders of Classic Shares will vote on matters submitted to shareholder vote with regard to the Servicing Plan, and (iv) only the holders of Class B Shares will vote on matters submitted to shareholder vote with regard to the Distribution Plan. Overall responsibility for the management of the Trust is vested in the Board of Trustees. See "MANAGEMENT OF AmSouth Mutual Funds -- Trustees of the Trust." Individual Trustees are elected by the Shareholders and may be removed by the Board of Trustees or Shareholders at a meeting held for such purpose in accordance with the provisions of the Declaration of Trust and the By-laws of the Trust and Massachusetts law. See "ADDITIONAL INFORMATION -- Miscellaneous" in the Statement of Additional Information for further information. CUSTODIAN As of April 17, 1997, AmSouth serves as custodian for the Trust ("Custodian"). Pursuant to the Custodian Agreement with the Trust, the Custodian receives compensation from each Fund for such services in an amount equal to an asset-based fee. TRANSFER AGENT AND FUND ACCOUNTING BISYS Fund Services Ohio, Inc. serves as transfer agent for and provides fund accounting services to the Trust. 30 187 PERFORMANCE INFORMATION From time to time, the Money Market Funds' annualized "yield" and "effective yield" and total return may be presented in advertisements and sales literature. The "yield" of a Money Market Fund is based upon the income earned by the Money Market Fund over a seven-day period and then annualized, i.e. the income earned in the period is assumed to be earned every seven days over a 52-week period and is stated as a percentage of the investment. The "effective yield" of a Money Market Fund is calculated similarly but when annualized, the income earned by the investment is assumed to be reinvested in Shares of the Fund and thus compounded in the course of a 52-week period. The effective yield will be higher than the yield because of the compounding effect of this assumed reinvestment. The Tax Exempt Fund may also present its "tax equivalent yield" and "tax equivalent effective yield" which reflect the amount of income subject to federal income taxation that a taxpayer in a stated tax bracket would have to earn in order to obtain the same after-tax income as that derived from the yield and effective yield, respectively, of the Tax Exempt Fund. The tax equivalent yield and tax equivalent effective yield will be significantly higher than the yield and effective yield of the Tax Exempt Fund. Total return is calculated for the past year, five years (if applicable) and the period since the establishment of a Money Market Fund. Average annual total return is measured by comparing the value of an investment in a Money Market Fund at the beginning of the relevant period to the redemption value of the investment at the end of the period (assuming immediate reinvestment of any dividends or capital gains distributions) and annualizing the result. Aggregate total return is calculated similarly to average annual total return except that the return figure is aggregated over the relevant period instead of annualized. Yield, effective yield, tax-equivalent yield and total return will be calculated separately for each Class of Shares. Because Classic Shares are subject to lower Shareholder Services fees than Class B Shares, the yield and total return for Classic Shares will be higher than that of the Class B Shares for the same period. Because Premier Shares are not subject to the Distribution and Shareholder Services fees, the yield and total return for Premier Shares will be higher than that of the Classic and Class B Shares for the same period. Investors may also judge the performance of each Money Market Fund by comparing its performance to the performance of other mutual funds with comparable investment objectives and policies through various mutual fund or market indices and data such as that provided by Lipper Analytical Services, Inc. and Donoghue's MONEY FUND REPORT. Comparisons may also be made to indices or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week, American Banker, Fortune, Institutional Investor, Ibbotson Associates, Inc., Morningstar, Inc., CDA/Wiesenberger, Pensions and Investments, U.S.A. Today and local newspapers and periodicals. Such publications may refer to Classic Shares as Class A Shares and Premier Shares as Class Y Shares. In addition to performance information, general information about these Funds that appears in a publication such as those mentioned above may be included in advertisements, sales literature and in reports to Shareholders. Additional performance information is contained in the Trust's Annual Report, which is available free of charge by calling the number on the front page of the prospectus. Information about performance of a Money Market Fund is based on the Money Market Fund's record up to a certain date and is not intended to indicate future performance. Yield and total return of any investment is generally a function of portfolio quality and maturity, type of investments and operating expenses. Yields and total return of each Money Market Fund will fluctuate. Any fees charged by the Financial Institutions to their customers in connection with investment in a Money Market Fund are not reflected in the Fund's performance information. 31 188 MISCELLANEOUS Shareholders will receive unaudited semi-annual reports and annual reports audited by independent public accountants. As used in this Prospectus and in the Statement of Additional Information, "assets belonging to a Fund" means the consideration received by the Trust upon the issuance or sale of Shares in that Fund, together with all income, earnings, profits, and proceeds derived from the investment thereof, including any proceeds from the sale, exchange, or liquidation of such investments, and any funds or payments derived from any reinvestment of such proceeds, and any general assets of the Trust not readily identified as belonging to a particular Fund that are allocated to that Fund by the Trust's Board of Trustees. The Board of Trustees may allocate such general assets in any manner it deems fair and equitable. It is anticipated that the factor that will be used by the Board of Trustees in making allocations of general assets to particular Funds will be the relative net assets of the respective Funds at the time of allocation. Assets belonging to a particular Fund are charged with the direct liabilities and expenses in respect of that Fund, and with a share of the general liabilities and expenses of the Trust not readily identified as belonging to a particular Fund that are allocated to that Fund in proportion to the relative net assets of the respective Funds at the time of allocation. The timing of allocations of general assets and general liabilities and expenses of the Trust to particular Funds will be determined by the Board of Trustees of the Trust and will be in accordance with generally accepted accounting principles. Determinations by the Board of Trustees of the Trust as to the timing of the allocation of general liabilities and expenses and as to the timing and allocable portion of any general assets with respect to a particular Fund are conclusive. As used in this Prospectus and in the Statement of Additional Information, a "vote of a majority of the outstanding Shares" of the Trust or a particular Fund means the affirmative vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more of the votes of Shareholders of the Trust or such Fund present at such meeting at which the holders of more than 50% of the votes attributable to the Shareholders of record of the Trust or such Fund are represented in person or by proxy, or (b) the holders of more than 50% of the outstanding votes of Shareholders of the Trust or such Fund. Under Massachusetts law, Shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Trust's Declaration of Trust disclaims Shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in every agreement, obligation or instrument entered into or executed by the Trust or the Trustees. The Declaration of Trust provides for indemnification out of a Fund's property for all loss and expense of any Shareholder of such Fund held liable on account of being or having been a Shareholder. Thus, the risk of a Shareholder incurring financial loss on account of Shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations. Inquiries regarding the Trust may be directed in writing to the Trust at P.O. Box 182733, Columbus, Ohio 43218-2733, or by calling toll free (800) 451-8382. 32 189 AMSOUTH MUTUAL FUNDS INVESTMENT ADVISOR LOGO AmSouth Bank 1901 Sixth Avenue North Birmingham, AL 35203 DISTRIBUTOR BISYS Fund Services, Limited Partnership 3435 Stelzer Road Columbus, OH 43219 ADMINISTRATOR ASO Services Company 3435 Stelzer Road Columbus, OH 43219 LEGAL COUNSEL Ropes & Gray One Franklin Square 1301 K Street, N.W. Suite 800 East Washington, DC 20005-3333 TRANSFER AGENT BISYS Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 AUDITORS Coopers & Lybrand L.L.P. 100 East Broad Street Columbus, OH 43215 TABLE OF CONTENTS
Page ---- Fee Table................................. 3 Financial Highlights...................... 5 Investment Objectives and Policies........ 8 Investment Restrictions................... 14 Valuation of Shares....................... 16 How to Purchase and Redeem Shares......... 16 Dividends and Taxes....................... 24 Management of AmSouth Mutual Funds........ 26 General Information....................... 30
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. AS1P090197 190 A M S O U T H M U T U A L F U N D S --------------------------------------- ======================================= [LOGO] AMSOUTH BANK Investment Advisor M O N E Y M A R K E T F U N D S A M S O U T H MUTUAL FUNDS NOT FDIC INSURED BISYS FUND SERVICES, DISTRIBUTOR Prospectus dated September 1, 1997 191 CROSS REFERENCE SHEET - --------------------- Part B
Form N-1A Item No. Caption - ------------------ ------- 10. Cover Page Cover Page 11. Table of Contents Table of Contents 12. General Information and History Additional Information - Description of Shares 13. Investment Objectives and Policies Investment objectives and policies 14. Management of the Trust Management of the Trust 15. Control Persons and Principal Holders of Securities Miscellaneous 16. Investment Advisory and Other Services Management of the Trust 17. Brokerage Allocation Management of the Trust 18. Capital Stock and Other Securities Valuation; Additional Purchase and Redemption Information; Management of the Trust; Redemptions; Additional Information 19. Purchase, Redemption and Pricing of Securities Being Offered Valuation; Additional Purchase and Redemption Information; Management of the Trust 20. Tax Status Additional Purchase and Redemption Information 21. Underwriters Management of the Trust 22. Calculation of Performance Data Performance Information 23. Financial Statements Financial Statements
B-1 192 AMSOUTH MUTUAL FUNDS Statement of Additional Information September 1, 1997 ----------------- This Statement of Additional Information is not a Prospectus, but should be read in conjunction with the Prospectuses of AmSouth Prime Obligations Fund, AmSouth U.S. Treasury Fund, AmSouth Tax Exempt Fund, AmSouth Government Income Fund, AmSouth Bond Fund, AmSouth Limited Maturity Fund, AmSouth Municipal Bond Fund, AmSouth Florida Tax-Free Fund, AmSouth Equity Fund, AmSouth Regional Equity Fund, AmSouth Balanced Fund, AmSouth Capital Growth Fund, AmSouth Small Cap Fund and AmSouth Equity Income Fund, each dated as of the date hereof (the "Prospectuses"). This Statement of Additional Information is incorporated by reference in its entirety into those Prospectuses. Copies of the Prospectuses may be obtained by writing AmSouth Mutual Funds at P.O. Box 182733, Columbus, Ohio 43218-2733, or by telephoning toll free (800) 451-8382. 193 TABLE OF CONTENTS -----------------
PAGE ---- AMSOUTH MUTUAL FUNDS..............................................................................................1 INVESTMENT OBJECTIVES AND POLICIES................................................................................1 Additional Information on Portfolio Instruments...............................................................1 Investment Restrictions......................................................................................12 Additional Investment Restrictions...........................................................................14 Portfolio Turnover...........................................................................................14 VALUATION........................................................................................................15 Valuation of the Money Market Funds..........................................................................15 Valuation of the Capital Appreciation Funds and the Income Funds.............................................16 ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................16 Purchase of Shares...........................................................................................16 Matters Affecting Redemption.................................................................................17 Additional Tax Information...................................................................................18 Additional Tax Information Concerning the Tax Exempt Fund and Tax-Free Funds.................................20 MANAGEMENT OF THE TRUST..........................................................................................22 Officers ....................................................................................................22 Investment Advisor...........................................................................................23 Portfolio Transactions.......................................................................................27 Glass-Steagall Act...........................................................................................29 Administrator................................................................................................30 Expenses ....................................................................................................32 Sub-Administrators...........................................................................................32 Distributor..................................................................................................33 Custodian....................................................................................................34 Transfer Agent and Fund Accounting Services..................................................................34 Auditors ....................................................................................................35 Legal Counsel................................................................................................35 PERFORMANCE INFORMATION..........................................................................................36 Yields of the Money Market Funds.............................................................................36 Yields of the Capital Appreciation Funds, the Income Funds, and the Tax-Free Funds..............................................................................37 Calculation of Total Return..................................................................................38 Performance Comparisons......................................................................................40
B-i 194 ADDITIONAL INFORMATION...........................................................................................41 Organization and Description of Shares.......................................................................41 Shareholder Liability........................................................................................42 FINANCIAL STATEMENTS.............................................................................................45 APPENDIX.........................................................................................................46
B-ii 195 STATEMENT OF ADDITIONAL INFORMATION AMSOUTH MUTUAL FUNDS AmSouth Mutual Funds (the "Trust") is an open-end management investment company. The Trust consists of fourteen series of units of beneficial interest ("Shares"), each representing interests in one of fourteen separate investment portfolios: AmSouth Prime Obligations Fund (the "Prime Obligations Fund"), AmSouth U.S. Treasury Fund (the "AmSouth U.S. Treasury Fund"), AmSouth Tax Exempt Fund (the "Tax Exempt Fund" and, collectively, with the Prime Obligations Fund and the U.S. Treasury Fund, the "Money Market Funds"), AmSouth Equity Fund (the "Equity Fund"), AmSouth Regional Equity Fund (the "Regional Equity Fund"), AmSouth Balanced Fund (the ("Balanced Fund"), AmSouth Capital Growth Fund (the "Capital Growth Fund"), AmSouth Small Cap Fund (the "Small Cap Fund"), and AmSouth Equity Income Fund (the "Equity Income Fund" and, collectively with the Equity Fund, the Regional Equity Fund, the Balanced Fund, the Capital Growth Fund, and the Small Cap Fund, the "Capital Appreciation Funds"), AmSouth Bond Fund (the "Bond Fund"), AmSouth Limited Maturity Fund (the "Limited Maturity Fund"), AmSouth Government Income Fund (the "Government Income Fund") AmSouth Municipal Bond Fund (the "Municipal Bond Fund"), and AmSouth Florida Tax-Free Fund (the "Florida Fund"and, collectively with the Bond Fund, the Limited Maturity Fund, the Government Income Fund and the Municipal Bond Fund, the "Income Funds," and the Florida Fund and the Municipal Bond Fund sometimes collectively referred to herein as the "Tax-Free Funds.") The Small Cap Fund is not currently offering Shares. The Funds offer three classes of Shares: Premier Shares, Classic Shares, and Class B Shares, except for the AmSouth U.S. Treasury Fund and Tax Exempt Fund which offers two classes of Shares: Premier Shares and Classic Shares. Currently, Class B Shares are not being offered in the Limited Maturity Fund, the Government Income Fund, the Florida Fund and the Municipal Bond Fund. Much of the information contained in this Statement of Additional Information expands on subjects discussed in the Prospectuses. Capitalized terms not defined herein are defined in the Prospectuses. No investment in Shares of a Fund should be made without first reading that Fund's Prospectus. INVESTMENT OBJECTIVES AND POLICIES Additional Information on Portfolio Instruments - ----------------------------------------------- The following policies supplement the investment objectives, restrictions and policies of each Fund of the Trust as set forth in the respective Prospectus for that Fund. HIGH QUALITY INVESTMENTS WITH REGARD TO THE MONEY MARKET FUNDS. As noted in the Prospectuses for the Money Market Funds, each such Fund may invest only in obligations determined by AmSouth Bank, Birmingham, Alabama ("AmSouth") the investment advisor to 196 the Trust ("Advisor") to present minimal credit risks under guidelines adopted by the Trust's Trustees. With regard to the Prime Obligations Fund, investments will be limited to those obligations which, at the time of purchase, (i) possess the highest short-term ratings from at least two NRSROs; or (ii) do not possess a rating, (I.E., are unrated) but are determined by the Advisor to be of comparable quality to the rated instruments eligible for purchase by the Fund under guidelines adopted by the Trustees. With regard to the Tax Exempt Fund, investments will be limited to those obligations which, at the time of purchase, (i) possess one of the two highest short-term ratings from an NRSRO; or (ii) possess, in the case of multiple-rated securities, one of the two highest short-term ratings by at least two NRSROs; or (iii) do not possess a rating, (I.E., are unrated) but are determined by the Advisor to be of comparable quality to the rated instruments eligible for purchase by the Fund under the guidelines adopted by the Trustees. For purposes of these investment limitations, a security that has not received a rating will be deemed to possess the rating assigned to an outstanding class of the issuer's short-term debt obligations if determined by the Advisor to be comparable in priority and security to the obligation selected for purchase by a Fund. (The above-described securities which may be purchased by the Prime Obligations Fund and the Tax Exempt Fund are hereinafter referred to as "Eligible Securities.") A security subject to a tender or demand feature will be considered an Eligible Security only if both the demand feature and the underlying security possess a high quality rating or, if such do not possess a rating, (I.E., are unrated) but are determined by the Advisor to be of comparable quality; provided, however, that where the demand feature would be readily exercisable in the event of a default in payment of principal or interest on the underlying security, the obligation may be acquired based on the rating possessed by the demand feature or, if the demand feature does not possess a rating, a determination of comparable quality by the Advisor. A security which at the time of issuance had a maturity exceeding 397 days but, at the same time of purchase, has a remaining maturity of 397 days or less, is not considered an Eligible Security if it does not possess a high quality rating and the long-term rating, if any, is not within the two highest rating categories of an NRSRO. The Prime Obligations Fund will not invest more than 5% of its total assets in the securities of any one issuer, except that the Fund may invest up to 25% of its total assets in the securities of a single issuer for a period of up to three business days. If a percentage limitation is satisfied at the time of purchase, a later increase in such percentage resulting from a change in the Fund's net asset value or a subsequent change in a security's qualification as an Eligible Security will not constitute a violation of the limitation. In addition, there is no limit on the percentage of the Fund's assets that may be invested in obligations issued or guaranteed by the U.S. Government, its agencies, and instrumentalities and repurchase agreements fully collateralized by such obligations. B-2 197 Under the guidelines adopted by the Trust's Trustees and in accordance with Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act"), the Advisor may be required promptly to dispose of an obligation held in a Fund's portfolio in the event of certain developments that indicate a diminishment of the instrument's credit quality, such as where an NRSRO downgrades an obligation below the second highest rating category, or in the event of a default relating to the financial condition of the issuer. The Appendix to this Statement of Additional Information identifies each NRSRO that may be utilized by the Advisor with regard to portfolio investments for the Funds and provides a description of relevant ratings assigned by each such NRSRO. A rating by an NRSRO may be utilized only where the NRSRO is neither controlling, controlled by, or under common control with the issuer of, or any issuer, guarantor, or provider of credit support for, the instrument. BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. All of the Funds of the Trust except the U.S. Treasury Fund may invest in bankers' acceptances, certificates of deposit, and demand and time deposits. Bankers' acceptances are negotiable drafts or bills of exchange typically drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank or a savings and loan association for a definite period of time and earning a specified return. Bankers' acceptances will be those guaranteed by domestic and foreign banks, if at the time of purchase, such banks have capital, surplus, and undivided profits in excess of $100,000,000 (as of the date of their most recently published financial statements). Certificates of deposit and demand and time deposits will be those of domestic and foreign banks and savings and loan associations, if (a) at the time of purchase they have capital, surplus, and undivided profits in excess of $100,000,000 (as of the date of their most recently published financial statements) or (b) the principal amount of the instrument is insured in full by the Federal Deposit Insurance Corporation. COMMERCIAL PAPER. Each Fund, except for the U.S. Treasury Fund, may invest in commercial paper. Commercial paper consists of unsecured promissory notes issued by corporations. Issues of commercial paper normally have maturities of less than nine months and fixed rates of return. Each Fund except the AmSouth U.S. Treasury Fund, the Tax Exempt Fund, and the Tax-Free Funds may invest in (i) Canadian Commercial Paper, which is commercial paper issued by a Canadian corporation or a Canadian counterpart of a U.S. corporation, and (ii) Europaper, which is U.S. dollar-denominated commercial paper of an issue located in Europe. B-3 198 VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes, in which the Prime Obligations Fund, the Capital Appreciation Funds, and the Income Funds may invest, are unsecured demand notes that permit the indebtedness thereunder to vary and provide for periodic readjustments in the interest rate according to the terms of the instrument. They are also referred to as variable rate demand notes. Because these notes are direct lending arrangements between a Fund and the issuer, they are not normally traded. Although there may be no secondary market in the notes, a Fund may demand payment of principal and accrued interest at any time or during specified periods not exceeding one year, depending upon the instrument involved, and may resell the note at any time to a third party. The absence of such an active secondary market, however, could make it difficult for the Funds to dispose of a variable amount master demand note if the issuer defaulted on its payment obligations or during periods when the Funds are not entitled to exercise their demand rights, and the Funds could, for this or other reasons, suffer a loss to the extent of the default. While the notes are not typically rated by credit rating agencies, issuers of variable amount master demand notes must satisfy the same criteria as set forth above for commercial paper. The Advisor or Sub-Advisor will consider the earning power, cash flow, and other liquidity ratios of the issuers of such notes and will continuously monitor their financial status and ability to meet payment on demand. Where necessary to ensure that a note is of "high quality," a Fund will require that the issuer's obligation to pay the principal of the note be backed by an unconditional bank letter or line of credit, guarantee or commitment to lend. In determining the dollar-weighted average portfolio maturity, a variable amount master demand note will be deemed to have a maturity equal to the period of time remaining until the principal amount can be recovered from the issuer through demand. FOREIGN INVESTMENT. All of the Funds except the AmSouth U.S. Treasury Fund and the Tax-Free Funds may, subject to their investment objectives, restrictions and policies, invest in certain obligations or securities of foreign issuers. Permissible investments include Eurodollar Certificates of Deposit ("ECDs") which are U.S. dollar denominated certificates of deposit issued by branches of foreign and domestic banks located outside the United States, Yankee Certificates of Deposit ("Yankee CTDs") which are certificates of deposit issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the United States, Eurodollar Time Deposits ("ETD's") which are U.S. dollar denominated deposits in a foreign branch of a U.S. bank or a foreign bank, and Canadian Time Deposits ("CTD's") which are U.S. dollar denominated certificates of deposit issued by Canadian offices of major Canadian Banks. Investments in securities issued by foreign branches of U.S. banks, foreign banks, or other foreign issuers, including American Depository Receipts ("ADRs") and securities purchased on foreign securities exchanges, may subject the Funds to investment risks that differ in some respects from those related to investment in obligations of U.S. domestic issuers or in U.S. securities markets. Such risks include future adverse political and economic developments, possible seizure, currency blockage, nationalization or expropriation of foreign investments, less stringent disclosure requirements, the possible establishment of exchange controls or taxation at the source, and the adoption of other foreign governmental restrictions. Additional risks include currency exchange risks, less publicly available information, the risk that B-4 199 companies may not be subject to the accounting, auditing and financial reporting standards and requirements of U.S. companies, the risk that foreign securities markets may have less volume and therefore many securities traded in these markets may be less liquid and their prices more volatile than U.S. securities, and the risk that custodian and brokerage costs may be higher. Foreign issuers of securities or obligations are often subject to accounting treatment and engage in business practices different from those respecting domestic issuers of similar securities or obligations. Foreign branches of U.S. banks and foreign banks may be subject to less stringent reserve requirements than those applicable to domestic branches of U.S. banks. A Fund will acquire such securities only when the Advisor or Sub-Advisor believes the risks associated with such investments are minimal. REPURCHASE AGREEMENTS. Securities held by each of the Trust's Funds 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 the Prospectuses, each of the Trust's Funds may borrow funds for temporary purposes by entering into reverse repurchase agreements in accordance with the Fund's investment restrictions. Pursuant to such agreements, 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 B-5 200 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 Money Market Funds and the Income Funds or other liquid, high-grade debt securities, in the case of the Capital Appreciation Funds. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Fund may decline below the price at which a Fund is obligated to repurchase the securities. Reverse repurchase agreements are considered to be borrowings by a Fund under the 1940 Act. U.S. GOVERNMENT OBLIGATIONS. The AmSouth U.S. Treasury Fund will invest exclusively in bills, notes and bonds issued by the U.S. Treasury. Such obligations are supported by the full faith and credit of the U.S. Government. Each of the other Funds may invest in such obligations and in other obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities. Such other obligations may include those which are supported by the full faith and credit of the U.S. Government; others which are supported by the right of the issuer to borrow from the Treasury; others which are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; and still others which are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored agencies or instrumentalities if it is not obligated to do so by law. A Fund will invest in the obligations of such agencies and instrumentalities only when the Advisor or Sub-Advisor believes that the credit risk with respect thereto is minimal. VARIABLE AND FLOATING RATE NOTES. The Tax Exempt Fund, the Bond Fund, the Limited Maturity Fund and the Tax-Free Funds may acquire variable and floating rate notes, subject to each Fund's investment objective, policies and restrictions. A variable rate note is one whose terms provide "for the readjustment of its interest rate on set dates and which, upon such readjustment, can reasonably be expected to have a market value that approximates its par value. A floating rate note is one whose terms provide for the readjustment of its interest rate whenever a specified interest rate changes and which, at any time, can reasonably be expected to have a market value that approximates its par value. Such notes are frequently not rated by credit rating agencies; however, unrated variable and floating rate notes purchased by a Fund will be determined by the Advisor under guidelines established by the Trust's Board of Trustees to be of comparable quality at the time of purchase to rated instruments eligible for purchase under the Fund's investment policies. In making such determinations, the Advisor will consider the earning power, cash flow and other liquidity ratios of the issuers of such notes (such issuers include financial, merchandising, bank holding and other companies) and will continuously monitor their financial condition. Although there may be no active secondary market with respect to a particular variable or floating rate note purchased by a Fund, the Fund may resell the note at any time to a third party. The absence of an active B-6 201 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 the Tax-Exempt Fund, the Bond Fund, the Limited Maturity Fund and the Tax-Free Funds, the maturities of the variable and floating rate notes will be determined in accordance with Rule 2a-7 under the 1940 Act. MUNICIPAL SECURITIES. Under normal market conditions, the Tax Exempt Fund and the Municipal Bond Fund will be primarily invested in bonds (and in the case of the Tax Exempt Fund, notes) issued by or on behalf of states (including the District of Columbia), territories, and possessions of the United States and their respective authorities, agencies, instrumentalities, and political subdivisions, the interest on which is exempt from federal income tax ("Municipal Securities"). Under normal market conditions, the Tax Exempt Fund will invest at least 80% of its total assets, the Municipal Bond Fund will invest at least 80% of its net assets, and the Florida Fund may invest up to 20% of its net assets in Municipal Securities, the interest on which is not treated as a preference item for purposes of the federal alternative minimum tax. Municipal Securities include debt obligations issued by governmental entities to obtain funds for various public purposes, such as the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to other public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately-operated facilities are included within the term Municipal Securities if the interest paid thereon is exempt from both federal income tax and not treated as a preference item for individuals for purposes of the federal alternative minimum tax. Municipal Securities may also include General Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes, Project Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and other forms of short-term tax-exempt loans. Such instruments are issued with a short-term maturity in anticipation of the receipt of tax funds, the proceeds of bond placements or other revenues. Project Notes are issued by a state or local housing agency and are sold by the Department of Housing and Urban Development. While the issuing agency has the primary obligation with respect to its Project Notes, they are also secured by the full faith and credit of the United States through agreements with the issuing authority which provide that, if required, the federal government will lend the issuer an amount equal to the principal of and interest on the Project Notes. B-7 202 As described in the prospectuses of the Tax Exempt Fund and the Tax-Free Funds, the two principal classifications of Municipal Securities consist of "general obligation" and "revenue" issues. A Fund permitted to invest in Municipal Securities may also acquire "moral obligation" issues, which are normally issued by special purpose authorities. There are, of course, variations in the quality of Municipal Securities, both within a particular classification and between classifications, and the yields on Municipal Securities depend upon a variety of factors, including general money market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation and the rating of the issue. The ratings of NRSROs represent their opinions as to the quality of Municipal Securities. It should be emphasized, however, that ratings are general and are not absolute standards of quality, and Municipal Securities with the same maturity, interest rate and rating may have different yields, while Municipal Securities of the same maturity and interest rate with different ratings may have the same yield. Subsequent to purchases by the Tax Exempt Fund, an issue of Municipal Securities may cease to be rated or its rating may be reduced below the minimum rating required for purchase by the Tax Exempt Fund. Neither event would under all circumstances require the elimination of such an obligation from the Fund's investment portfolio. However, the obligation generally would be retained only if such retention was determined by the Board of Trustees to be in the best interests of the Fund. An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors, such as the federal bankruptcy code, and laws, if any, which may be enacted by Congress or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon the enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions. HIGH YIELD SECURITIES. The Equity Income Fund may invest in high yield convertible securities. High yield securities are securities that are rated below investment grade by an NRSRO (e.g., "BB" or lower by S&P and "Ba" or lower by Moody's). Other terms used to describe such securities include "lower rated bonds," "non-investment grade bonds" and "junk bonds." Generally, lower rated debt securities provide a higher yield than higher rated debt securities of similar maturity, but are subject to a greater degree of risk with respect to the ability of the issuer to meet its principal and interest obligations. Issuers of high yield securities may not be as strong financially as those issuing higher rated securities. The securities are regarded as predominantly speculative. The market value of high yield securities may fluctuate more than the market value of higher rated securities, since high yield securities tend to reflect short-term corporate and market developments to a greater extent than higher rated securities, which fluctuate primarily in response to the general level of interest rates, assuming that there has been no change in the fundamental interest rates, assuming that there has been no change in the fundamental quality of such securities. The market prices of fixed B-8 203 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. WHEN-ISSUED SECURITIES. As discussed in the Prospectuses, each Fund except the Prime Obligations Fund and the U.S. Treasury Fund may purchase securities on a when-issued basis (I.E., for delivery beyond the normal settlement date at a stated price and yield). When a Fund agrees to purchase securities on a when-issued basis, the Fund's custodian will set aside cash or liquid portfolio securities equal to the amount of the commitment in a separate account. Normally, the custodian will set aside portfolio securities to satisfy the purchase commitment, and in such a case, the Fund may be required subsequently to place additional assets in the separate account in order to assure that the value of the account remains equal to the amount of the Fund's commitment. It may be expected that the Fund's net assets will fluctuate to a greater degree when it sets aside portfolio securities to cover such purchase commitments than when it sets aside cash. In addition, because a Fund will set aside cash or liquid portfolio securities to satisfy its purchase commitments in the manner described above, a Fund's liquidity and the ability of the Advisor or Sub-Advisor to manage it might be affected in the event its commitments to purchase when-issued securities ever exceeded 25% of the value of its total assets. When a Fund engages in when-issued transactions, it relies on the seller to consummate the trade. Failure of the seller to do so may result in the Fund incurring a loss or missing the opportunity to obtain a price considered to be advantageous. No Fund intends to purchase when-issued securities for speculative purposes but only in furtherance of its investment objective. CALLS. The Capital Appreciation Funds and the Bond Fund, Limited Maturity Fund, and 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 B-9 204 Clearing Corporation and may or may not be listed on a National Securities Exchange. The purpose of writing covered call options is to generate additional premium income for a Fund. This premium income will serve to enhance the Fund's total return and will reduce the effect of any price decline of the security involved in the option. Covered call options will generally be written on securities which, in the Advisor's or Sub-Advisor's opinion, are not expected to make any major price moves in the near future but which, over the long term, are deemed to be attractive investments for the Fund. A call option gives the holder (buyer) the "right to purchase" a security at a specified price (the exercise price) at any time until a certain date (the expiration date). So long as the obligation of the writer of a call option continues, he or she may be assigned an exercise notice by the broker-dealer through whom such option was sold, requiring him or her to deliver the underlying security against payment of the exercise price. This obligation terminates upon the expiration of the call option, or such earlier time at which the writer effects a closing purchase transaction by repurchasing an option identical to that previously sold. To secure his or her obligation to deliver the underlying security in the case of a call option, a writer is required to deposit in escrow the underlying security or other assets in accordance with the rules of the Options Clearing Corporation. The Capital Appreciation Funds and the Bond Fund, Limited Maturity Fund, and Government Income Fund will write only covered call options. This means that a Fund will only write a call option on a security which it already owns. Fund securities on which call options may be written will be purchased solely on the basis of investment considerations consistent with a Fund's investment objectives. The writing of covered call options is a conservative investment technique believed to involve relatively little risk (in contrast to the writing of naked or uncovered options, which the Capital Appreciation Funds and the Bond Fund, Limited Maturity Fund, and Government Income Fund will not do), but capable of enhancing a Fund's total return. When writing a covered call option, a Fund, in return for the premium, gives up the opportunity for profit from a price increase in the underlying security above the exercise price, but retains the risk of loss should the price of the security decline. Unlike one who owns securities not subject to an option, neither the Capital Appreciation Funds nor the Bond Fund, Limited Maturity Fund, and Government Income Fund have any control over when they may be required to sell the underlying securities, since they may be assigned an exercise notice at any time prior to the expiration of their obligation as a writer. If a call option which the Fund has written expires, the Fund will realize a gain in the amount of the premium; however, such gain may be offset by a decline in the market value of the underlying security during the option period. If the call option is exercised, the Fund will realize a gain or loss from the sale of the underlying security. The security covering the call will be maintained in a segregated account of the Fund's custodian. The Capital Appreciation Funds, the Bond Fund, Limited Maturity Fund, and Government Income Fund will consider a security covered by a call to be "pledged" as that term is used in its policy which limits the pledging or mortgaging of its assets. B-10 205 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 security, will consider the reasonableness of the anticipated premium and the likelihood that a liquid secondary market will exist for those options. The premium received by a Fund for writing covered call options will be recorded as a liability in the Fund's statement of assets and liabilities. This liability will be adjusted daily to the option's current market value, which will be the latest sale price at the time at which the net asset value per share of the Fund is computed (close of the New York Stock Exchange), or, in the absence of such sale, the latest asked price. The liability will be extinguished upon expiration of the option, the purchase of an identical option in the closing transaction, or delivery of the underlying security upon the exercise of the option. Closing transactions will be effected in order to realize a profit on an outstanding call option, to prevent an underlying security from being called, or to permit the sale of the underlying security. Furthermore, effecting a closing transaction will permit a Fund to write another call option on the underlying security with either a different exercise price or expiration date or both. If a Fund desires to sell a particular security from its portfolio on which it has written a call option, it will seek to effect a closing transaction prior to, or concurrently with, the sale of the security. There is, of course, no assurance that the Fund will be able to effect such closing transactions at a favorable price. If a Fund cannot enter into such a transaction, it may be required to hold a security that it might otherwise have sold, in which case it would continue to be at market risk on the security. This could result in higher transaction costs. A Fund will pay transaction costs in connection with the writing of options to close out previously written options. Such transaction costs are normally higher than those applicable to purchases and sales of portfolio securities. Call options written by the Capital Appreciation Funds, the Bond Fund, Limited Maturity Fund, and Government Income Fund will normally have expiration dates of less than nine months from the date written. The exercise price of the options may be below, equal to, or above the current market values of the underlying securities at the time the options are written. From time to time, a Fund may purchase an underlying security for delivery in accordance with an exercise notice of a call option assigned to it, rather than delivering such security from its portfolio. In such cases, additional costs will be incurred. A Fund will realize a profit or loss from a closing purchase transaction if the cost of the transaction is less or more than the premium received from the writing of the option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by appreciation of the underlying security owned by a Fund. B-11 206 PUTS. The Tax Exempt Fund and the Tax-Free Funds may acquire "puts" with respect to Municipal Securities held in their portfolios, and the Balanced Fund, the Bond Fund, and the Limited Maturity Fund may acquire "puts" with respect to debt securities held in their portfolios. A put is a right to sell a specified security (or securities) within a specified period of time at a specified exercise price. The Tax Exempt Fund, the Tax-Free Funds, the Bond Fund, the Balanced Fund, and the Limited Maturity Fund may sell, transfer, or assign a put only in conjunction with the sale, transfer, or assignment of the underlying security or securities. The amount payable to a Fund upon its exercise of a "put" is normally (i) the Fund's acquisition cost of the securities subject to the put (excluding any accrued interest which the Fund paid on the acquisition), less any amortized market premium or plus any amortized market or original issue discount during the period the Fund owned the securities, plus (ii) all interest accrued on the securities since the last interest payment date during that period. Puts may be acquired by a Fund to facilitate the liquidity of the portfolio assets. Puts may also be used to facilitate the reinvestment of assets at a rate of return more favorable than that of the underlying security. Puts may, under certain circumstances, also be used to shorten the maturity of underlying variable rate or floating rate securities for purposes of calculating the remaining maturity of those securities and the dollar-weighted average portfolio maturity of the Tax Exempt Fund's assets pursuant to Rule 2a-7 under the 1940 Act. See "Variable and Floating Rate Notes" and "Valuation of the Prime Obligations Fund, the U.S. Treasury Fund and the Tax Exempt Fund" in this Statement of Additional Information. The Limited Maturity Fund will acquire puts solely to shorten the maturity of the underlying debt security. The Tax Exempt Fund, the Tax-Free Funds and the Limited Maturity Fund will generally acquire puts only where the puts are available without the payment of any direct or indirect consideration. However, if necessary or advisable, a Fund may pay for puts either separately in cash or by paying a higher price for portfolio securities which are acquired subject to the puts (thus reducing the yield to maturity otherwise available for the same securities). The Tax Exempt Fund, the Tax-Free Funds and the Limited Maturity Fund intend to enter into puts only with dealers, banks, and broker-dealers which, in the Advisor's opinion, present minimal credit risks. Investment Restrictions - ----------------------- The following investment restrictions may be changed with respect to a particular Fund only by a vote of a majority of the outstanding voting Shares of that Fund (as defined under "GENERAL INFORMATION - Miscellaneous" in the Prospectuses). B-12 207 None of the Funds of the Trust may: 1. Purchase securities on margin, sell securities short, participate on a joint or joint and several basis in any securities trading account, or underwrite the securities of other issuers, except to the extent that a Fund may be deemed to be an underwriter under certain securities laws in the disposition of "restricted securities" acquired in accordance with such Fund's investment objectives, restrictions and policies; 2. Purchase or sell commodities, commodity contracts (including futures contracts), oil, gas or mineral exploration or development programs, or real estate (although investments by all of the Funds except the U.S. Treasury Fund in marketable securities of companies engaged in such activities and in securities secured by real estate or interests therein are not hereby precluded and investment in real estate investment trusts are permitted for the Capital Growth, Small Cap and Equity Income Funds); 3. Invest in securities of other investment companies, except as such securities may be acquired as part of a merger, consolidation, reorganization, or acquisition of assets; PROVIDED, HOWEVER, that the Capital Appreciation Funds and the Income Funds may purchase securities of a money market fund, including securities of both the Prime Obligations Fund and the U.S. Treasury Fund (and in the case of the Tax-Free Funds, securities of the Tax Exempt Fund) and the Tax Exempt Fund and Prime Obligations Fund may purchase securities of a money market fund which invests primarily in high quality short-term obligations exempt from federal income tax, if, with respect to each such Fund, immediately after such purchase, the acquiring Fund, does not own in the aggregate (i) more than 3% of the acquired company's outstanding voting securities, (ii) securities issued by the acquired company having an aggregate value in excess of 5% of the value of the total assets of the acquiring Fund, or (iii) securities issued by the acquired company and all other investment companies (other than Treasury stock of the acquiring Fund) having an aggregate value in excess of 10% of the value of the acquiring Fund's total assets; 4. Invest in any issuer for purposes of exercising control or management; 5. Purchase or retain securities of any issuer if the officers or Trustees of the Trust or the officers or directors of its investment advisor owning beneficially more than one-half of 1% of the securities of such issuer together own beneficially more than 5% of such securities; and 6. Invest more than 10% of total assets in the securities of issuers which together with any predecessors have a record of less than three years of continuous operation. The Prime Obligations Fund and the U.S. Treasury Fund may not buy common stocks or voting securities, or state, municipal, or private activity bonds. The Money Market Funds and the Tax-Free Funds may not write or purchase call options. None of the Funds may write B-13 208 put options. The Prime Obligations Fund, the U.S. Treasury Fund, the Equity Fund, the Regional Equity Fund, the Capital Growth Fund, the Small Cap 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. If any percentage restriction described above is satisfied at the time of investment, a later increase or decrease in such percentage resulting from a change in asset value will not constitute a violation of such restriction. Additional Investment Restrictions - ---------------------------------- The following investment restriction is non-fundamental and may be changed by a vote of the majority of the Board of Trustees: No Fund will invest more than 15% of its net assets in securities that are restricted as to resale, or for which no readily available market exists, including repurchase agreements providing for settlement more than seven days after notice. Portfolio Turnover - ------------------ The portfolio turnover rate for each of the Trust's Funds is calculated by dividing the lesser of a Fund's purchases or sales of portfolio securities for the year by the monthly average value of the portfolio securities. The calculation excludes all securities whose maturities at the time of acquisition were one year or less. Portfolio turnover with respect to each of the Money Market Funds is expected to be zero percent for regulatory purposes. In the fiscal year ended July 31, 1996, portfolio turnover for the Equity Fund, the Regional Equity Fund, the Limited Maturity Fund, the Government Income Fund, the Bond Fund and the Florida Fund was 19.11%, 8.22%, 29.56%, 78.31%, 9.60% and 12.21%, respectively. In the fiscal year ended July 31, 1996, the portfolio turnover rate for the Balanced Fund was 13.65% with respect to the common stock portion of its portfolio and 6.82% with respect to the other portion of its portfolio. In the fiscal year ended July 31, 1995, portfolio turnover for the Equity Fund, the Regional Equity Fund, the Limited Maturity Fund, the Government Income Fund, the Bond Fund and the Florida Fund was 19.46%, 14.25%, 38.11%, 27.32%, 17.70% and 2.33%, respectively. In the fiscal year ended July 31, 1995, the portfolio turnover rate for the Balanced Fund was 16.62% with respect to the common stock portion of its portfolio and 10.07% with respect to the other portion of its portfolio. The portfolio turnover rate may vary greatly from year to year as well as within a particular year, and may also be affected by cash requirements for redemptions of Shares and, in the case of the Tax Exempt Fund and the Tax-Free Funds, by requirements which enable these Funds to receive certain favorable tax B-14 209 treatments. A higher portfolio turnover rate may lead to increased taxes and transaction costs. Portfolio turnover will not be a limiting factor in making investment decisions. The Tax-Free Funds will not purchase securities solely for the purpose of short-term trading. The turnover rates for the Funds will not be a factor preventing either the sale or the purchase of securities when the Advisor believes investment considerations warrant such sale or purchase. The annual portfolio turnover rate of the Municipal Bond Fund is not expected to exceed 50%. However, the portfolio turnover rate for each of the Tax-Free Funds may vary greatly from year to year as well as within a particular year. High turnover rates will generally result in higher transaction costs to the Funds and may result in higher levels of taxable realized gains to the Funds' Shareholders. VALUATION As indicated in the Prospectuses, the net asset value of each Fund is determined and the Shares of each Fund are priced as of 4:00 p.m., Eastern Time (the "Valuation Time") on each Business Day of the Fund. As used herein a "Business Day" constitutes any day on which the New York Stock Exchange (the "NYSE") is open for trading and the Federal Reserve Bank of Atlanta is open, except days on which there are not sufficient changes in the value of the Fund's portfolio securities that the Fund's net asset value might be materially affected, or days during which no Shares are tendered for redemption and no orders to purchase Shares are received. Currently, either the NYSE or the Federal Reserve Bank of Atlanta is closed on the customary national business holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day. Valuation of the Money Market Funds - ----------------------------------- The Money Market Funds have elected to use the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an instrument at its cost initially and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. This method may result in periods during which value, as determined by amortized cost, is higher or lower than the price the Fund would receive if it sold the instrument. The value of securities in these Funds can be expected to vary inversely with changes in prevailing interest rates. Pursuant to Rule 2a-7, each Money Market Fund will maintain a dollar-weighted average portfolio maturity appropriate to its objective of maintaining a stable net asset value per Share, provided that no Fund will purchase any security with a remaining maturity of more than thirteen months (securities subject to repurchase agreements may bear longer maturities) nor maintain a dollar-weighted average portfolio maturity which exceeds 90 days. B-15 210 The Trust's Board of Trustees has also undertaken to establish procedures reasonably designed, taking into account current market conditions and the Fund's investment objective, to stabilize the net asset value per Share of the Money Market Funds for purposes of sales and redemptions at $1.00. These procedures include review by the Trustees, at such intervals as they deem appropriate, to determine the extent, if any, to which the net asset value per Share of each Fund calculated by using available market quotations deviates from $1.00 per Share. In the event such deviation exceeds one-half of one percent, Rule 2a-7 requires that the Board of Trustees promptly consider what action, if any, should be initiated. If the Trustees believe that the extent of any deviation from a Fund's $1.00 amortized cost price per Share may result in material dilution or other unfair results to new or existing investors, they will take such steps as they consider appropriate to eliminate or reduce to the extent reasonably practicable any such dilution or unfair results. These steps may include selling portfolio instruments prior to maturity, shortening the dollar-weighted average portfolio maturity, withholding or reducing dividends, reducing the number of a Fund's outstanding Shares without monetary consideration, or utilizing a net asset value per Share determined by using available market quotations. Valuation of the Capital Appreciation Funds and the Income Funds - ---------------------------------------------------------------- The value of the portfolio securities held by each of the Capital Appreciation Funds and the Income Funds for purposes of determining such Fund's net asset value per Share will be established on the basis of current valuations provided by Muller Data Corporation or Kenny S&P Evaluation Services, whose procedures shall be monitored by the Administrator, and which valuations shall be the fair market value of such securities. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION Shares in each of the Trust's Funds are sold on a continuous basis by BISYS Fund Services, Limited Partnership ("BISYS"), and BISYS has agreed to use appropriate efforts to solicit all purchase orders. In addition to purchasing Shares directly from BISYS, Shares may be purchased through procedures established by BISYS in connection with the requirements of accounts at or AmSouth or financial institutions that provide certain support services for their customers or account holders ("Financial Institutions"). Customers purchasing Shares of the Trust may include officers, directors, or employees of AmSouth or AmSouth's correspondent banks. Purchase of Shares - ------------------ As stated in the relevant Prospectuses, the public offering price of Classic Shares of the Capital Appreciation Funds and the Income Funds is their net asset value computed after the sale plus a sales charge which varies based upon the quantity purchased. The public offering price of such Shares of the Trust is calculated by dividing net asset value by the difference B-16 211 (expressed as a decimal) between 100% and the sales charge percentage of the offering price applicable to the purchase (see "How to Purchase and Redeem Shares" in the relevant Prospectuses). The offering price is rounded to two decimal places each time a computation is made. The sales charge scale set forth in a Fund's Prospectus applies to purchases of Shares of such a Fund alone, by any person, including members of a family unit (i.e., husband, wife and minor children) and bona fide trustees and also applies to purchases made under a Rights of Accumulation or a Letter of Intent. Classic Shares of the Money Market Funds are sold at their net asset value per share, as next computed after an order is received. However, as discussed in the Classic and Class B Shares Prospectus, the Class B Shares are subject to a Contingent Deferred Sales Charge if they are redeemed prior to the sixth anniversary of purchase. Class B Shares of the Prime Obligations Fund only are available to Shareholders of Class B Shares of another Fund who wish to exchange their Class B Shares of such other Fund for Class B Shares of the Prime Obligations Fund. Certain sales of Classic Shares are made without a sales charge, as described in the relevant Prospectuses under the caption "Sales Charge Waivers", to promote goodwill with employees and others with whom BISYS, AmSouth and/or the Trust have business relationships, and because the sales effort, if any, involved in making such sales is negligible. As the Trust's principal underwriter, BISYS acts as principal in selling Classic Shares and Class B Shares of the Trust to dealers. BISYS re-allows a portion of the sales charge as dealer discounts and brokerage commissions. Dealer allowances expressed as a percentage of the offering price for all offering prices are set forth in the relevant Classic Shares and Class B Shares Prospectuses (see "How to Purchase and Redeem Shares"). From time to time, BISYS may make expense reimbursements for special training of a dealer's registered representatives in group meetings or to help pay the expenses of sales contests. In some instances, promotional incentives to dealers may be offered only to certain dealers who have sold or may sell significant amounts of Group shares. Neither BISYS nor dealers are permitted to delay the placement of orders to benefit themselves by a price change. Matters Affecting Redemption - ---------------------------- The Trust may suspend the right of redemption or postpone the date of payment for Shares during any period when (a) trading on the New York Stock Exchange (the "Exchange") is restricted by applicable rules and regulations of the Securities and Exchange Commission, (b) the Exchange is closed for other than customary weekend and holiday closings, (c) the Securities and Exchange Commission has by order permitted such suspension, or (d) an emergency exists as determined by the Securities and Exchange Commission. B-17 212 The Trust may redeem any class of Shares involuntarily if redemption appears appropriate in light of the Trust's responsibilities under the 1940 Act. See "Valuation of the Money Market Funds" above. Additional Tax Information - -------------------------- It is the policy of each of the Trust's Funds to qualify for the favorable tax treatment accorded regulated investment companies under Subchapter M of the 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) derive less than 30% of its gross income from the sale or other disposition of certain assets (including stocks and securities) held for less than three months; (c) each year distribute at least 90% of its dividend, interest (including tax-exempt interest), certain other income and the excess, if any, of its net short-term capital gains over its net long-term capital losses; and (d) diversify its holdings so that, at the end of each fiscal quarter (i) at least 50% of the market value of its total assets is represented by cash, cash items (including receivables), U.S. Government securities, securities of other regulated investment companies, and other securities, limited in respect of any one issuer to a value not greater than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities (other than those of the U.S. Government or other regulated investment companies) of any one issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar, or related trades or businesses. The 30% of gross income test described above may restrict a Fund's ability to sell certain assets held (or considered under Code rules to have been held) for less than three months and to engage in certain hedging transactions (including hedging transactions in options and futures) that in some circumstances could cause certain Fund assets to be treated as held for less than three months. A non-deductible excise tax is imposed on regulated investment companies that do not distribute in each calendar year (regardless of whether they have a non-calendar taxable year) an amount equal to 98% of their "ordinary income" (as defined) for the calendar year plus 98% of their capital gain net income for the 1-year period ending on October 31 of such calendar year plus any undistributed amounts from the previous year. For the foregoing purposes, a Fund is treated as having distributed the sum of (i) the deduction for dividends paid (defined in Section 561 of the Code) during such calendar year, and (ii) any amount on which it is subject to income tax for any taxable year ending in such calendar year. If B-18 213 distributions during a calendar year by a Fund were less than the required amount, the Fund would be subject to a non-deductible excise tax equal to 4% of the deficiency. Each of the Trust's Funds will be required in certain cases to withhold and remit to the United States Treasury 31% of taxable dividends and other distributions paid to any Shareholder who has provided either an incorrect taxpayer identification number or no number at all, who is subject to withholding by the Internal Revenue Service for failure properly to report payments of interest or dividends, or who fails to provide a certified statement that he or she is not subject to "backup withholding." A Fund's transactions in options, foreign-currency-denominated securities, and certain other investment and hedging activities of the Fund, will be subject to special tax rules (including "mark-to-market," "straddle," "wash sale," and "short sale" rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's assets, convert short-term capital losses into long-term capital losses, and otherwise affect the character of the Fund's income. These rules could therefore affect the amount, timing, and character of distributions to Shareholders. Income earned as a result of these transactions would, in general, not be eligible for the dividends received deduction or for treatment as exempt-interest dividends when distributed to Shareholders. The Funds will endeavor to make any available elections pertaining to these transactions in a manner believed to be in the best interest of the Funds. The Funds each expect to qualify as a "regulated investment company" and to be relieved of all or substantially all federal income taxes, depending upon the extent of their activities in states and localities in which their offices are maintained, in which their agents or independent contractors are located, or in which they are otherwise deemed to be conducting business, the Funds may be subject to the tax laws of such states or localities. However, if for any taxable year the Funds do not qualify for the special federal tax treatment afforded regulated investment companies, all of their taxable income will be subject to federal income tax at regular corporate rates at the Fund level (without any deduction for distributions to their Shareholders). In addition, distributions to Shareholders will be taxed as ordinary income even if the distributions are attributable to capital gains or exempt interest earned by the Fund. Information set forth in the Prospectuses and this Statement of Additional Information which relates to federal taxation is only a summary of some of the important federal tax considerations generally affecting purchasers of Shares of the Trust's Funds. No attempt has been made to present a detailed explanation of the Federal income tax treatment of a Fund or its Shareholders and this discussion is not intended as a substitute for careful tax planning. Accordingly, potential purchasers of Shares of a Fund are urged to consult their tax advisors with specific reference to their own tax situation. In addition, the tax discussion in the Prospectuses and this Statement of Additional Information is based on tax laws and regulations B-19 214 which are in effect on the date of the Prospectuses and this Statement of Additional Information; such laws and regulations may be changed by legislative or administrative action. Additional Tax Information Concerning the Tax Exempt Fund and Tax-free Funds - ---------------------------------------------------------------------------- As indicated in the prospectuses of the Tax Exempt Fund and the Tax-Free Funds, these Funds are designed to provide Shareholders with current tax-exempt interest income. The Funds are not intended to constitute a balanced investment program and are not designed for investors seeking capital appreciation or maximum tax-exempt income irrespective of fluctuations in principal. Shares of the Tax Exempt Fund and the Tax-Free Funds would not be suitable for tax-exempt institutions and may not be suitable for retirement plans qualified under Section 401 of the Code, so-called Keogh or H.R. 10 plans, and individual retirement accounts. Such plans and accounts are generally tax-exempt and, therefore, would not gain any additional benefit from the dividends of the Tax Exempt Fund and the Tax-Free Funds, being tax-exempt, and such dividends would be ultimately taxable to the beneficiaries when distributed to them. In addition, the Tax Exempt Fund and the Tax-Free Funds may not be appropriate investments for Shareholders that may be "substantial users" of facilities financed by private activity bonds or "related persons" thereof. "Substantial user" is defined under U.S. Treasury Regulations to include a non-exempt person who regularly uses a part of such facilities in his trade or business, and whose gross revenues derived with respect to the facilities financed by the issuance of bonds represent more than 5% of the total revenues derived by all users of such facilities, or who occupies more than 5% of the usable area of such facilities, or for whom such facilities or a part thereof were specifically constructed, reconstructed or acquired. "Related person" includes certain related natural persons, affiliated corporations, a partnership and its partners and an S Corporation and its Shareholders. Each Shareholder that may be considered a "substantial user" should consult a tax advisor with respect to whether exempt-interest dividends would retain the exclusion under Section 103 of the Code if the Shareholder were treated as a "substantial user" or a "related person." The Code permits a regulated investment company which invests at least 50% of its assets in tax-free Municipal Securities to pass through to its investors, tax-free, net Municipal Securities interest income. The policy of the Tax Exempt Fund and the Tax-Free Funds is to pay each year as dividends substantially all such Fund's Municipal Securities interest income net of certain deductions. An exempt-interest dividend is any dividend or part thereof (other than a capital gain dividend) paid by the Tax Exempt Fund and the Tax-Free Funds and designated as an exempt-interest dividend in a written notice mailed to Shareholders after the close of such Fund's taxable year, but not to exceed in the aggregate the net Municipal Securities interest received by the Fund during the taxable year. The percentage of the total dividends paid for any taxable year which qualifies as federal exempt-interest dividends will be the same for all Shareholders receiving dividends from the Tax Exempt Fund and the Tax-Free Funds during such year, regardless of the period for which the Shares were held. B-20 215 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 long-term capital gains, 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 (for example, short-term capital gains) subject to certain adjustments and excluding the excess of any net long-term capital gains for the taxable year over the net short-term capital loss, if any, for such year. Any such income will be taxable to Shareholders as ordinary income (whether paid in cash or additional Shares). As indicated in the prospectuses of the Tax Exempt Fund and the Tax-Free Funds, the Funds may acquire puts with respect to Municipal Securities (and in the case of the Florida Fund, Florida Municipal Securities) held in their portfolios. See "INVESTMENT OBJECTIVES AND POLICIES - Additional Information on Portfolio Instruments - Puts" in this Statement of Additional Information. The policy of the Tax Exempt Fund and the Tax-Free Funds is to limit their acquisition of puts to those under which the Fund will be treated for federal income tax purposes as the owner of the Municipal Securities acquired subject to the put and the interest on the Municipal Securities will be tax-exempt to such Fund. Although the Internal Revenue Service has issued a published ruling that provides some guidance regarding the tax consequences of the purchase of puts, there is currently no guidance available from the Internal Revenue Service that definitively establishes the tax consequences of many of the types of puts that the Tax Exempt Fund and the Tax-Free Funds could acquire under the 1940 Act. Therefore, although the Tax Exempt Fund and the Tax-Free Funds will only acquire a put after concluding that it will have the tax consequences described above, the Internal Revenue Service could reach a different conclusion from that of the Funds. If the Tax Exempt Fund and the Tax-Free Funds were not treated as the owner of the Municipal Securities, income from such securities would probably not be tax-exempt. The foregoing is only a summary of some of the important federal tax considerations generally affecting purchasers of Shares of the Tax Exempt Fund and the Tax-Free Funds. No attempt has been made to present a detailed explanation of the federal income tax treatment of the Tax Exempt Fund and the Tax-Free Funds or their Shareholders and this discussion is not intended as a substitute for careful tax planning. Accordingly, potential purchasers of Shares of the Tax Exempt Fund and the Tax-Free Funds are urged to consult their tax advisors with specific reference to their own tax situation. In addition, the foregoing discussion is based on B-21 216 tax laws and regulations which are in effect on the date of this Statement of Additional Information; such laws and regulations may be changed by legislative or administrative action. MANAGEMENT OF THE TRUST Officers - -------- The officers of each Fund of the Trust, their current addresses, and principal occupations during the past five years are as follows (if no address is listed, the address is 3435 Stelzer Road, Columbus, Ohio 43219):
Position(s) Held Principal Occupation Name and Address With the Trust During Past 5 Years - ---------------- ---------------- ------------------- George R. Landreth Chairman and Vice President From December 1992 to present, employee of BISYS Fund Services, Limited Partnership; from July 1991 to December 1992, employee of PNC Financial Corp.; from October 1984 to July 1991, employee of The Central Trust Co., N.A. Walter B. Grimm Vice President From June, 1992 to present, employee of BISYS Fund Services, Limited Partnership; from 1990 to 1992, President and CEO, Security Bancshares; from July, 1981 to present, President of Leigh Investments Consulting (investments firm). Thomas Line Treasurer From December, 1996 to present, employee of BISYS Fund Services Limited Partnership; from September, 1989 to November, 1996, Audit Senior Manager at KPMG Peat Marwick LLP. John F. Calvano President and Secretary From October, 1994 to present, employee of BISYS Fund Services, Limited Partnership; from July, 1992 to August, 1994, investment representative, BA Investment Services; and from October, 1986 to July, 1994, Marketing Manager, Great Western Investment Management. George O. Martinez Assistant Secretary From March, 1995 to present, Senior Vice President and Director of Legal and Compliance Services, BISYS Fund Services, Limited Partnership; from June, 1989 to March, 1995, Vice President and Associate General Counsel, Alliance Capital Management. Alaina V. Metz Assistant Secretary From June, 1995 to present, Chief Administrator, Administrative and Regulatory Services, BISYS Fund Services, Limited
B-22 217 Partnership; from May, 1989 to June, 1995, Supervisor, Mutual Fund Legal Department, Alliance Capital Management. Scott A. Englehart Assistant Secretary From October, 1990 to present, employee of BISYS Fund Services, Limited Partnership.
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 Ohio, Inc. receives fees from the Trust for acting as Transfer Agent for and for providing fund accounting services to the Trust. Messrs. Calvano, Line, Landreth, Grimm, Englehart, and Martinez and Mme. Metz are employees of BISYS Fund Services, Limited Partnership. COMPENSATION TABLE 1 ------------------
Pension or Total Aggregate Retirement Estimated Compensation Compensation Benefits Accrued Annual from AmSouth Name of from AmSouth As Part of Benefits Upon Mutual Funds Position Mutual Funds Fund Expenses Retirement Paid to Trustee - -------- ------------ ------------- ---------- --------------- J. David Huber None None None None James H. Woodward, Jr. 11,250 None None 11,250 Homer H. Turner 11,250 None None 11,250 Wendell D. Cleaver 11,250 None None 11,250 Dick D. Briggs, Jr. 11,250 None None 11,250 1 Figures are for the Trust's fiscal year ended July 31, 1996.
Investment Advisor - ------------------ Investment advisory and management services are provided to the Money Market Funds, the Capital Appreciation Funds and the Income Funds (except the Limited Maturity Fund) by the Advisor pursuant to the Investment Advisory Agreement dated as of August 1, B-23 218 1988, as amended (the "First Investment Advisory Agreement"). Investment advisory and management services are provided to the Limited Maturity Fund by the Advisor pursuant to the Investment Advisory Agreement dated as of January 20, 1989, as amended (the "Second Investment Advisory Agreement" collectively with the First and Second Investment Advisory Agreement, the "Advisory Agreements"). In selecting investments for each of the Capital Appreciation Funds (except for the Equity Income 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 investment for each of these Funds is to attempt to buy and sell securities that are temporarily mispriced relative to long-term value. In selecting investments for each of the Income Funds and the Balanced Fund, the Advisor attempts to anticipate interest rates, thereby capitalizing on cyclical movements in the bond markets. The Advisor seeks to achieve this goal through active management of the buying and selling of fixed-income securities in anticipation of changes in yields. Under the Advisory Agreements, the fee payable to the Advisor by the Funds for investment advisory services is the lesser of (a) such fee as may from time to time be agreed upon in writing by the Trust and the Advisor or (b) a fee computed daily and paid monthly based on the average daily net assets of each Fund as follows: the Prime Obligations Fund - forty one-hundredths of one percent (.40%) annually; the Equity Fund - eighty one-hundredths of one percent (.80%) annually; the Regional Equity Fund - eighty one-hundredths of one percent (.80%) annually; the U.S. Treasury Fund - forty one-hundredths of one percent (.40%) annually; the Tax Exempt Fund - forty one-hundredths of one percent (.40%) annually; the Bond Fund - sixty-five one-hundredths of one percent (.65%) annually; the Limited Maturity Fund - sixty-five one-hundredths of one percent (.65%) annually; the Balanced Fund - eighty one-hundredths of one percent (.80%) annually; the Government Income Fund - sixty-five one-hundredths of one percent (.65%) annually; the Florida Fund - sixty-five one-hundredths of one percent (.65%) annually; the Municipal Bond Fund - sixty-five one-hundredths of one percent (.65%) annually; the Equity Income Fund - eighty one-hundredths of one percent (.80%) annually; the Capital Growth Fund - eighty one-hundredths of one percent (.80%) annually; and the Small Cap Fund - ninety one-hundredths of one percent (.90%) 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, 1996, July 31, 1995, and July 31, 1994, the Advisor received $2,459,885, $2,184,158, and $1,976,523, respectively, from the Prime Obligations Fund. For the fiscal years ended July 31, 1996, July 31, 1995, and July 31, 1994, B-24 219 the Advisor received $1,588,850, $1,245,378, and $1,225,805, respectively, from the U.S. Treasury Fund. For the fiscal years ended July 31, 1996, July 31, 1995, and July 31, 1994, the Advisor received $133,336, $125,213, and $126,354 for the Tax Exempt Fund. For the fiscal years ended July 31, 1996, July 31, 1995, and July 31, 1994, investment advisory fees paid to the Advisor reflect voluntary reductions in investment advisory fees of $133,340, $125,213, and $126,354, respectively, for the Tax Exempt Fund. For the fiscal year ended July 31, 1996, the Advisor received $2,706,627, $669,502, $547,123, $292,620, $2,429,049, $52,834, and $146,775 from the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced Fund, the Government Income Fund, and Florida Fund, respectively. For the fiscal year ended July 31, 1996, investment advisory fees paid to the Advisor reflect voluntary fee reductions of $962, $165,186, $87,670, $169,405, $61,522, and $171,316, for the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced Fund, the Government Income Fund, and Florida Fund, respectively. For the fiscal year ended July 31, 1995, the Advisor received $1,841,031, $478,789, $461,002, $253,511, $1,807,557, and $29,835 from the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced Fund and the Government Income Fund, respectively. For the fiscal year ended July 31, 1995, investment advisory fees paid to the Advisor reflect voluntary fee reductions of $3,057, $302, $138,571, $76,328, $259,520, and $66,952, for the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced Fund and the Government Income Fund. For the period from commencement of operations (September 30, 1994) through July 31, 1995, the Advisor received $124,256 from the Florida Fund, which reflects a voluntary reduction in fees of $111,697. For the fiscal year ended July 31, 1994, the Advisor received $1,253,256, $209,061, $352,480, $280,251, and $1,274,752 from the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund and the Balanced Fund, respectively. For the fiscal year ended July 31, 1994, investment advisory fees paid to the Advisor reflect voluntary fee reductions of $165,048, $184,505, $105,953, $83,946, and $408,227, for the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund and the Balanced Fund. For the period from commencement of operations October 1, 1993 through July 31, 1994, the Advisor received $0 from the Government Income Fund, which reflects a voluntary reduction in fees of $117,065. 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 B-25 220 performance of its duties, or from reckless disregard by the Advisor of its duties and obligations thereunder. Unless sooner terminated, the First Investment Advisory Agreement will continue in effect until January 31, 1998 as to each of the Money Market Funds, the Capital Appreciation Funds, the Tax-Free Funds, the Bond Fund and the Government Income Fund and for successive one-year periods if such continuance is approved at least annually by the Trust's Board of Trustees or by vote of the holders of a majority of the outstanding voting Shares of that Fund (as defined under "GENERAL INFORMATION -Miscellaneous" in the respective Prospectus of the Money Market Funds, the Capital Appreciation Funds and the Income Funds), and a majority of the Trustees who are not parties to the First Investment Advisory Agreement or interested persons (as defined in the 1940 Act) of any party to the First Investment Advisory Agreement by votes cast in person at a meeting called for such purpose. Unless sooner terminated, the Second Investment Advisory Agreement will continue in effect as to the Limited Maturity Fund until January 31, 1998 and for successive one-year periods thereafter if such continuance is approved at least annually by the Trust's Board of Trustees or by vote of the holders of a majority of the outstanding voting Shares of the Limited Maturity Fund (as defined under "GENERAL INFORMATION - Miscellaneous" in the Prospectus of the Income Funds), and a majority of the Trustees who are not parties to the Second Investment Advisory Agreement or interested persons (as defined in the 1940 Act) of any party to the Second Investment Advisory Agreement by votes cast in person at a meeting called for such purpose. The Advisory Agreements are terminable as to a particular Fund at any time on 60 days' written notice without penalty by the Trustees, by vote of the holders of a majority of the outstanding voting Shares of that Fund, or by the Advisor. The Advisory Agreements also terminate automatically in the event of any assignment, as defined in the 1940 Act. On December 5, 1990, the First Investment Advisory Agreement was approved by the Shareholders of the Prime Obligations Fund, the U.S. Treasury Fund, the Equity Fund, the Regional Equity Fund and the Bond Fund and the Second Advisory Agreement was approved by the Shareholders of the Limited Maturity Fund. On March 8, 1993, the First Investment Advisory Agreement was approved by the Shareholders of the Prime Obligations Fund, the U.S. Treasury Fund, the Tax Exempt Fund, the Equity Fund, the Regional Equity Fund, the Bond Fund, and the Balanced Fund, and the Second Advisory Agreement was approved by the Shareholders of the Limited Maturity Fund. 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. B-26 221 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") ("Sub-Advisor") pursuant to a Sub-Advisory Agreement dated as of March 12, 1997 between the Advisor and Sub-Advisor. Peachtree Asset Management ("Peachtree") serves as investment sub-adviser to the Capital Growth Fund, pursuant to a Sub-Advisory Agreement dated as of July 16, 1997 between AmSouth and Peachtree ("Sub-Advisory Agreements"). The Sub-Advisor 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 Sub-Advisor shall be liable to the Advisor for a loss resulting from a breach of fiduciary duty by 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 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 Agreements shall continue with respect to the Equity Income Fund and the Capital Growth Fund until January 31, 1998 and shall continue in effect for successive one-year periods if such continuance is approved at least annually by the Board of Trustees of the Trust or by vote of the holders of a majority of the outstanding voting Shares of the Fund (as defined under "GENERAL INFORMATION - Miscellaneous" in the Prospectus of the Capital Appreciation Funds) and a majority of the Trustees who are not parties to 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. This Agreement may be terminated with respect to the Fund by the Trust at any time without the payment of any penalty by the Board of Trustees of the Trust, by vote of the holders of a majority of the outstanding voting securities of the Fund, or by the Advisor or Sub-Advisor on 60 days written notice. This Agreement will also immediately terminate in the event of its assignment. From time to time, advertisements, supplemental sales literature and information furnished to present or prospective Shareholders of the Trust may include descriptions of the investment sub-advisor including, but not limited to, (i) descriptions of the sub-advisor's operations; (ii) descriptions of certain personnel and their functions; and (iii) statistics and rankings relating to the sub-advisor's operations. Portfolio Transactions - ---------------------- Pursuant to the Advisory Agreements, the Advisor or Sub-Advisor determines, subject to the general supervision of the Board of Trustees of the Trust and in accordance with each Fund's investment objective, policies and restrictions, which securities are to be purchased and sold by a Fund, and which brokers are to be eligible to execute such Fund's portfolio B-27 222 transactions. Purchases and sales of portfolio securities with respect to the Money Market Funds, the Income Funds and the Balanced Fund (with respect to its debt securities) usually are principal transactions in which portfolio securities are normally purchased directly from the issuer or from an underwriter or market maker for the securities. Purchases from underwriters of portfolio securities include a commission or concession paid by the issuer to the underwriter and purchases from dealers serving as market makers may include the spread between the bid and asked price. Transactions on stock exchanges involve the payment of a negotiated brokerage commissions. Transactions in over-the-counter market are generally principal transactions with dealers. With respect to over-the-counter market, the Trust, where possible, will deal directly with dealers who make a market in the securities involved except in those circumstances where better price and execution are available elsewhere. While the Advisor and Sub-Advisor generally seek competitive spreads or commissions, the Trust may not necessarily pay the lowest spread or commission available on each transaction, for reasons discussed below. Allocation of transactions, including their frequency, to various dealers is determined by the Advisor and the Sub-Advisor in their best judgment and in a manner deemed fair and reasonable to Shareholders. The primary consideration is prompt execution of orders in an effective manner at the most favorable price. Subject to this consideration, dealers who provide supplemental investment research to the Advisor or Sub-Advisor may receive orders for transactions on behalf of the Trust. Information so received is in addition to and not in lieu of services required to be performed by the Advisor or Sub-Advisor and does not reduce the advisory fees payable to the Advisor or the Sub-Advisor. Such information may be useful to the Advisor or Sub-Advisor in serving both the Trust and other clients and, conversely, supplemental information obtained by the placement of business of other clients may be useful to the Advisor or Sub-Advisor in carrying out their obligations to the Trust. The Trust will not execute portfolio transactions through, acquire portfolio securities issued by, make savings deposits in, or enter into repurchase or reverse repurchase agreements with the Advisor, BISYS, the Sub-Advisor, or their affiliates, and will not give preference to AmSouth's correspondents with respect to such transactions, securities, savings deposits, repurchase agreements, and reverse repurchase agreements. Investment decisions for each Fund of the Trust are made independently from those for the other Funds or any other investment company or account managed by the Advisor or Sub-Advisor. Any such other investment company or account may also invest in the same securities as the Trust. When a purchase or sale of the same security is made at substantially the same time on behalf of a Fund and another Fund, investment company or account, the transaction will be averaged as to price and available investments will be allocated as to amount in a manner which the Advisor or Sub-Advisor believe to be equitable to the Fund(s) and such other investment company or account. In some instances, this investment procedure may adversely affect the price paid or received by a Fund or the size of the position obtained by a Fund. To the extent permitted by law, the Advisor or Sub-Advisor may aggregate the B-28 223 securities to be sold or purchased for a Fund with those to be sold or purchased for the other Funds or for other investment companies or accounts in order to obtain best execution. As provided by each of the Advisory Agreements and the Sub-Advisory Agreement, in making investment recommendations for the Trust, the Advisor or Sub-Advisor will not inquire or take into consideration whether an issuer of securities proposed for purchase or sale by the Trust is a customer of the Advisor or Sub-Advisor, its parent or its subsidiaries or affiliates and, in dealing with its customers, the Advisor or Sub-Advisor, its parent, subsidiaries, and affiliates will not inquire or take into consideration whether securities of such customers are held by the Trust. During the fiscal year ended July 31, 1996, the Equity Fund paid aggregate brokerage commissions in the amount of $265,581.82. During the fiscal year ended July 31, 1996, the Regional Equity Fund paid aggregate brokerage commissions in the amount of $167,771.64. During the fiscal year ended July 31, 1996, the Balanced Fund paid aggregate brokerage commissions in the amount of $489,564.65. 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 B-29 224 and regulations relating to the permissible activities of banks or bank holding companies and the subsidiaries or affiliates of those entities, as well as further judicial or administrative decisions or interpretations of present and future statutes and regulations, could prevent or restrict AmSouth from continuing to perform such services for the Trust. Depending upon the nature of any changes in the services which could be provided by AmSouth, the Board of Trustees of the Trust would review the Trust's relationship with AmSouth and consider taking all action necessary in the circumstances. Should future legislative, judicial, or administrative action prohibit or restrict the proposed activities of AmSouth in connection with customer purchases of Shares of the Trust, AmSouth might be required to alter materially or discontinue the services offered by them to customers. It is not anticipated, however, that any change in the Trust's method of operations would affect its net asset value per Share or result in financial losses to any customer. Administrator - ------------- ASO Services Company ("ASO") serves as administrator (the "Administrator") to each Fund of the Trust pursuant to the Management and Administration Agreement dated as of April 1, 1996 (the "Administration Agreement"). During the Trust's fiscal year ended July 31, 1996 ASO succeeded BISYS Fund Services LP ("BISYS") as Administrator on April 1, 1996. ASO is a wholly-owned subsidiary of BISYS which is a wholly-owned subsidiary of BISYS Group, Inc., a publicly held company which is a provider of information processing, loan servicing and 401(k) administration and record-keeping services to and through banking and other financial organizations. The Administrator assists in supervising all operations of each Fund (other than those performed by the Advisor under the Advisory Agreements, the Sub-Advisor under the Sub-Advisory Agreement, those performed by AmSouth under its custodial services agreement with the Trust and those performed by BISYS Fund Services Ohio, 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-Advisor under the Sub-Advisory Agreement, those by AmSouth under its custodial services agreement with the Trust and those performed by BISYS Fund Services Ohio, Inc. under its transfer agency and fund accounting agreements with the Trust). Under the Administration Agreement, the Administrator may delegate all or any part of its responsibilities thereunder. B-30 225 Under the Administration Agreement for expenses assumed and services provided as manager and administrator, the Administrator receives a fee from each Fund equal to the lesser of (a) a fee computed at the annual rate of twenty one-hundredths of one percent (.20%) of such Fund's average daily net assets; or (b) such fee as may from time to time be agreed upon in writing by the Trust and the Administrator. A fee agreed to from time to time by the Trust and the Administrator may be significantly lower than the fee calculated at the annual rate and the effect of such lower fee would be to lower a Fund's expenses and increase the net income of such Fund during the period when such lower fee is in effect. Each Fund also bears expenses incurred in pricing securities owned by the Fund. For the fiscal years ended July 31, 1996, July 31, 1995 and July 31, 1994, BISYS and ASO received $1,229,842, $1,092,079 and $988,262, respectively, from the Prime Obligations Fund. For the fiscal years ended July 31, 1996, July 31, 1995 and July 31, 1994, BISYS and ASO received $794,425, $622,689, and $612,904, respectively, from the U.S. Treasury Fund. For the fiscal years ended July 31, 1996, July 31, 1995 and July 31, 1994, BISYS and ASO received $133,336, $125,213 and $126,354, respectively, from the Tax Exempt Fund. For the fiscal year ended July, 1996, management and administration fees reflect voluntary reductions in management and administration fees of $1,000 for the Tax Exempt Fund. For the fiscal year ended July 31, 1996, BISYS and ASO received $406,464, $100,491, $131,382, $70,255, $389,624, $17,620 and $48,936 from the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced Fund and the Government Income Fund, and the Florida Fund respectively. For the fiscal year ended July 31, 1996, management and administration fees reflect voluntary fee reductions of $309,086, $67,125, $87,790, $46,757, $259,990, $17,567, and $48,938 for the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced Fund, Government Income Fund and the Florida Fund, respectively. For the fiscal year ended July 31, 1995, BISYS received $276,383, $71,818, $110,640, $60,867, $308,216, and $6,300 from the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced Fund and the Government Income Fund, respectively. For the fiscal year ended July 31, 1995, management and administration fees paid to BISYS reflect voluntary fee reductions of $184,639, $47,954, $73,844, $40,622, $208,553, and $23,481 for the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced Fund and the Government Income Fund, respectively. For the period from commencement of operations (September 30, 1994) through July 31, 1995, BISYS received $50,848 from the Florida Fund, which reflects a voluntary reduction in fees of $21,753. For the fiscal year ended July 31, 1994, BISYS received $212,573, $58,991, $84,589, $67,244, and $252,259 from the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund and the Balanced Fund, respectively. For the fiscal year ended B-31 226 July 31, 1994, management and administration fees paid to BISYS reflect voluntary fee reductions of $142,003, $39,401, $56,467, $44,817 and $168,486 for the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund and the Balanced Fund, respectively. For the period from commencement of operations (October 1, 1993) through July 31, 1994, BISYS received $0 from the Government Income Fund, which reflects a voluntary reduction in fees of $36,020. The Administration Agreement shall, unless sooner terminated as provided in the Administration Agreement (described below), continue until December 31, 2000. Thereafter, the Administration Agreement shall be renewed automatically for successive five-year terms, unless written notice not to renew is given by the non-renewing party to the other party at least 60 days' prior to the expiration of the then-current term. The Administration Agreement is terminable with respect to a particular Fund only upon mutual agreement of the parties to the Administration Agreement and for cause (as defined in the Administration Agreement) by the party alleging cause, on not less than 60 days' notice by the Trust's Board of Trustees or by the Administrator. The Administration Agreement provides that the Administrator shall not be liable for any loss suffered by the Trust in connection with the matters to which the Administration Agreement relates, except a loss resulting from willful misfeasance, bad faith, or gross negligence in the performance of its duties, or from the reckless disregard by the Administrator of its obligations and duties thereunder. Expenses - -------- Each Fund bears the following expenses relating to its operations: taxes, interest, any brokerage fees and commissions, fees of the Trustees of the Trust, Securities and Exchange Commission fees, state securities qualification fees, costs of preparing and printing prospectuses for regulatory purposes and for distribution to current Shareholders, outside auditing and legal expenses, advisory and administration fees, fees and out-of-pocket expenses of the custodian and the transfer agent, dividend disbursing agents fees, fees and out-of-pocket expenses for fund accounting services, expenses incurred for pricing securities owned by it, certain insurance premiums, costs of maintenance of its existence, costs of Shareholders' and Trustees' reports and meetings, and any extraordinary expenses incurred in its operation. Sub-Administrators - ------------------ AmSouth is retained by BISYS as the Sub-Administrator to the Trust pursuant to an agreement between the Administrator and AmSouth. On April 1, 1996, AmSouth entered into an Agreement with ASC 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 (.10%) ten one-hundredths B-32 227 of one percent of each Fund's average net assets. For the fiscal year ended July 31, 1996, AmSouth received $1,125,000 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, 1998], and from year to year thereafter if such continuance is approved at least annually (i) by the Trust's Board of Trustees or by the vote of a majority of the outstanding Shares of the Funds or Fund subject to such Distribution Agreement, and (ii) by the vote of a majority of the Trustees of the Trust who are not parties to such Distribution Agreement or interested persons (as defined in the Investment Company Act of 1940) of any party to such Distribution Agreement, cast in person at a meeting called for the purpose of voting on such approval. The Distribution Agreement may be terminated in the event of any assignment, as defined in the 1940 Act. A Shareholder Servicing Plan regarding the Classic Shares for the Trust was initially approved on December 6, 1995 by the Trust's Board of Trustees, including a majority of the trustees who are not interested persons of the Trust (as defined in the 1940 Act) and who have no direct or indirect financial interest in the Shareholder Servicing Plan (the "Independent Trustees"). The Shareholder Servicing Plan reflects the creation of the Classic Shares, and provides for fees only upon that Class. The Shareholder Servicing Plan may be terminated with respect to any Fund by a vote of a majority of the Independent Trustees, or by a vote of a majority of the outstanding Classic Shares of that Fund. The Shareholder Servicing Plan may be amended by vote of the Trust's Board of Trustees, including a majority of the Independent Trustees, cast in person at a meeting called for such purpose, except that any change in the Shareholder Servicing Plan that would materially increase the shareholder servicing fee with respect to a Fund requires the approval of the holders of that Fund's Classic Class. The Trust's Board of Trustees will review on a quarterly and annual basis written reports of the amounts received and expended under the Shareholder Servicing Plan (including amounts expended by the Distributor to Participating Organizations pursuant to the Servicing Agreements entered into under the Shareholder Servicing Plan) indicating the purposes for which such expenditures were made. The fee of .25% of average daily net assets of the Classic Shares of each Fund payable under the Trust's Shareholder Servicing Plan, to which Classic Shares of each Fund of the Trust are subject, is described in the Classic Shares Prospectuses. For the fiscal year ended B-33 228 July 31, 1996 BISYS received $4,607 with respect to the Classic Shares of the AmSouth U.S. Treasury Fund (which reflects a fee reduction of $6,912); $41,777 with respect to the Classic Shares of the Prime Obligations Fund (which reflects a fee reduction of $62,669); and $4,960 with respect to the Classic Shares of the Tax-Exempt Fund (which reflects a fee reduction of $7,440). For the fiscal year ended July 31, 1995 no fees were paid by any Money Market Fund under the Shareholder Servicing Plan. The Shareholder Servicing and Distribution Plan regarding the Class B Shares of the Funds (the "Distribution Plan") was initially approved on March 12, 1997 by the Trust's Board of Trustees, including a majority of the trustees who are not interested persons of the Fund (as defined in the 1940 Act) and who have no direct or indirect financial interest in the Distribution Plan (the "Independent Trustees"). The Distribution Plan provides for fees only upon the Class B Shares of each Fund, as described in the Class B Shares Prospectuses. In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plan may be terminated with respect to any Fund by a vote of a majority of the Independent Trustees, or by a vote of a majority of the outstanding Class B Shares of that Fund. The Distribution Plan may be amended by vote of the Fund's Board of Trustees, including a majority of the Independent Trustees, cast in person at a meeting called for such purpose, except that any change in the Distribution Plan that would materially increase the distribution fee with respect to a Fund requires the approval of the holders of that Fund's Class B Shares. The Trust's Board of Trustees will review on a quarterly and annual basis written reports of the amounts received and expended under the Distribution Plan (including amounts expended by the Distributor to Participating Organizations pursuant to the Servicing Agreements entered into under the Distribution Plan) indicating the purposes for which such expenditures were made. Custodian - --------- As of April 17, 1997, 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. ("BISYS Ohio") serves as transfer agent to each Fund of the Trust pursuant to a Transfer Agency and Shareholder Service Agreement with the Trust. BISYS Ohio is a wholly-owned subsidiary of The BISYS Group, Inc. BISYS Ohio also provides fund accounting services to each of the Funds pursuant to a Fund Accounting Agreement with the Trust. Under the Fund Accounting Agreement, BISYS Ohio receives a fee from each Fund at the annual rate of 0.03% of such Fund's average daily B-34 229 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. For the fiscal years ended July 31, 1996, July 31, 1995 and July 31, 1994, BISYS Ohio received $254,753 and $289,092, respectively, from the Prime Obligations Fund. For the fiscal years ended July 31, 1996, July 31, 1995 and July 31, 1994, BISYS Ohio received $147,544 and $179,572, respectively, from the U.S. Treasury Fund. For the fiscal years ended July 31, 1996, July 31, 1995 and July 31, 1994, BISYS Ohio received $32,145 and $59,090, respectively, from the Tax Exempt Fund. For the fiscal years ended July 31, 1996, July 31, 1995, and July 31, 1994, BISYS Ohio received $145,583, $114,437, and $120,225 respectively, from the Equity Fund. For the fiscal years ended July 31, 1996, July 31, 1995, and July 31, 1994, BISYS Ohio received $36,049, $30,766, and $79,071, respectively, from the Regional Equity Fund. For the fiscal years ended July 31, 1996, July 31, 1995, and July 31, 1994, BISYS Ohio received $46,931, $50,807, and $64,501, respectively, from the Bond Fund. For the fiscal years ended July 31, 1996, July 31, 1995, and July 31, 1994, BISYS Ohio received $26,388, $28,353, and $58,805, respectively, from the Limited Maturity Fund. For the fiscal years ended July 31, 1996, July 31, 1995, and July 31, 1994, BISYS Ohio received $141,803, $128,452, and $133,846, respectively, from the Balanced Fund for fund accounting services and reimbursement of expenses. For the fiscal year ended July 31, 1996, July 31, 1995 and for the period from commencement of operations (October 1, 1993) through July 31, 1994, BISYS Ohio received $7,849, $12,846 and $28,546, respectively, from the Government Income Fund for fund accounting services and reimbursement of expenses. For the fiscal year ended July 31, 1996 and for the period from commencement of operations (September 30, 1994) through July 31, 1995, BISYS Ohio received $21,614 and $22,258 from the Florida Fund for fund accounting services and reimbursement of expenses. Auditors - -------- The financial information appearing in the Prospectuses under "FINANCIAL HIGHLIGHTS" has been derived from financial statements of the Trust incorporated by reference into this Statement of Additional Information which have been audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in their report incorporated by reference herein, and are included in reliance upon such report and on the authority of such firm as experts in auditing and accounting. Coopers & Lybrand L.L.P.'s address is 100 East Broad Street, Columbus, Ohio 43215. Legal Counsel - ------------- Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East, Washington, DC 20005-3333 are counsel to the Trust. B-35 230 PERFORMANCE INFORMATION General - ------- From time to time, the Trust may include the following types of information in advertisements, supplemental sales literature and reports to Shareholders: (1) discussions of general economic or financial principals (such as the effects of inflation, the power of compounding and the benefits of dollar-cost averaging); (2) discussions of general economic trends; (3) presentations of statistical data to supplement such discussions; (4) descriptions of past or anticipated portfolio holdings for one or more of the Funds within the Trust; (5) descriptions of investment strategies for one or more of such Funds; (6) descriptions or comparisons of various investment products, which may or may not include the Funds; (7) comparisons of investment products (including the Funds) with relevant market or industry indices or other appropriate benchmarks; and (8) discussions of fund rankings or ratings by recognized rating organizations. Yields of the Money Market Funds - -------------------------------- As summarized in the Prospectus of the Money Market Funds under the heading "Performance Information," the "yield" of each of those Funds for a seven-day period (a "base period") will be computed by determining the "net change in value" (calculated as set forth below) of a hypothetical account having a balance of one share at the beginning of the period, dividing the net change in account value by the value of the account at the beginning of the base period to obtain the base period return, and multiplying the base period return by 365/7 with the resulting yield figure carried to the nearest hundredth of one percent. Net changes in value of a hypothetical account will include the value of additional shares purchased with dividends from the original share and dividends declared on both the original share and any 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 B-36 231 fluctuations in interest rates and in the expenses of the Fund. For comparative purposes the current and effective yields should be compared to current and effective yields offered by competing financial institutions for that base period only and calculated by the methods described above. For the seven-day period ended January 31, 1997, the yield and effective yield of the Premier Class of each Money Market Fund calculated as described above was as follows:
Effective Fund Yield Yield ---- ----- ----- Prime Obligations Fund 4.88% 5.00% U.S. Treasury Fund 4.62% 4.72% Tax Exempt Fund 3.22% 3.28%
For the seven-day period ending January 31, 1997, the tax equivalent yield and the tax equivalent effective yield of the Premier Class of the Tax Exempt Fund were 5.33% and 5.43%, respectively, and the tax equivalent yield and the tax-equivalent effective yield of the Classic Class of the Tax Exempt Fund was 5.17% and 5.25% respectively, which reflect the amount of income subject to federal income taxation that a taxpayer in a 39.6% tax bracket would have to earn in order to obtain the same after-tax income as that derived from the "yield" and "effective yield," respectively, of the Tax Exempt Fund. For the seven-day period ended January 31, 1997, the yield and effective yield of the Classic Class of each Money Market Fund calculated as described above was as follows:
Effective Fund Yield Yield ---- ----- ----- Prime Obligations Fund 4.78% 4.89% U.S. Treasury Fund 4.52% 5.62% Tax Exempt Fund 3.12% 3.17%
Yields of the Capital Appreciation Funds, the Income Funds, and the Tax-free - ---------------------------------------------------------------------------- Funds - ----- As summarized in the Prospectuses under the heading "Performance Information," yields of the Capital Appreciation Funds, the Income Funds and the Tax-Free Funds will be computed by annualizing net investment income per share for a recent 30-day period and dividing that amount by the maximum offering price per share (reduced by any undeclared B-37 232 earned income expected to be paid shortly as a dividend) on the last trading day of that period. Net investment income will reflect amortization of any market value premium or discount of fixed-income securities (except for obligations backed by mortgages or other assets) and may include recognition of a pro rata portion of the stated dividend rate of dividend paying portfolio securities. The yield of each of the Capital Appreciation Funds and the Income Funds will vary from time to time depending upon market conditions, the composition of the Fund's portfolios and operating expenses of the Trust allocated to each Fund. These factors and possible differences in the methods used in calculating yield should be considered when comparing a Fund's yield to yields published for other investment companies and other investment vehicles. Yield should also be considered relative to changes in the value of the Fund's shares and to the relative risks associated with the investment objectives and policies of the Capital Appreciation Funds and the Income Funds. The Tax-Free Funds may also advertise a "tax equivalent yield" and a "tax equivalent effective yield." Tax equivalent yield will be computed by dividing that portion of each Fund's yield which is tax-exempt by the difference between one and a stated income tax rate and adding the product to that portion, if any, of the yield of the Fund that is not tax-exempt. The tax equivalent effective yield for the Tax-Free Funds is computed by dividing that portion of the effective yield of the Fund which is tax-exempt by the difference between one and a stated income tax rate and adding the product to that portion, if any, of the effective yield of the Fund that is not tax-exempt. At any time in the future, yields and total return may be higher or lower than past yields and there can be no assurance that any historical results will continue. Investors in the Capital Appreciation Funds and the Income Funds are specifically advised that share prices, expressed as the net asset values per share, will vary just as yields will vary. For the 30-day period ending January 31, 1997, the Equity Fund had a yield of 4.53%, the Regional Equity Fund had a yield of 1.03%, the Balanced Fund had a yield of 3.42%, the Bond Fund had a yield of 5.85%, the Limited Maturity Fund had a yield of 5.35%, the Government Income Fund had a yield of 6.32%, the Florida Fund had a yield of 3.97% and for the 30-day period ended July 31, 1997, the Equity Income Fund had a yield of 1.61% and the Municipal Bond Fund had a yield of 3.49%. 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 B-38 233 dividends and distributions paid or distributed during the period had been immediately reinvested; (2) calculating the value of the hypothetical initial investment of $1,000 as of the end of the period by multiplying the total number of shares owned at the end of the period by the net asset value per share on the last trading day of the period; (3) assuming redemption at the end of the period; and (4) dividing this account value for the hypothetical investor by the initial $1,000 investment and annualizing the result for periods of less than one year. For the one-year period ended January 31, 1997, annual total return was 4.90%, 4.67% and 3.04% for the Premier Shares and 4.82%, 4.58% and 2.96% for the Classic Shares of the Prime Obligations Fund, the U.S. Treasury Fund, and the Tax Exempt Fund, respectively. For the one-year period ended January 31, 1997, annual total return was 14.32%, 18.96%, 4.53%, 3.29%, 9.73%, 4.95% and 2.71% for the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced Fund, Government Income Fund, and the Florida Fund, respectively. For the period from March 20, 1997 (commencement of operations of the Equity Income Fund) average annual total return was 17.81%. For the five-year period ended January 31, 1997, the average annual total return was 4.04% for the Premier Shares and 4.02% for the Classic Shares of the Prime Obligations Fund; 2.66% for the Premier Shares and 2.65% for the Classic Shares of the U.S. Treasury Fund; and 3.89% for the Premier Shares and 3.87% for the Classic Shares of the Tax Exempt Fund. For the five-year period ended January 31, 1997, the average annual total return was 13.65%, 6.46%, 4.94%, 13.50% and 10.33% for the Equity Fund, the Bond Fund, the Limited Maturity Fund, the Regional Equity Fund, and the Balanced Fund, respectively. For the period from December 1, 1988 (commencement of operations of the Equity Fund, the Regional Equity Fund and the Bond Fund) through January 31, 1997, average annual total return was 13.15%, 15.00% and 8.03% for the Equity Fund, the Regional Equity Fund and the Bond Fund, respectively. For the period from February 1, 1989 (commencement of operations) through January 31, 1997, the average annual total return for the Limited Maturity Fund was 6.74%. For the period from August 8, 1988 (commencement of operations) through January 31, 1997, average annual total return was 5.45% for the Premier Shares and 5.44% for the Classic Shares of the Prime Obligations Fund. For the period from September 8, 1988 (commencement of operations) through January 31, 1997, average annual total return was 5.24% for the Premier Shares and 5.23% for the Classic Shares of the U.S. Treasury Fund. For the period from June 27, 1990 (commencement of operations) through January 31, 1997, average annual total return was 3.08% for the Premier Shares and 3.07% for the Classic Shares of the Tax Exempt Fund. For the period from December 19, 1991 (commencement of operations) through January 31, 1997, average annual B-39 234 total return for the Balanced Fund was 11.47%. For the period from October 1, 1993 (commencement of operations) through January 31, 1997, average annual total return was 4.41% for the Government Income Fund. For the period from September 30, 1994 (commencement of operations) through January 31, 1997, average annual total return was 4.41% for the Florida Fund. 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 B-40 235 Government/Corporate Index, an issue must have amounts outstanding in excess of $1 million, have at least one year to maturity and be rated "Baa" or higher ("investment grade") by a nationally recognized statistical rating agency. ALL FUNDS. Current yields or performance will fluctuate from time to time and are not necessarily representative of future results. Accordingly, a Fund's yield or performance may not provide for comparison with bank deposits or other investments that pay a fixed return for a stated period of time. Yield and performance are functions of a quality, composition, and maturity, as well as expenses allocated to the Fund. Fees imposed upon customer accounts by Financial Institutions for cash management services will reduce a Fund's effective yield to Customers. ADDITIONAL INFORMATION Organization and Description of Shares - -------------------------------------- The Trust was organized as a Massachusetts business trust by the Agreement and Declaration of Trust, dated October 1, 1987, under the name "Shelf Registration Trust IV." The Trust's name was changed to "The ASO Outlook Group" as of April 12, 1988 and to "AmSouth Mutual Funds" as of August 19, 1993 by amendments to the Agreement and Declaration of Trust. A copy of the Trust's Agreement and Declaration of Trust, as amended (the "Declaration of Trust") is on file with the Secretary of State of The Commonwealth of Massachusetts. The Declaration of Trust authorizes the Board of Trustees to issue an unlimited number of Shares, which are units of beneficial interest. The Trust presently has fourteen series of Shares which represent interests in the Prime Obligations Fund, the AmSouth U.S. Treasury Fund, the Tax Exempt Fund, the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced Fund, the Municipal Bond Fund, the Government Income Fund, the Florida Fund, the Capital Growth Fund, the Small Cap Fund, and the Equity Income 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. B-41 236 As described in the text of the Prospectuses following the caption "GENERAL INFORMATION -- Description of the Trust and its Shares," Shares of the Trust are entitled to one vote per share (with proportional voting for fractional shares) on such matters as Shareholders are entitled to vote. Shareholders vote in the aggregate and not by series or class on all matters except (i) when required by the 1940 Act, shares shall be voted by individual series, (ii) when the Trustees have determined that the matter affects only the interests of one or more series or class, then only Shareholders of such series or class shall be entitled to vote thereon, (iii) only the holders of Classic Shares will be entitled to vote on matters submitted to Shareholder vote with regard to the Shareholder Servicing Plan, and (iv) only the holders of Class B Shares will be entitled to vote on matters submitted to Shareholder vote with regard to the Distribution Plan. There will normally be no meetings of Shareholders for the purposes of electing Trustees unless and until such time as less than a majority of the Trustees have been elected by the Shareholders, at which time the Trustees then in office will call a Shareholders' meeting for the election of Trustees. In addition, Trustees may be removed from office by a written consent signed by the holders of two-thirds of the outstanding voting Shares of the Trust and filed with the Trust's custodian or by vote of the holders of two-thirds of the outstanding voting Shares of the Trust at a meeting duly called for the purpose, which meeting shall be held upon the written request of the holders of not less than 10% of the outstanding voting Shares of any Fund. Except as set forth above, the Trustees shall continue to hold office and may appoint their successors. Shareholder Liability - --------------------- Under Massachusetts law, Shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Trust's Declaration of Trust disclaims Shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in every agreement, obligation or instrument entered into or executed by the Trust or the Trustees. The Declaration of Trust provides for indemnification out of a Fund's property for all loss and expense of any Shareholder of such Fund held liable on account of being or having been a Shareholder. Thus, the risk of a Shareholder incurring financial loss on account of Shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations. The Trust is registered with the Securities and Exchange Commission as a management investment company. Such registration does not involve supervision by the Securities and Exchange Commission of the management or policies of the Trust. As of [August 21], 1997, the trustees and officers of the Trust, as a group, owned less than 1% of the Premier Shares and of the Classic Shares of any of the Prime Obligations Fund, the U.S. Treasury Fund and the Tax Exempt Fund, and of the Equity Fund, the Regional Equity Fund, the Tax Exempt Fund, the Bond Fund, the Limited Maturity Fund, the Balanced Fund, the Municipal Bond Fund, the Government Income Fund, the Florida Fund, and the Equity Income Fund. B-42 237 As of August 21, 1997, AmSouth, 1901 Sixth Avenue-North, Birmingham, Alabama, was the Shareholder of record of 98.81% of the outstanding voting Shares of the Premier Shares of the Prime Obligations Fund, 98.98% of the outstanding voting Shares of the Premier Shares of the U.S. Treasury Fund, 98.98% of the outstanding voting Shares of the Premier Shares of the Tax Exempt Fund, 94.92% of the outstanding voting Shares of the Equity Fund, 68.22% of the outstanding voting Shares of the Regional Equity Fund, 98.01% of the outstanding voting Shares of the Bond Fund, 97.51% of the outstanding voting Shares of the Limited Maturity Fund, and 86.78% of the outstanding voting Shares of the Balanced Fund, 88.18% of the outstanding voting Shares of the Florida Fund, 76.79% of the outstanding voting Shares of the Premier Class of the Prime Obligations Fund, 11.55% of the outstanding voting Shares of the Premier Class of the U.S. Treasury Fund, 69.27% of the outstanding voting Shares of the Premier Class of the Tax Exempt Fund, 61.73% of the outstanding voting Shares of the Equity Fund, 54.67% of the outstanding voting Shares of the Regional Equity Fund, 72.49% of the outstanding voting Shares of the Bond Fund, 57.28% of the outstanding voting Shares of the Limited Maturity Fund, and 81.58% of the outstanding voting Shares of the Balanced Fund were also owned beneficially by AmSouth because it possessed or shared investment or voting power with respect to such Shares. Under the 1940 Act, AmSouth may be deemed to be a controlling person of the Premier Class of the Prime Obligations Fund, the Premier Class of the Tax Exempt Fund, the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, and the Balanced Fund. The ultimate parent of AmSouth is AmSouth Bancorporation. As of August 21, 1997 National Financial Services Corporation, One World Financial Center, 200 Liberty Street, New York, New York 10281, was the Shareholder of record of 95.15% of the outstanding voting Shares of the Classic Shares of the Prime Obligations Fund, 82.60% of the outstanding Shares of the Classic Shares of the Treasury Fund, 92.49% of the outstanding voting Shares of the Classic Shares of the Tax Exempt Fund, and 35.22% of the Government Income Fund. The following table indicates each additional person known by the group to own beneficially 5% or more of the Shares of a Fund of the Trust as of August 21, 1997: B-43 238 U.S. TREASURY FUND -- CLASSIC SHARES ------------------------------------
Number of Name and Address Shares Percentage - ---------------- ------ ---------- Association of Edison 796,869.05 8.22% Illumination 600 18th Street North Birmingham, AL 35291 Shredders Inc. 636,611.57 6.53% 3353 27th Avenue N. Birmingham, AL 35202
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. B-44 239 FINANCIAL STATEMENTS The Independent Accountant's Report for the year ended July 31, 1996, Financial Statements for the AmSouth Mutual Funds for the period ended July 31, 1996, and Financial Statements for the period ended January 31, 1997, are all incorporated by reference to the Annual and Semi-Annual Reports of the AmSouth Mutual Funds, dated as of such dates, which have been previously sent to Shareholders of each Fund pursuant to the 1940 Act and previously filed with the Securities and Exchange Commission. A copy of each such report may be obtained without charge by contacting the Distributor, BISYS Fund Services at 3435 Stelzer Road, Columbus, Ohio 43219 or by telephone toll-free at 800-451-8382. B-45 240 APPENDIX COMMERCIAL PAPER RATINGS. Commercial paper ratings of Standard & Poor's Corporation ("S&P") are current assessments of the likelihood of timely payment of debt considered short-term in the relevant market. Commercial paper rated A-1 by S&P indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted A-1+. Commercial paper rated A-2 by S&P indicates that capacity for timely payment on issues is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. Commercial paper rated A-3 indicates capacity for timely payment. It is, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. Commercial paper rated B is regarded as having only speculative capacity for timely payment. Commercial paper rated C is assigned to short-term debt obligations with a doubtful capacity for payment. Commercial paper rated D represents an issue in default or when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired. The rating Prime-1 is the highest commercial paper rating assigned by Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related supporting institutions) are considered to have a superior ability for repayment of senior short-term debt obligations. Issuers rated Prime-2 (or related supporting institutions) have a strong ability for repayment of senior short-term promissory obligations. This will normally be evidenced by many of the characteristics of Prime-1 rated issuers, but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternative liquidity is maintained. Issuers rated Prime-3 (or related supporting institutions) have an acceptable ability for repayment of short-term obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. Commercial paper rated F-1 by Fitch Information Service ("Fitch") is regarded as having the strongest degree of assurance for timely payments. Commercial paper rated F-2 by Fitch is regarded as having a satisfactory degree of assurance of timely payment, but that margin of safety is not as great as for issues assigned F-1+ and F-1 ratings. Commercial paper rated F-3 has an adequate degree of assurance for timely payment but near-term adverse changes could cause these securities to be rated below investment grade. Issues rated F-S have characteristics suggesting a minimal degree of assurance for timely payment and are vulnerable to near term adverse changes in financial and economic conditions. The plus (+) sign is used after a rating symbol to designate the relative position of an issuer within the rating category. B-46 241 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. The "BB" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BBB-" rating. 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. The "B" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BB" or "BB-" rating. 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. The "CCC" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "B" or "B-" rating. CC -- The rating "CC" typically is applied to debt subordinated to senior debt that is assigned an actual or implied "CCC" debt rating. C -- The rating "C" typically is applied to debt subordinated to senior debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. C1 -- The rating "C1" is reserved for income bonds on which no interest is being paid. 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 B-47 242 grace period has not expired, unless S&P believes that such payments will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. To provide more detailed indications of credit quality, the ratings from AA to A may be modified by the addition of a plus or minus sign to show relative standing within this major rating category. 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. B-48 243 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. Those bonds within the Aa, A, and Baa categories that Moody's believes possess the strongest credit attributes within those categories are designated by the symbols Aa1, A1, and Baa1. Other Ratings of Municipal Obligations - -------------------------------------- The following summarizes the two highest ratings used by Moody's ratings for state and municipal short-term obligations. Obligations bearing MIG-1 and VMIG-1 designations are of the best quality, enjoying strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. Obligations rated "MIG-2" or "VMIG-2" denote high quality with ample margins of protection although not so large as in the preceding rating group. S&P SP-1 and SP-2 municipal note rating (the two highest ratings assigned) are described as follows: "SP-1" Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus (+) designation. "SP-2" Satisfactory capacity to pay principal and interest with some vulnerability to adverse financial and economic changes over the term of the notes. Preferred Stock Ratings - ----------------------- The following summarizes the ratings used by Moody's for preferred stock: "aaa" An issue which is rated "aaa" is considered to be a top-quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks. "aa" An issue which is rated "aa" is considered a high-grade preferred stock. This rating indicates that there is a reasonable assurance that earnings and asset protection will remain relatively well maintained in the foreseeable future. "a" An issue which is rated "a" is considered to be an upper-medium grade preferred stock. While risks are judged to be somewhat greater than in the "aaa" and "aa" classification, earnings and asset protection are, nevertheless, expected to be maintained at adequate levels. B-49 244 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. "N.R." This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy. "Plus (+) or minus (-)" To provide more detailed indications of preferred stock quality, ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. B-50 245
AMSOUTH MUTUAL FUNDS Statements of Assets and Liabilities July 31, 1997 (Unaudited) Equity Income ---------------- ASSETS: Investments, at value (Cost $20,222,462) $22,364,071 Interest and dividends receivable 76,283 Receivable for capital shares issued 92,121 Unamortized organizational costs 12,376 Prepaid expenses and other assets 7,294 ----------- TOTAL ASSETS 22,552,145 ----------- LIABILITIES: Payable for capital shares redeemed 269 Dividends payable 36,283 Payable to brokers for investments purchased 223,012 Accrued expenses and other payables: Investment advisory fees 13,955 Administration fees 719 Accounting and transfer agent fees 336 Other 4,785 ----------- TOTAL LIABILITIES 279,359 ----------- NET ASSETS: Capital 19,867,101 Undistributed net investment income 15,724 Net unrealized appreciation from investments 2,141,609 Accumulated undistributed net realized gains from investment transactions 248,352 ----------- NET ASSETS $22,272,786 =========== Outstanding units of beneficial interest (shares) 1,899,621 =========== Net asset value - redemption price per share $ 11.72 =========== Maximum sales charge 4.50% ----------- Maximum offering price (100%/(100%-maximum sales charge) of net asset value rounded to the nearest cent) per share $ 12.27 ===========
See notes to financial statements. 246 AMSOUTH MUTUAL FUNDS EQUITY INCOME FUND SCHEDULE OF PORTFOLIO INVESTMENTS July 31, 1997 Amounts in Thousands (except Shares) (Unaudited)
SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ----------- ------ COMMON STOCKS (67.1%): Aerospace/Defense (1.7%): 4,400 General Dynamics Corp. $ 389 ------- Automobiles (1.6%): 8,500 Ford Motor Co. 347 ------- Aluminum (1.5%): 4,300 Reynolds Metals Co. 335 ------- Banking (8.6%): 13,300 Banc One Corp. 747 4,200 Bankers' Trust New York 425 3,200 J.P. Morgan & Co., Inc. 371 7,200 Mellon Bank Corp. 363 ------- 1,906 ------- Chemicals - Specialty (2.2%): 7,800 PPG Industries, Inc. 499 ------- Computers & Peripherals (1.5%): 4,700 Hewlett-Packard Co. 329 ------- Electronic - Semiconductors (1.3%): 9,200 National Semiconductor Corp. (b) 290 ------- Diversified (2.0%): 6,400 General Electric Co. 449 ------- Electrical Equipment (2.5%): 9,400 Emerson Electric Co. 555 ------- Electronic & Electrical (1.7%): 5,800 Avnet, Inc. 382 ------- Financial Services (0.5%): 2,500 Fannie Mae 118 ------- Food Processing & Packaging (3.3%): 6,500 General Mills, Inc. 449 6,200 H.J. Heinz Co. 286 ------- 735 ------- Food Distributors & Wholesalers (0.6%): 5,000 International Multifoods Corp. 141 ------- Health Care (2.2%): 7,700 Johnson & Johnson 480 ------- Household Goods - Appliances, Furnishings, Etc. (2.6%): 19,700 Maytag Corp. 575 ------- Office Equipment & Supplies (2.7%): 8,100 Pitney Bowes, Inc. 609 ------- Oil - Integrated (4.6%): 4,250 Amoco Corp. 400 5,100 Equitable Resources, Inc. 152 7,400 Exxon Corp. 475 ------- 1,027 ------- Pharmaceuticals (7.2%): 7,900 American Home Products Corp. 651 3,500 Glaxo Wellcome PLC ADR 149 4,200 Merck & Co., Inc. 437 9,900 Pharmacia & Upjohn, Inc. 374 ------- 1,611 -------
247 AMSOUTH MUTUAL FUNDS EQUITY INCOME FUND SCHEDULE OF PORTFOLIO INVESTMENTS July 31, 1997 Amounts in Thousands (except Shares) (Unaudited)
SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ----------- ------ COMMON STOCKS, CONTINUED: Restaurants (1.6%): 6,750 McDonald's Corp. $ 363 ------- Railroad (1.3%): 3,900 Union Pacific Corp. 280 ------- Retail (4.4%): 7,500 J.C. Penney Co., Inc. 439 9,700 May Department Stores Co. 542 ------- 981 ------- Soaps & Cleaning Agents (0.6%): 1,700 Colgate-Palmolive, Inc. 129 ------- Steel (1.6%): 11,500 Allegheny Teledyne, Inc. 358 ------- Tobacco & Tobacco Products (1.7%): 8,450 Philip Morris Cos., Inc. 381 ------- Utilities - Electric & Gas (2.3%): 3,335 Duke Energy Corp. 169 10,100 Pacific Enterprises 338 ------- 507 ------- Utilities - Telecommunications (5.3%): 3,099 SBC Communications, Inc. 183 12,700 Sprint Corp. 629 10,000 U.S. WEST Communications Group 366 ------- 1,178 ------- Total Common Stocks 14,954 ------- CONVERTIBLE PREFERRED STOCKS (20.9%): Banking (3.2%): 24,400 National Australia Bank, Callable 3/19/07 @ $25 717 ------- Computers - Software (2.1%): 5,200 Microsoft Corp., Series A 459 ------- Financial Services (6.3%): 4,400 Jefferson Pilot (ACES) * 535 4,900 MCN Financing III 268 12,800 Merrill Lynch & Co., Inc. (STRYPES) ** 449 1,700 Merrill Lynch & Co., Inc. (STRYPES) *** 151 ------- 1,403 ------- Food Processing & Packaging (4.3%): 12,900 Dole Food (TRACES) 522 7,000 Ralston-Ralston Purina Group 436 ------- 958 ------- Machinery - Construction (1.6%): 2,400 Case Corp., Series A, Callable 7/1/99 @ $51.29 (c) 360 ------- Oil Refining & Marketing (1.5%): 5,600 Tosco Financial Trust (c) 325 ------- Publishing - Newspapers (1.9%): 37,500 Hollinger International, Inc., Callable 8/1/99 @ $9.99 436 ------- Total Convertible Preferred Stocks 4,658 -------
248 AMSOUTH MUTUAL FUNDS EQUITY INCOME FUND SCHEDULE OF PORTFOLIO INVESTMENTS July 31, 1997 Amounts in Thousands (except Shares) (Unaudited)
SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ----------- ------ CONVERTIBLE BONDS (10.1%): Electronic Components (3.9%): $120 SCI Systems, Inc., 5.00%, 5/1/06, Callable 5/1/99 @ 103.5 (c) $ 209 490 Solectron Corp., 6.00%, 3/1/06, Callable 3/3/99 @ 104.2 (c) 658 ------- 867 ------- Electronic - Semiconductors (1.2%): 260 National Semiconductor Corp., 6.50%, 10/1/02, Callable 10/3/98 @ 103.71 (c) 274 ------- Medical - Hospitals (1.9%): 350 Tenet Healthcare Corp., 6.00%, 12/1/05, Callable 1/15/99 @ 103**** 424 ------- Oilfield Equipment & Services (3.1%): 270 Diamond Offshore Drilling, Inc., 3.75%, 2/15/07, Callable 2/22/01 @ 102.08 352 300 Parker Drilling Corp., 5.50%, 8/1/04, Callable 8/1/00 @ 103.14 330 ------- 682 ------- Total Convertible Bonds 2,247 ------- INVESTMENT COMPANY (2.3%): 504,942 AmSouth Prime Obligations Fund 505 ------- Total Investment Company 505 ------- Total (Cost-$20,222)(a) $22,364 =======
- ----------------------- Percentages indicated are based on net assets of $22,273. (a) Represents cost for federal income tax purposes and differs from value by net unrealized appreciation of securities as follows: Unrealized appreciation $ 2,223 Unrealized depreciation (81) -------- Net unrealized appreciation $ 2,142 ======== (b) Represents non-income producing security. (c) Section 144A security. * At maturity, convertible to shares of NationsBank common stock. ** At maturity, convertible to shares of IMC Global, Inc. common stock. *** At maturity, convertible to shares of MGIC Investment Corp. common stock. **** Convertible beginning 11/6/97 into common shares of Vencor, Inc. ACES - Advanced Computerized Execution System ADR - American Depository Receipt PLC - Public Liability Co. STRYPES - Structured Yield Product Exchangeable for Stock. TRACES - Trust Automatic Common Exchange Securities. See notes to financial statements. 249
AMSOUTH MUTUAL FUNDS Statements of Operations For the period ended July 31, 1997 (Unaudited) Equity Income Fund (a) ---------- INVESTMENT INCOME: Interest income 59,397 Dividend income 95,735 ---------- Total Income 155,132 ---------- EXPENSES: Investment advisory fees 36,131 Administration fees 9,033 Custodian and accounting fees 14,230 Legal and audit fees 5,092 Organizational fees 1,064 Trustees' fees and expenses 26 Transfer agent fees 1,742 Registration and filing fees 536 Printing fees 536 Other 16 ---------- Total Expenses 68,406 Expenses voluntarily reduced (9,659) ---------- Net Expenses 58,747 ---------- Net Investment Income 96,385 ---------- REALIZED/UNREALIZED GAINS FROM INVESTMENTS: Net realized gains from investment transactions 248,352 Change in unrealized appreciation (depreciation) from investments 2,141,609 ---------- Net realized/unrealized gains from investments 2,389,961 ---------- Change in net assets resulting from operations 2,486,346 ==========
(a) For the period March 20, 1997 (commencement of operations) through July 31, 1997 See notes to financial statements. 250 AMSOUTH MUTUAL FUNDS Statements of Changes in Net Assets
Equity Income Fund ------------ For the period ended July 31, 1997 (a) ------------ (Unaudited) FROM INVESTMENT ACTIVITIES: OPERATIONS: Net investment income $ 96,385 Net realized gains from investment transactions 248,352 Net change in unrealized appreciation (depreciation) from investments 2,141,609 ------------ Change in net assets resulting from operations 2,486,346 ------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (80,661) In excess of net investment income From net realized gains from investment transactions In excess of net realized gains ------------ Change in net assets from shareholder distributions (80,661) ------------ CAPITAL TRANSACTIONS: Proceeds from shares issued 20,122,059 Dividends reinvested 36,896 Cost of shares redeemed (291,854) ------------ Change in net assets from share transactions 19,867,101 ------------ Change in net assets 22,272,786 NET ASSETS: Beginning of period -- ------------ End of period $ 22,272,786 ============ SHARE TRANSACTIONS: Issued 1,923,102 Reinvested 3,450 Redeemed (26,931) ------------ Change in shares 1,899,621 ============
(a) For the period March 20, 1997 (commencement of operations) through July 31, 1997 See notes to financial statements. 251
Equity Income Fund ------------- March 20, 1997 July 31, 1997 (a) ------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 ------------ INVESTMENT ACTIVITIES Net investment income 0.07 Net realized and unrealized gains from investments 1.71 ------------ Total from Investment Activities 1.78 ------------ DISTRIBUTIONS Net investment income (0.06) Net realized gain 0.00 ------------ 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 1.28(c) Ratio of net investment income to average net assets 2.11(c) Ratio of expenses to average net assets * 1.49(c) Ratio of net investment income to average net assets * 1.89(c) Portfolio turnover 27.38% Average commission rate paid (d) $ 0.0600 - -------- * 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 (d) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of shares purchased and sold by the Fund for which commissions were charged.
See notes to financial statements. 252 AMSOUTH MUTUAL FUNDS Equity Income Fund Notes to Financial Statements July 31, 1997 (Unaudited) 1. Organization: AmSouth Mutual Funds (the "Trust") was organized on August 5, 1988, and is registered under the Investment Company Act of 1940, as amended, ("the 1940 Act") as a diversified, open-end investment company established as a Massachusetts business trust. Between the date of organization and the dates of commencement of operations, the Trust had no operations other than incurring organizational expenses and the sale of initial units of beneficial interest ("shares"). The Trust is authorized to issue an unlimited number of shares without par value. The Trust currently offers shares of the AmSouth Prime Obligations Fund, the AmSouth U.S. Treasury Fund, the AmSouth Tax-Exempt Fund, the AmSouth Bond Fund, the AmSouth Limited Maturity Fund, the AmSouth Government Income Fund, the AmSouth Florida Tax-Free Fund, the AmSouth Equity Fund, the AmSouth Regional Equity Fund, the AmSouth Balanced Fund, the Amsouth Equity Income Fund and the Amsouth Municipal Bond Fund (collectively, "the Funds"). The AmSouth Alabama Tax-Free Fund has not yet commenced operations. Sales of shares of the Funds may be made to customers of AmSouth Bank of Alabama, ("AmSouth") and its affiliates, to all accounts of correspondent banks of AmSouth and to the general public. The accompanying financial statements relate only to the Amsouth Equity Income Fund ("the Fund"), which commenced operations on March 20, 1997. The Equity Income fund seeks above average income and capital appreciation consistent with the preservation of captial. 2. Significant Accounting Policies: The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles.The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. -continued- 253 AMSOUTH MUTUAL FUNDS Equity Income Fund Notes to Financial Statements, Continued July 31, 1997 (Unaudited) Securities Valuation: Investments in common stocks, corporate bonds, municipal bonds, commercial paper and U.S. Government securities of the variable net asset value funds are valued at their market values determined on the basis of the mean between the latest available bid and asked prices in the principal market (closing sales prices if the principal market is an exchange) in which such securities are normally traded. Investments in investment companies are valued at their net asset values as reported by such companies. The differences between cost and market values of such investments are reflected as unrealized appreciation or depreciation. Securities Transactions and Related Income: Securities transactions are accounted for on the date the security is purchased or sold (trade date). Interest income is recognized on the accrual basis and includes, where applicable, the pro rata amortization of premium or discount. Dividend income is recorded on the ex-dividend date. Realized gains or losses from sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds. Repurchase Agreements: The Fund may acquire repurchase agreements from member banks of the Federal Deposit Insurance Corporation and from registered broker/dealers which AmSouth 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 generally equals 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, is required to maintain the value of collateral held pursuant to the agreement at not less than the repurchase price (including accrued interest). Securities subject to repurchase agreements are held by the Fund'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. -continued- 254 AMSOUTH MUTUAL FUNDS Equity Income Fund Notes to Financial Statements, Continued July 31, 1997 (Unaudited) Dividends to Shareholders: Dividends from net investment income are declared and paid monthly for the variable net asset value funds. Distributable net realized gains, if any, are declared and distributed annually. Dividends from net investment income and from net realized capital gains are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for mortgage-backed securities, expiring capital loss carryforwards and deferrals of certain losses. Permanent book and tax basis differences are reflected in the components of net assets. Federal Income Taxes: It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized capital gains sufficient to relieve it from all, or substantially all, federal income taxes. Organizational Costs: Costs incurred by the Trust in connection with its organization and registration of shares have been deferred and are amortized using the straight-line method over a period of five years from the commencement of the public offering of shares of the Fund. Other: Expenses that are directly related tothe Fund are charged directly to the Fund. Other operating expenses for the Trust are prorated to the Funds on the basis of relative net assets. -continued- 255 AMSOUTH MUTUAL FUNDS Equity Income Fund Notes to Financial Statements, Continued July 31, 1997 (Unaudited) 3. Purchases and Sales of Securities: Purchases and sales of securities (excluding short-term securities) for the period ended July 31, 1997:
Purchases Sales --------- ----- Equity Income Fund $22,750,880 $3,493,221
4. Related Party Transactions: Investment advisory services are provided tothe Fund by AmSouth. Under the terms of the investment advisory agreement, AmSouth is entitled to receive .80% of the average net assets of the Fund. BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"), an Ohio Limited Partnership, and BISYS Fund Services Ohio, Inc. ("BISYS Ohio") are subsidiaries of the BISYS Group, Inc. BISYS, with whom certain officers and trustees of the Trust are affiliated, serves the Funds as administrator. Such officers and trustees are paid no fees directly by the Funds for serving as officers and trustees of the Trust. Under the terms of the administration agreement, BISYS' fees are computed daily as 0.20% of the average net assets of the Fund. BISYS also serves as the Fund's distributor and is entitled to receive commissions on sales of shares of the variable net asset value funds. For the year ended July 31, 1997, BISYS received $257,930 from commissions earned on sales of shares of the Fund all of which was reallowed to dealers of the Fund's shares. BISYS Ohio serves the Funds as Transfer Agent and Mutual Fund Accountant. Under the terms of the Transfer Agent and Accounting Agreement, the Company's fees are based on the number of shareholders and as a percentage of average net assets, respectively. Amsouth Bank serves as the custodian of the Fund. For their services Amsouth Bank receives fees based on the number of assets and number of transactions in the Fund. -continued- 256 AMSOUTH MUTUAL FUNDS Equity Income Fund Notes to Financial Statements, Continued July 31, 1997 (Unaudited) Fees may be voluntarily reduced to assist the Fund in maintaining competitive expense ratios. Information regarding these transactions follows for the period ended July 31, 1997 (amounts in thousands):
Gross Fees Actual Fees Waiver ---------- ----------- ------ Fund Accounting Fees $11,014 $1,355 $9,659
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