BILTMORE MUNICIPAL FUNDS, 485BPOS, 1995-06-30

BILTMORE MUNICIPAL FUNDS
485BPOS, 1995-06-30

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1933 Act File No. 33-37525
1940 Act File No. 811-6201

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Pre-Effective Amendment No.

Post-Effective Amendment No. 9 X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 9 X

THE BILTMORE MUNICIPAL FUNDS

(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)

(412) 288-1900
(Registrant's Telephone Number)

John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

X immediately upon filing pursuant to paragraph (b)
_ on ____________, pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:

X filed the Notice required by that Rule on January 13, 1995; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.

Copies to:

Donald W. Smith, Esquire Alan C. Porter, Esquire
Kirkpatrick & Lockhart Piper & Marbury
1800 M. Street, N.W. 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-5891 Washington, D.C. 20036-2430

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of The Biltmore Municipal
Funds, which consists of three portfolios: (1) Biltmore Georgia Municipal
Bond Fund, (2) Biltmore North Carolina Municipal Bond Fund, and (3) Biltmore
South Carolina Municipal Bond Fund, relates to two of the portfolios,
Biltmore Georgia Municipal Bond Fund and Biltmore North Carolina Municipal
Bond Fund, and is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page (1-3) Cover Page.
Item 2. Synopsis (1-3) Summary of Fund Expenses.
Item 3. Condensed Financial
Information (3) Financial Highlights.
Item 4. General Description of
Registrant (1-3) Performance Information;
General Information; Investment
Information; Investment Objective;
Investment Policies; (1) Georgia
Municipal Securities; (2) North
Carolina Municipal Securities; (3)
South Carolina Municipal Bonds; (1-
3) Municipal Bond Insurance;
Investment Risks; Non-
Diversification; Investment
Limitation(s).

Item 5. Management of the Fund (1-3) The Biltmore Municipal Funds
Information; Management of The
Biltmore Municipal Funds;
Distribution of Fund Shares; (1-2)
Shareholder Servicing Arrangements;
(1-3) Administration of the Fund;
Expenses of the Fund.

Item 6. Capital Stock and Other
Securities (1-3) Dividends; Capital Gains;
Shareholder Information; Voting
Rights; Massachusetts Business
Trusts; Effect of Banking Laws; Tax
Information; Federal Income Tax;
(1) Georgia Taxes; (2) North
Carolina Taxes; (3) South Carolina
Taxes; (1-3) Other State and Local
Taxes.

Item 7. Purchase of Securities Being
Offered (1-3) Net Asset Value; Investing in
the Fund; Share Purchases; (1-2)
Through the Trust Divisions of the
Wachovia Banks; Through Wachovia
Investments, Inc.; (3) Through
Wachovia Bank of South Carolina,
N.A.; Through the Other Wachovia
Banks; Through Wachovia Brokerage
Service; (1-3) Through Authorized
Broker Dealers; Minimum Investment
Required; What Shares Cost;
Purchases at Net Asset Value; Sales
Charge Reallowance; Reducing the
Sales Charge; Certificates and
Confirmations; Exchange Privilege.

Item 8. Redemption or Repurchase (1-3) Redeeming Shares; Systematic
Withdrawal Program; Accounts with
Low Balances; (3) Redemption in
Kind.

Item 9. Pending Legal Proceedings None.

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page (1-3) Cover Page.
Item 11. Table of Contents (1-3) Table of Contents.
Item 12. General Information and
History (1-3) General Information About the
Fund.
Item 13. Investment Objectives and
Policies (1-3) Investment Objective and
Policies; Investment Limitations.
Item 14. Management of the Fund (1-3) The Biltmore Municipal Funds
Management.
Item 15. Control Persons and Principal
Holders of Securities Not applicable.
Item 16. Investment Advisory and Other
Services (1-3) Investment Advisory Services;
Administrative Services.
Item 17. Brokerage Allocation (1-3) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered (1-3) Purchasing Shares;
Determining Net Asset Value;
Redeeming Shares.
Item 20. Tax Status (1-3) Tax Status.
Item 21. Underwriters Not Applicable.
Item 22. Calculation of Performance
Data (1-3) Total Return; Yield; Tax-
Equivalent; Yield Performance
Comparisons.
Item 23. Financial Statements (1-3) Filed in Part A.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE

Dear Shareholder:

I am pleased to present your first Semi-Annual Report for the Biltmore Georgia
Municipal Bond Fund. This report covers the period from December 26, 1994, when
the Fund began operation, through May 31, 1995.

The report begins with a commentary on the municipal bond market by the Fund's
portfolio manager. Following the commentary are a complete listing of the Fund's
investments and its financial statements.

On your behalf, the Biltmore Georgia Municipal Bond Fund pursues monthly,
double-tax-free income through a portfolio of high-quality Georgia municipal
bonds. Income earned by the Fund is exempt from federal regular income tax and
the Georgia state personal income taxes.*

I am also pleased to report that the Fund rewarded shareholders with strong
performance over the period. Its net asset value increased from $10.00, on the
first day of the period, to $10.72 on May 31, 1995, the last day of the period.
The Fund paid $0.18 per share in dividends, and its total return figures based
on net asset value and offering price were 9.02% and 4.13%, respectively.**
Total assets at the end of the period reached $8.6 million.

Thank you for choosing the Biltmore Georgia Municipal Bond Fund to pursue
double-tax-free income. We look forward to keeping you informed about your
investment as we provide you with the highest quality service. Of course, we
welcome your comments and suggestions.

Sincerely,

John W. McGonigle
President
June 15, 1995

*Income may be subject to the federal alternative minimum tax or other state
and local taxes.

**Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BILTMORE GEORGIA MUNICIPAL BOND FUND

The municipal bond market rebounded from a difficult year in 1994 with some of
its strongest monthly gains in nine years. The powerful rally was fueled by
widespread signs of a slowing economy, modest inflation reports and the
perception that interest rate hikes would no longer be necessary in the near
future. From November 30, 1994 to May 31, 1995, the Lehman Brothers State
General Obligations Bonds Index* had a total return of 10.04%.

A weaker economy helped push the yield on 10-year AAA general obligation
municipal bonds down, from 6% on November 30, 1994 to 4.95% on May 31, 1995.
Municipal bond prices continued to gain additional support from a sharp decline
in volume. The Fund's portfolio manager adopted a less defensive posture, moving
to a duration that was more in line with the municipal bond market. The
portfolio manager also reduced overweighted positions in long- and short-term
bonds as the yield curve steepened.

On May 31, 1995, net assets of the Fund totaled $8.6 million. Since inception on
Dec. 26, 1994 the net asset value of the Fund increased from $10.00 to $10.72,
and the 30-day SEC yield was 4.22%.** The Fund had an average duration of 6.77
years on May 31, 1995.

*This index is unmanaged.

**Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed, may
be worth more or less than their original cost.

(A PORTFOLIO OF THE BILTMORE MUNICIPAL FUNDS)
- --------------------------------------------------------------------------------

SEMI-ANNUAL REPORT AND SUPPLEMENT TO PROSPECTUS DATED DECEMBER 10, 1994

The following information is a supplement to your Prospectus. It is being
furnished to update certain information presently contained in the Prospectus,
and to comply with regulations that require mutual fund companies to provide
their shareholders with current information.

We suggest that you keep this information for your records.

A. Please delete the "Summary of Fund Expenses" table on page 1 of the
Prospectus and replace it with the following table:

SUMMARY OF FUND EXPENSES

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None

<CAPTION>
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
<S> <C> <C>
Management Fee (after waiver) (1) 0.15%
12b-1 Fees None
Other Expenses (after waiver) (2) 0.77%
Shareholder Servicing Agent Fee (3) 0.00%
Total Fund Operating Expenses (after waiver) (4) 0.92%
</TABLE>

(1)The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the investment adviser. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.75%.

(2)Other expenses are 1.20% absent the voluntary waiver by the administrator.
The administrator can terminate the voluntary waiver at any time at its sole
discretion.

(3)The Fund has no present intention of paying or accruing the shareholder
servicing agent fee during the fiscal year ending November 30, 1995. If the
Fund were paying or accruing the shareholder servicing agent fee, the Fund
would be able to pay up to 0.25 of 1% of the Fund's average daily net assets
for the shareholder servicing agent fee. See "The Biltmore Municipal Funds
Information."

(4)The Total Fund Operating Expenses are estimated to be 1.95%, absent the
anticipated voluntary waivers by the Fund's adviser and administrator.

* Total Fund Operating Expenses in the table above are estimated based on
average expenses expected to be incurred during the fiscal year ending
November 30, 1995. During the course of this period, expenses may be more or
less than the average amount shown.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Fund will bear, either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "The Biltmore Municipal Funds Information" and "Investing in the Fund."

<TABLE>
<CAPTION>
Example 1 Year 3 Years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual
return; (2) redemption at the end of each time period; and (3) payment of the
maximum sales load. As noted in the table above, the Fund charges no redemption
fees. $54 $73
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE IS BASED
ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING NOVEMBER 30, 1995.

B. Please insert the following "Financial Highlights" table as page 2 of the
Prospectus, following the "Summary of Fund Expenses" table and before the
section entitled "General Information." In addition, please add the
heading "Financial Highlights" to the Table of Contents on page I after
the heading "Summary of Fund Expenses."

BILTMORE GEORGIA MUNICIPAL BOND FUND FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
Period Ended
May 31, 1995(a)
(unaudited)
<S> <C>
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Income from investment operations
Net investment income 0.18
Net realized and unrealized gain (loss) on investments 0.72
-------
Total from investment operations 0.90
-------
Less distributions
Distributions from net investment income (0.18)
-------
NET ASSET VALUE, END OF PERIOD $ 10.72
-------
Total return (b) 9.02%
Ratios to average net assets
Expenses 0.92%(c)
Net investment income 4.12%(c)
Expense waiver/reimbursement (d) 1.20%(c)
Supplemental data
Net assets, end of period (000 omitted) $8,599
Portfolio turnover 22%
</TABLE>

(a) Reflects operations for the period from December 26, 1994 (date of initial
public investment) to May 31, 1995.

(b) Based on net asset value, which does not reflect sales charges, if
applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(See Notes which are an integral part of the Financial Statements)

C. Please insert the following financial statements at the end of the
Prospectus, beginning on page 19. In addition, please add the heading
"Financial Statements" to the Table of Contents on page I of the
Prospectus, immediately before "Addresses."

BILTMORE GEORGIA MUNICIPAL BOND FUND PORTFOLIO OF INVESTMENTS

MAY 31, 1995 (UNAUDITED)

<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
<C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Long-Term Municipal Securities--89.1%
$ 200,000 Atlanta, GA, 6.125% GO UT, (Series A)/(Callable 12/1/2004
@102)/(Original Issue Yield: 6.18%), 12/1/2023 AA $ 204,388
100,000 Atlanta, GA, Downtown Development Authority Refunding--
Underground Atlanta Project, 6.25% Revenue Refunding Bonds,
(Callable 10/1/2002 @102)/(Original Issue Yield: 6.435%),
10/1/2016 AA 103,709
80,000 Brunswick, GA, Water and Sewage Revenue, 6.10% Revenue Refunding
Bonds, (MBIA Insured)/(Original Issue Yield: 6.27%), 10/1/2019 AAA 85,605
90,000 Burke County, GA, Development Authority Pollution Control Revenue
Refunding--Oglethorpe Power Company--Vogtle, 7.50% Revenue
Refunding Bonds, (MBIA Insured), 1/1/2003 AAA 101,448
50,000 Chatham County, GA, School District, 6.75% GO UT, (Callable
8/1/2003 @102)/(MBIA Insured), 8/1/2018 AAA 54,463
355,000 Cherokee County, GA, School System, 6.20% GO UT Refunding Bonds,
(Callable 6/1/2002 @102), 6/1/2005 A1 382,193
500,000 Cobb County, GA, School District, 6.65% GO UT, (Callable
2/1/1999 @102), 2/1/2001, Prerefunded 2/1/1999 @102 AA 544,595
100,000 Cobb County, GA, Solid Waste Management Authority Revenue, 6.35%
Revenue Bonds, (Callable 1/1/2005 @102)/(Subject to AMT), 1/1/2009 AA+ 106,323
150,000 De Kalb County, GA , Health Facilities, 5.50% GO UT, (Callable
1/1/2003 @102)/(Original Issue Yield: 5.60%), 1/1/2016 AA+ 147,095
200,000 De Kalb County, GA, School District, 6.25% GO UT, (Series A),
7/1/2011 AA 215,420
1,000,00 De Kalb County, GA, Water and Sewage Revenue, 5.125%
Revenue Refunding Bonds, (Callable 10/1/2003 @102)/(Original Issue
Yield: 5.25%), 10/1/2011 AA 957,760
100,000 Decatur, GA, Housing Authority Mortgage Revenue, 6.45%
Revenue Refunding Bonds, (Callable 7/1/2002 @102)/(MBIA Insured),
7/1/2025 AAA 102,616
120,000 Fayette County, GA, School District, 6.125% GO UT, (Callable
3/1/2004 @102)/(Original Issue Yield: 6.30%), 3/1/2015 A+ 124,141
</TABLE>

<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
<C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Long-Term Municipal Securities--continued
$ 160,000 Fayette County, GA, Water Revenue, 6.20% Revenue Bonds, (Series
B)/(Callable 10/1/2002 @102)/(FGIC Insured)/(Original Issue Yield:
6.30%), 10/1/2022 AAA $ 164,779
60,000 Forsyth County, GA, School District, 6.70% GO UT, 7/1/2012 A 69,066
25,000 Fulton County, GA, School District, 5.60% GO UT, (Original Issue
Yield: 5.65%), (Callable 1/1/2004 @102), 1/1/2011 AA 25,137
375,000 Fulton County, GA, Water and Sewage Revenue, 6.25% Revenue
Refunding Bonds, (FGIC Insured)/(Original Issue Yield: 6.425%)
1/1/2007 AAA 410,628
200,000 Georgia State, 7.20% GO UT, (Series B), 3/1/2006 AA+ 236,042
200,000 Georgia State, 6.50% GO UT, (Series F), 12/1/2007 AA+ 225,844
50,000 Georgia State, 5.95% GO UT, (Series B), 3/1/2003 AA+ 54,050
500,000 Georgia State, 6.80% GO UT, (Series D), 8/1/2000 AA+ 554,389
500,000 Georgia State Housing and Financial Authority Revenue
Amount--Single Family Mortgage--Subsidiary, 6.55% Revenue
Refunding Bonds, (Callable 3/1/2005 @102)/(FHA/VA Insured)/
(Subject to AMT), 12/1/2027 AA+ 511,035
285,000 Georgia State, Municipal Electric Authority Revenue, 6.125%
Revenue Refunding Bonds, (Series B)/(Callable 1/1/2003 @102)/
(FGIC Insured)/(Original Issue Yield: 6.30%), 1/1/2014 AAA 291,928
100,000 Gwinnett County, GA, Water and Sewage COPs, 8.40% Revenue
Refunding Bonds, 8/1/2001 AA+ 119,421
350,000 Gwinnett County, GA, Recreation Authority Revenue, 7.00% Revenue
Bonds, (Callable 2/1/1997 @102), 2/1/1999,
Prerefunded 2/1/1997 @102 Aaa 371,942
30,000 Hapeville, GA, Water and Sewage Revenue, 6.20% Revenue Bonds,
(Callable 7/1/2004)/(MBIA Insured), 7/1/2006 AAA 32,776
25,000 Henry County, GA, and Henry County Water and Sewage Authority
Revenue, 5.25% GO LT Revenue Refunding Bonds, (Series A)/(Callable
2/1/2004 @102)/(AMBAC Insured)/(Original Issue Yield: 5.40%),
2/1/2018 AAA 23,759
300,000 Medical Center Hospital Authority, GA, Certificates Of Antici-
pation Columbus Regional Healthcare Systems Revenue, 5.90% Revenue
Refunding Bonds, (MBIA Insured)/(Original Issue Yield: 5.95%),
8/1/2001 AAA 316,593
500,000 Paulding County, GA, School District, 6.30% GO UT Refunding Bonds,
(Series B)/(Original Issue Yield: 6.35%), 2/1/2003 A 540,930
</TABLE>

+ The cost of investments for federal tax purposes amounts to $8,280,228. The
unrealized appreciation of investments on a federal tax basis amounts to
$253,393 at May 31, 1995.

* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.

Note: The categories of investments are shown as a percentage of net assets
($8,599,119) at May 31, 1995.

The following abbreviations are used in this portfolio:

AMBAC--American Municipal Bond Assurance Corporation
AMT--Alternative Minimum Tax
COPs--Certificates of Participation
FGIC--Financial Guaranty Insurance Company
FHA/VA--Federal Housing Authority/Veterans Administration
GO--General Obligation
LT--Limited Tax
MBIA--Municipal Bond Investors Assurance
UT--Unlimited Tax

(See Notes which are an integral part of the Financial Statements)

MAY 31, 1995 (UNAUDITED)

<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (identified and tax cost $8,280,228) $ 8,533,621
Cash 729
Income receivable 159,983
Receivable for shares sold 28,661
------------
Total assets 8,722,994
Liabilities:
Payable for shares redeemed $ 108,749
Income distribution payable 7,381
Accrued expenses 7,745
----------
Total liabilities 123,875
------------
Net Assets for 802,221 shares outstanding $ 8,599,119
------------
Net Assets Consists of:
Paid-in capital $ 8,333,916
Net unrealized appreciation of investments 253,393
Accumulated net realized gain on investments 11,810
------------
Total Net Assets $ 8,599,119
------------
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Net Asset Value Per Share ($8,599,119 / 802,221 shares outstanding) $10.72
------------
Offering Price Per Share (100/95.50 of $10.72)* $11.23
------------
</TABLE>

*See 'What Shares Cost' in the Prospectus.

(See Notes which are an integral part of the Financial Statements)

PERIOD ENDED MAY 31, 1995 (UNAUDITED)*

<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest $ 102,149
Expenses:
Investment advisory fee $ 15,204
Administrative personnel and services fee 1,794
Custodian fees 405
Transfer agent and dividend disbursing agent fees and expenses 4,079
Trustees' fees 91
Legal fees 254
Portfolio accounting fees 13,820
Printing and postage 4,440
Insurance premiums 1,318
Miscellaneous 1,496
---------
Total expenses 42,901
Deduct--
Waiver of investment advisory fee $ 12,162
Reimbursement of other operating expenses 12,090
---------
Total waivers/reimbursements 24,252
---------
Net expenses 18,649
----------
Net investment income 83,500
----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 11,810
Net change in unrealized appreciation of investments 253,393
----------
Net realized and unrealized gain on investments 265,203
----------
Change in net assets resulting from operations $ 348,703
----------
</TABLE>

*For the period from December 26, 1994 (date of initial public investment) to
May 31, 1995.

(See Notes which are an integral part of the Financial Statements)

<TABLE>
<CAPTION>
Period Ended
May 31, 1995*
(unaudited)
<S> <C>
- ---------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 83,500
Net realized gain on investments ($11,810 net gain as computed for federal tax
purposes) 11,810
Net change in unrealized appreciation of investments 253,393
----------------
Change in net assets resulting from operations 348,703
----------------
Distributions to Shareholders--
Distributions from net investment income (83,500)
----------------
Share Transactions--
Proceeds from sale of shares 8,762,802
Net asset value of shares issued to shareholders in payment of distributions declared 65,177
Cost of shares redeemed (494,063)
----------------
Change in net assets resulting from share transactions 8,333,916
----------------
Change in net assets 8,599,119
Net Assets:
Beginning of period --
End of period $ 8,599,119
----------------
</TABLE>

*For the period from December 26, 1994 (date of initial public investment) to
May 31, 1995.

(See Notes which are an integral part of the Financial Statements)

MAY 31, 1995 (UNAUDITED)

(1) ORGANIZATION

The Biltmore Municipal Funds (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. The Trust consists of three non-diversified portfolios. The
financial statements included herein present only those of Biltmore Georgia
Municipal Bond Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.

(2) SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.

A. INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing
service, taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant in determining valuations for normal
institutional size trading units of debt securities. The independent
pricing service does not rely exclusively on quoted prices. Short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value. Investments in other open-end investment companies are valued at net
asset value.

B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.

C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its tax-exempt income.
Accordingly, no provisions for federal tax are necessary.

D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.

E. OTHER--Investment transactions are accounted for on the trade date.

(3) SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Board of Trustees (the "Trustees") to issue
an unlimited number of full and fractional shares of beneficial interest
(without par value). Transactions in shares were as follows:

<TABLE>
<CAPTION>
Period Ended
May 31, 1995*
<S> <C>
- ---------------------------------------------------------------------------------------------------------
Shares sold 842,992
Shares issued to shareholders in payment of distributions declared 6,157
Shares redeemed (46,928)
------------------
Net change resulting from share transactions 802,221
------------------
</TABLE>

*For the period from December 26, 1994 (date of initial public investment) to
May 31, 1995.

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Wachovia Bank of Georgia, N.A., the Fund's investment
adviser (the "Adviser"), is entitled to receive for its services an annual
investment advisory fee equal to 0.75 of 1% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive a portion of its fee and
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and reimbursement at any time at its sole
discretion.

ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust and The Biltmore Funds for
the period. FAS may voluntarily choose to waive a portion of its fee.

SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with FAS, the Fund will pay FAS up to 0.25 of 1% of average net assets of the
Fund for the period. This fee is to obtain certain services for shareholders and
to maintain shareholder accounts. For the period ended May 31, 1995, the Fund
did not incur a shareholder services fee.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT, PORTFOLIO ACCOUNTING AND CUSTODIAN
FEES--Federated Services Company ("FServ") serves as transfer and dividend
disbursing agent for the Fund. The fee is based on the size, type, and number of
accounts and transactions made by shareholders.

FServ also maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average net assets for the period,
plus out-of-pocket expenses.

Wachovia Bank of North Carolina, N.A., is the Fund's custodian for which it
receives a fee. The fee is based on the level of the Fund's average net assets
for the period, plus out-of-pocket expenses.

ORGANIZATIONAL EXPENSES--Organizational expenses incurred by the Fund will be
borne initially by FAS and are estimated to be $30,000. The Fund has agreed to
reimburse FAS for such organizational expenses during the five year period
following December 10, 1994 ( the date the Fund became effective).

GENERAL--Certain of the Officers of the Trust are Officers and Directors or
Trustees of the above companies.

(5) INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1995, were as follows:

<TABLE>
<S> <C>
Purchases $ 8,249,196
------------
Sales $ 848,731
------------
</TABLE>

(6) INVESTMENT TRANSACTIONS

Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers in
that state than would be a comparable general tax-exempt mutual fund. In order
to reduce the credit risk associated with such factors, at May 31, 1995, 25.8%
of the securities in the Fund's portfolio of investments were backed by letters
of credit or bond insurance of various financial institutions and financial
guaranty assurance agencies. The value of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not exceed
10.2% of total investments.

D. Please replace the references to Kirkpatrick & Lockhart on page 8 and the
outside back cover with Kirkpatrick & Lockhart LLP.

E. Please replace the references to Piper & Marbury on page 8 and the outside
back cover with Piper & Marbury L.L.P.

PROSPECTUS

DECEMBER 10, 1994

The shares of Biltmore Georgia Municipal Bond Fund (the "Fund") offered by this
prospectus represent interests in a non-diversified portfolio of securities
which is an investment portfolio of The Biltmore Municipal Funds (the "Trust"),
an open-end management investment company (a mutual fund). The investment
objective of the Fund is to provide current income which is exempt from
federal regular income tax and the personal income taxes imposed by the State
of Georgia. The Fund invests primarily in a portfolio of municipal securities
which are exempt from federal regular income tax and the personal income taxes
imposed by the State of Georgia ("Georgia Municipal Securities"). These
securities include those issued by or on behalf of the State of Georgia and
Georgia political subdivisions and municipalities, as well as those issued by
states, territories, and possessions of the United States which are exempt
from federal regular income tax and the Georgia personal income taxes.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
WACHOVIA BANK OF GEORGIA, N.A. OR ITS AFFILIATES, ARE NOT ENDORSED OR
GUARANTEED BY WACHOVIA BANK OF GEORGIA, N.A. OR ITS AFFILIATES, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.

BILTMORE GEORGIA

MUNICIPAL BOND FUND

(A PORTFOLIO OF THE BILTMORE MUNICIPAL FUNDS)

The Fund has also filed a Statement of Additional Information dated December
10, 1994 with the Securities and Exchange Commission. The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge, obtain other information, or make
inquiries about the Fund by calling 1-800-994-4414 or writing The Biltmore
Service Center, 101 Greystone Boulevard, SC-9215, Columbia, South Carolina
29226.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

================================================================================
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- --------------------------------------------------------------------------------
GENERAL INFORMATION 2
- --------------------------------------------------------------------------------
INVESTMENT INFORMATION 2
Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Characteristics 3
Participation Interests 3
Variable Rate Municipal Securities 3
Municipal Leases 3
Investing in Securities of
Other Investment Companies 3
Restricted and Illiquid Securities 4
When-Issued and Delayed Delivery
Transactions 4
Lending of Portfolio Securities 4
Temporary Investments 4
Georgia Municipal Securities 4
Municipal Bond Insurance 5
Investment Risks 6
Non-Diversification 6

Investment Limitation 6

- --------------------------------------------------------------------------------
THE BILTMORE MUNICIPAL FUNDS INFORMATION 7
Management of The Biltmore
Municipal Funds 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Distribution of Fund Shares 7
Shareholder Servicing Arrangements 8
Administration of the Fund 8
Administrative Services 8
Custodian 8
Transfer Agent, Dividend Disbursing
Agent and Portfolio Recordkeeper 8
Legal Services 8
Independent Auditor 8
Expenses of the Fund 8
- --------------------------------------------------------------------------------
NET ASSET VALUE 9
- --------------------------------------------------------------------------------
INVESTING IN THE FUND 9

Share Purchases 9

Through the Trust Divisions of the
Wachovia Banks 9

Through Wachovia Investments, Inc. 9

By Mail 9
By Wire 9
Through Authorized Broker/Dealers 9
Minimum Investment Required 10
What Shares Cost 10
Purchases at Net Asset Value 10
Sales Charge Reallowance 10
Reducing the Sales Charge 10
Quantity Discounts and Accumulated
Purchases 11
Letter of Intent 11
Concurrent Purchases 11
Reinvestment Privilege 11
Systematic Investment Program 11
Certificates and Confirmations 11
Dividends 12
Capital Gains 12
Exchange Privilege 12
Exchange by Telephone 13
- --------------------------------------------------------------------------------
REDEEMING SHARES 13
By Telephone 13
By Mail 13
Systematic Withdrawal Program 14
Accounts with Low Balances 14
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION 14
Voting Rights 14
Massachusetts Business Trusts 15
- --------------------------------------------------------------------------------
EFFECT OF BANKING LAWS 15
- --------------------------------------------------------------------------------
TAX INFORMATION 15
Federal Income Tax 15
Georgia Taxes 16
Other State and Local Taxes 17
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION 17
- --------------------------------------------------------------------------------
ADDRESSES BACK COVER
================================================================================

SUMMARY OF FUND EXPENSES

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

ANNUAL FUND OPERATING EXPENSES*

(As a percentage of projected average net assets)

<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.15%
12b-1 Fees None
Other Expenses (after waiver) (2) 0.77%
Shareholder Servicing Agent Fee (3) 0.00%
Total Fund Operating Expenses (after waiver) (4) 0.92%
</TABLE>

(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the investment adviser. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.75%.

(2) Other expenses are 1.20% absent the voluntary waiver by the administrator.
The administrator can terminate this voluntary waiver at any time at its
sole discretion.

(3) The Fund has no present intention of paying or accruing the shareholder
servicing agent fee during the fiscal year ending November 30, 1995. If the
Fund were paying or accruing the shareholder servicing agent fee, the Fund
would be able to pay up to 0.25 of 1% of the Fund's average daily net
assets for the shareholder servicing agent fee. See "The Biltmore Municipal
Funds Information."

(4) The Total Fund Operating Expenses are estimated to be 1.95%, absent the
anticipated voluntary waivers by the Fund's adviser and administrator.

* Total Fund Operating Expenses in the table above are estimated based on
average expenses expected to be incurred during the period ending November 30,
1995. During the course of this period, expenses may be more or less than the
average amount shown.

THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR
INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES,
SEE "THE BILTMORE MUNICIPAL FUNDS INFORMATION" AND "INVESTING IN THE FUND."

<TABLE>
<S> <C> <C>
Example 1 Year 3 Years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return; (2) redemption at the end of each
time period; and (3) payment of the maximum sales load. As noted in
the table above, the Fund charges no redemption fees. $54 $73
</TABLE>

================================================================================
GENERAL INFORMATION

The Biltmore Municipal Funds (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated August 15, 1990. The
Declaration of Trust permits The Biltmore Municipal Funds to offer separate
series of shares of beneficial interest representing interests in separate
portfolios of securities. This prospectus relates only to The Biltmore Municipal
Funds' Georgia municipal securities portfolio, known as Biltmore Georgia
Municipal Bond Fund (the "Fund"). The shares in any one portfolio may be offered
in separate classes. As of the date of this prospectus, the Board of Trustees
("Trustees") has not established classes of shares of the Fund. The Fund is
designed primarily for customers of Wachovia Bank of Georgia, N.A. and its
correspondents or affiliates who desire a convenient means of accumulating an
interest in a professionally managed, non-diversified portfolio investing
primarily in municipal bonds. The Wachovia Bank of Georgia, N.A. is the
investment adviser to the Fund. A minimum initial investment of $500 is
required. Subsequent investments must be in amounts of at least $100. The Fund
is not likely to be a suitable investment for non-Georgia taxpayers or for
retirement plans since it intends to invest primarily in Georgia Municipal
Securities.

Fund shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value.

The other portfolios in the Trust are Biltmore North Carolina Municipal Bond
Fund and South Carolina Municipal Bond Fund (collectively, hereinafter referred
to as the "Funds").

================================================================================
INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax and the personal income taxes imposed by
the State of Georgia. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Interest income of the Fund that is exempt from the income taxes
described above retains its tax-exempt status when distributed to the Fund's
shareholders. However, income distributed by the Fund may not necessarily be
exempt from state or municipal taxes in states other than Georgia. While there
is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. The investment objective cannot be changed without approval of
shareholders. Unless indicated otherwise, the investment policies may be changed
by the Trustees without the approval of shareholders. Shareholders will be
notified before any material changes in these policies become effective.

INVESTMENT POLICIES

The Fund attempts to achieve its investment objective by investing in a
professionally managed portfolio consisting primarily of municipal securities
exempt from federal regular income tax and the personal income taxes imposed by
the State of Georgia. As a matter of fundamental investment policy which may not
be changed without shareholder approval, the Fund will invest its assets so
that, under normal circumstances, at least 80% of its total assets are invested
in obligations, the interest income from which is exempt from federal regular
income tax and the personal income taxes imposed by the State of Georgia. While
not a fundamental investment policy, the Fund's adviser may consider the
potential for capital appreciation in its selection of portfolio investments.

ACCEPTABLE INVESTMENTS. The Fund invests primarily in Georgia Municipal
Securities, which are:

obligations, including industrial development bonds, issued on behalf of the
State of Georgia, its political subdivisions or agencies;

obligations issued by or on behalf of any state, territory or possession of the
United States, including the District of Columbia, or any political subdivision
or agency of any of these; and

participation interests, as described below, in any of the above obligations,

the interest from which is, in the opinion of bond counsel for the issuers or in
the opinion of officers of the Fund and/or the Fund's adviser, exempt from both
federal regular income tax and the personal income taxes imposed by the State of
Georgia. It is likely that shareholders who are subject to alternative minimum
tax will be required to include interest from a portion of the municipal
securities owned by the Fund in calculating the federal individual alternative
minimum tax or the federal alternative minimum tax for corporations.

While the Fund intends to invest primarily in securities issued by or on behalf
of the State of Georgia and its political subdivisions, it will invest in other
securities issued by states, territories, and possessions of the United States
which are exempt from federal regular income tax and the personal income taxes
imposed by the State of Georgia. The Fund will invest in such securities in
instances where, in the judgment of the Fund's adviser, the supply and yield of
such securities would be beneficial to the Fund's performance.

Characteristics. The Georgia Municipal Securities which the Fund buys are rated
A or above by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Ratings Group ("Standard & Poor's") (a description of the rating categories is
contained in the Appendix to the Statement of Additional Information). In
addition, the Georgia Municipal Securities are subject to one or more of the
following quality standards:

insured by a municipal bond insurance company which is rated AAA by Standard &
Poor's or Aaa by Moody's; or

secured by an irrevocable escrow of direct obligations of the U.S. government;
or

unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Fund's adviser.

The prices of fixed income securities fluctuate inversely to the direction of
interest rates.

If a security loses its rating or has its rating reduced after the Fund has
purchased it, the Fund is not required to sell or otherwise dispose of the
security, but may consider doing so. If ratings made by Moody's or Standard &
Poor's change because of changes in those organizations or in their ratings
systems, the Fund will attempt to identify other rating organizations and
systems with comparable standards, in accordance with the investment policies of
the Fund.

Participation Interests. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings and loan associations,
and insurance companies. These participation interests would give the Fund
undivided interests in Georgia Municipal Securities. The financial institutions
from which the Fund purchases participation interests frequently provide or
secure irrevocable letters of credit or guarantees to assure that the
participation interests are of high quality. The Trustees will establish
guidelines pursuant to which the Fund's adviser determines that participation
interests meet the prescribed quality standards for the Fund.

Variable Rate Municipal Securities. Some of the Georgia Municipal Securities
which the Fund purchases may have variable interest rates. Variable interest
rates are ordinarily based on a published interest rate, interest rate index or
a similar standard, such as the 91-day U.S. Treasury bill rate. Many variable
rate municipal securities are subject to payment of principal on demand by the
Fund, usually in not more than seven days. All variable rate municipal
securities will meet the quality standards for the Fund. The Fund's adviser
monitors the pricing, quality, and liquidity of the variable rate municipal
securities, including participation interests held by the Fund, on the basis of
published financial information and reports of the rating agencies and other
analytical services pursuant to guidelines established by the Trustees.

Municipal Leases. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, or a conditional sales contract.

Investing in Securities of Other Investment Companies. The Fund may invest in
the securities of other investment companies, but it will not own more than 3%
of the total outstanding voting stock of any investment company, invest more
than 5% of its total assets in any one investment company, or invest more than
10% of its total assets in investment companies in general. The Fund will invest
in other investment companies primarily for the purpose of investing short-term
cash which has not yet been invested in other portfolio instruments. While it is
the Fund's adviser's policy to waive its investment advisory fee on assets
invested in securities of open-end investment companies, it should be noted that
investment companies incur certain expenses, such as custodian and transfer
agent fees, and therefore, any investment by the Fund in shares of another
investment company would be subject to such duplicate expenses. The Fund would,
however, continue to pay its own investment advisory fees and other expenses
with respect to its investments in shares of closed-end companies.

RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities laws. To the extent
these securities are not determined to be liquid, the Fund will limit its
purchase of these securities, together with other securities considered to be
illiquid, to 15% of its net assets.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase Georgia
Municipal Securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date.

The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the Fund may enter into transactions
to sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.

LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or a long-term basis to
broker/dealers, banks, or other institutional borrowers of securities. The Fund
will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the Fund's adviser has determined are creditworthy under
guidelines established by the Trustees, and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned at all times. It is not anticipated that the Fund will engage
in securities lending if such lending generates taxable income. There is the
risk that when lending portfolio securities, the securities may not be available
to the Fund on a timely basis and the Fund may, therefore, lose the opportunity
to sell the securities at a desirable price. In addition, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.

TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
Fund's adviser determines that market conditions call for a temporary defensive
posture, the Fund may invest in short-term tax-exempt or taxable temporary
investments. These temporary investments include: notes issued by or on behalf
of municipal or corporate issuers; obligations issued or guaranteed by the U.S.
government, its agencies, or instrumentalities; other debt securities;
commercial paper; certificates of deposit of banks; shares of other investment
companies; and repurchase agreements (arrangements in which the organization
selling the Fund a bond or temporary investment agrees at the time of sale to
repurchase it at a mutually agreed upon time and price).

There are no rating requirements applicable to temporary investments. However,
the Fund's adviser will limit temporary investments to those it considers to be
of comparable quality to the Fund's acceptable investments.

Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.
However, it is anticipated that certain temporary investments will generate
income which is subject to Georgia state income tax.

GEORGIA MUNICIPAL SECURITIES
Georgia Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, schools, streets, and water
and sewer works. They are also issued to repay outstanding obligations, to raise
funds for general operating expenses, and to make loans to other public
institutions and facilities. Georgia Municipal Securities include industrial
development bonds issued by or on behalf of public authorities to provide
financing aid to acquire sites or construct or equip facilities for privately or
publicly owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.

Revenue bonds do not represent a pledge of credit or create any debt of or
charge against the general revenues of a municipality or public authority.
Industrial development bonds are typically classified as revenue bonds; the
industry which is the beneficiary of such bonds is generally the only source of
payment for the bonds.

The Fund will not generally invest more than 25% of its total assets in any one
industry. Governmental issuers of municipal securities are not considered part
of any "industry." However, municipal securities backed only by the assets and
revenues of nongovernmental users may, for this purpose, be deemed to be related
to the industry in which such nongovernmental users engage, and the 25%
limitation would apply to such obligations. It is nonetheless possible that the
Fund may invest more than 25% of its assets in a broader segment of the
municipal securities market, such as revenue obligations of hospitals and other
health care facilities, housing agency revenue obligations, or airport revenue
obligations. This would be the case only if the Fund's adviser determines that
the yields available from obligations in a particular segment of the market
justified the additional risks associated with a large investment in such
segment. Although such obligations could be supported by the credit of
governmental users or by the credit of nongovernmental users engaged in a number
of industries, economic, business, political and other developments generally
affecting the revenues of such users (for example, proposed legislation or
pending court decisions affecting the financing of such projects and market
factors affecting the demand for their services or products) may have a general
adverse effect on all municipal securities in such a market segment.

MUNICIPAL BOND INSURANCE
The Fund may purchase municipal securities covered by insurance which guarantees
the timely payment of principal at maturity and interest on such securities.
These insured municipal securities are either (1) covered by an insurance policy
applicable to a particular security, whether obtained by the issuer of the
security or by a third party ("Issuer-Obtained Insurance") or (2) insured under
master insurance policies issued by municipal bond insurers, which may be
purchased by the Fund (the "Policies").

The Fund will require or obtain municipal bond insurance when purchasing
municipal securities which would not otherwise meet the Fund's quality
standards. The Fund may also require or obtain municipal bond insurance when
purchasing or holding specific municipal securities when, in the opinion of the
Fund's adviser, such insurance would benefit the Fund (for example, through
improvement of portfolio quality or increased liquidity of certain securities).
The Fund's adviser anticipates that between 10% and 50% of the Fund's net assets
will be invested in municipal securities which are insured.

Issuer-Obtained Insurance policies are noncancellable and continue in force as
long as the municipal securities are outstanding and their respective insurers
remain in business. If a municipal security is covered by Issuer-Obtained
Insurance, then such security need not be insured by the Policies purchased by
the Fund.

The Fund may purchase two types of Policies issued by municipal bond insurers.
One type of Policy covers certain municipal securities only during the period in
which they are in the Fund's portfolio. In the event that a municipal security
covered by such a Policy is sold from the Fund, the insurer of the relevant
Policy will be liable only for those payments of interest and principal which
are due and owing at the time of sale.

The other type of Policy covers municipal securities not only while they remain
in the Fund's portfolio but also until their final maturity even if they are
sold out of the Fund's portfolio, so that the coverage may benefit all
subsequent holders of those municipal securities. The Fund will obtain insurance
which covers municipal securities until final maturity even after they are sold
out of the Fund's portfolio only if, in the judgment of the Fund's adviser, the
Fund would receive net proceeds from the sale of those securities, after
deducting the cost of such permanent insurance and related fees, significantly
in excess of the proceeds it would receive if such municipal securities were
sold without insurance. Payments received from municipal bond issuers may not be
tax-exempt income to shareholders of the Fund.

The premiums for the Policies are paid by the Fund and the yield on the Fund's
portfolio is reduced thereby. Premiums for the Policies are paid by the Fund
monthly, and are adjusted for purchases and sales of municipal securities during
the month. The Fund may purchase Policies from MBIA Corp. ("MBIA"), AMBAC
Indemnity Corporation ("AMBAC"), Financial Guaranty Insurance Company ("FGIC"),
or any other municipal bond insurer which is rated AAA by Standard & Poor's or
Aaa by Moody's. Each Policy guarantees the payment of principal and interest on
those municipal securities it insures. The Policies will have the same general
characteristics and features. A municipal security will be eligible for coverage
if it
meets certain requirements set forth in a Policy. In the event interest or
principal on an insured municipal security is not paid when due, the insurer
covering the security will be obligated under its Policy to make such payment
not later than 30 days after it has been notified by the Fund that such
non-payment has occurred.

MBIA, AMBAC, and FGIC will not have the right to withdraw coverage on securities
insured by their Policies so long as such securities remain in the Fund's
portfolio, nor may MBIA, AMBAC, or FGIC cancel their Policies for any reason
except failure to pay premiums when due. MBIA, AMBAC, and FGIC will reserve the
right at any time upon 90 days' written notice to the Fund to refuse to insure
any additional municipal securities purchased by the Fund after the effective
date of such notice. The Trustees will reserve the right to terminate any of the
Policies if they determine that the benefits to the Fund of having its portfolio
insured under such Policy are not justified by the expense involved.

Additionally, the Trustees reserve the right to enter into contracts with
insurance carriers other than MBIA, AMBAC, or FGIC if such carriers are rated
AAA by Standard & Poor's or Aaa by Moody's.

INVESTMENT RISKS

Yields on Georgia Municipal Securities depend on a variety of factors,
including: the general conditions of the municipal bond market; the size of the
particular offering; the maturity of the obligations; and the rating of the
issue. Further, any adverse economic conditions or developments affecting the
State of Georgia or its municipalities could impact the Fund's portfolio. The
Fund's concentration in securities issued by the State of Georgia and its
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. Georgia's dependence
on agriculture, manufacturing, tourism, and service industries leaves it
vulnerable to both the business cycle and long term national economic trends.
(Please refer to the Fund's Statement of Additional Information for an expanded
discussion of Georgia investment risks.) The ability of the Fund to achieve its
investment objective also depends on the continuing ability of the issuers of
Georgia Municipal Securities and participation interests, or the guarantors of
either, to meet their obligations for the payment of interest and principal when
due. Investing in Georgia Municipal Securities which meet the Fund's quality
standards may not be possible if the State of Georgia or its municipalities do
not maintain their current credit ratings. In addition, the issuance, tax
exemption and liquidity of Georgia Municipal Securities may be adversely
affected by judicial, legislative or executive action, including, but not
limited to, rulings of state and federal courts, amendments to the state and
federal constitutions, changes in statutory law, and changes in administrative
regulations, as well as voter initiatives.

NON-DIVERSIFICATION

The Fund is a non-diversified investment company. As such, there is no limit on
the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment company because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers. The Fund may purchase an issue of
municipal securities in its entirety.

The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that, at the end of each quarter of each taxable year, with
regard to at least 50% of the Fund's total assets, no more than 5% of its total
assets are invested in the securities of a single issuer and that with respect
to the remainder of the Fund's total assets, no more than 25% of its total
assets are invested in the securities of a single issuer.

INVESTMENT LIMITATION

The Fund will not:

borrow money or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge assets
to secure such borrowings.

The above investment limitation cannot be changed without shareholder approval.

================================================================================
THE BILTMORE MUNICIPAL FUNDS INFORMATION

MANAGEMENT OF THE BILTMORE MUNICIPAL FUNDS

BOARD OF TRUSTEES. The Biltmore Municipal Funds are managed by a Board of
Trustees. The Board of Trustees is responsible for managing the business affairs
of The Biltmore Municipal Funds and for exercising all of the powers of The
Biltmore Municipal Funds except those reserved for the shareholders.

INVESTMENT ADVISER. Pursuant to an investment advisory contract with The
Biltmore Municipal Funds, investment decisions for the Fund are made by Wachovia
Bank of Georgia, N.A., the Fund's adviser (the "Bank" or the "Adviser"), subject
to direction by the Trustees. The Adviser continually conducts investment
research and supervision for the Fund and is responsible for the purchase or
sale of portfolio instruments, for which it receives an annual fee from the
Fund.

ADVISORY FEES. The Adviser is entitled to receive an annual investment advisory
fee equal to 0.75 of 1% of the Fund's average daily net assets. The fee paid by
the Fund, while higher than the advisory fee paid by other mutual funds in
general, is comparable to fees paid by other mutual funds with similar
objectives and policies. The investment advisory contract allows the voluntary
waiver of the investment advisory fee or the reimbursement of expenses by the
Adviser from time to time. The Adviser can terminate any voluntary waiver of its
fee or reimbursement of expenses at any time in its sole discretion.

Investment decisions for the Fund will be made independently from those of any
fiduciary or other accounts that may be managed by the Bank or its affiliates.
If, however, such accounts, the Fund, or the Bank for its own account are
simultaneously engaged in transactions involving the same securities, the
transactions may be combined and allocated to each account. This system may
adversely affect the price the Fund pays or receives, or the size of the
position it obtains. The Adviser may engage, for its own account or for other
accounts managed by the Bank, in other transactions involving Georgia Municipal
Securities which may have adverse effects on the market for securities in the
Fund's portfolio.

ADVISER'S BACKGROUND. Wachovia Bank of Georgia, N.A. is a direct, wholly-owned
subsidiary of Wachovia Corporation, a registered bank holding company
headquartered in Winston-Salem, North Carolina and Atlanta, Georgia. Through
offices in eight states, Wachovia Corporation and its subsidiaries provide a
broad range of financial services to individuals and businesses.

Wachovia Bank of Georgia, N.A., a national banking association, offers financial
services that include, but are not limited to, commercial and consumer loans,
corporate, institutional, and personal trust services, demand and time deposit
accounts, letters of credit and international financial services.

The Adviser employs an experienced staff of professional investment analysts,
portfolio managers and traders. The Adviser uses fundamental analysis and other
investment management disciplines to identify investment opportunities. Wachovia
Bank of North Carolina, N.A., Wachovia Bank of Georgia, N.A., and Wachovia Bank
of South Carolina, N.A. (collectively the "Wachovia Banks") have been managing
trust assets for over 100 years, with approximately $16.6 billion in managed
assets as of June 30, 1994. The Adviser has not previously served as an
investment adviser to a mutual fund. The Adviser's affiliate, Wachovia Bank of
South Carolina, N.A., has served as investment adviser to the Trust's South
Carolina Municipal Bond Portfolio since its inception on August 5, 1990.

Michael Peters has been the Fund's portfolio manager since the Fund's inception
in December of 1994. Mr. Peters joined Wachovia Bank of Georgia, N.A. in 1994,
and also serves as an officer of both Wachovia Bank of North Carolina, N.A. and
Wachovia Bank of South Carolina, N.A. Mr. Peters was employed with NationsBank
from 1990 to 1993, and from 1986 to 1990 was employed with First Bank of
Whiting. Mr. Peters received his M.B.A. from Indiana University and is a member
of the Institute of Chartered Financial Analysts.

DISTRIBUTION OF FUND SHARES

Federated Securities Corp. is the distributor (the "Distributor") for shares of
the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.

SHAREHOLDER SERVICING ARRANGEMENTS
Federated Administrative Services, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is the Fund's shareholder servicing agent (the "Shareholder
Servicing Agent"). The Fund may pay the Shareholder Servicing Agent a fee based
on the average daily net asset value of shares for which it provides shareholder
services. These shareholder services include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance and communicating or facilitating purchases and redemptions of
shares. This fee will be computed at an annual rate equal to 0.25 of 1% of the
Fund's average daily net assets for which the Shareholder Servicing Agent
provides services; however, the Shareholder Servicing Agent may choose
voluntarily to waive all or a portion of its fee at any time or pay all or some
of its fees to financial institutions or other financial service providers.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with the
administrative personnel and services necessary to operate the Fund. Such
services include the preparation of filings with the Securities and Exchange
Commission and other regulatory authorities, assistance with respect to meetings
of the Trustees, shareholder servicing and accounting services, and other
administrative services. Federated Administrative Services provides these at an
annual rate, computed and payable daily, as specified below:

<TABLE>
<S> <C>
Average Aggregate Daily
Maximum Net Assets of the Trust
Administrative Fee and The Biltmore Funds
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall aggregate at least
$50,000 for each portfolio of the Trust. Federated Administrative Services may
choose voluntarily to waive or reimburse a portion of its fee at any time.

CUSTODIAN. Wachovia Bank of North Carolina, N.A., Winston-Salem, North Carolina
is custodian (the "Custodian") for the securities and cash of the Fund.

Under the Custodian Agreement, the Custodian holds the Fund's portfolio
securities in safekeeping and keeps all necessary records and documents relating
to its duties. For the services to be provided to the Trust pursuant to the
Custodian Agreement, the Trust pays the Custodian an annual fee based upon the
average daily net assets of the Fund and payable monthly.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO RECORDKEEPER. Federated
Services Company, Pittsburgh, Pennsylvania, is disbursing agent for the Fund and
transfer agent for the shares of the Fund. Federated Services Company also
provides certain accounting and recordkeeping services with respect to the
Fund's portfolio investments.

LEGAL SERVICES. Legal services for the Fund are provided by Kirkpatrick &
Lockhart, Washington, D.C. Piper & Marbury, Washington, D.C., serves as counsel
to the independent Trustees.

INDEPENDENT AUDITOR. The independent auditor for the Fund is Ernst & Young LLP,
Pittsburgh, Pennsylvania.

EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of The Biltmore
Municipal Funds' expenses. These expenses include, but are not limited to, the
cost of: organizing The Biltmore Municipal Funds and continuing its existence;
Trustees' fees; investment advisory and administrative services; printing
prospectuses and other Fund documents for shareholders; registering The Biltmore
Municipal Funds, the Fund and shares of the Fund; taxes and commissions;
issuing, purchasing, repurchasing, and redeeming shares; fees for custodians,
transfer agents, dividend disbursing agents, shareholder servicing agents, and
registrars; printing, mailing, auditing, accounting, and legal expenses; reports
to shareholders and government agencies; meetings of Trustees and shareholders
and proxy solicitations therefor; insurance premiums; association membership
dues; and such nonrecurring and extraordinary items as may arise. However, the
Adviser may voluntarily waive and/or reimburse some expenses.

================================================================================
NET ASSET VALUE

The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.

================================================================================
INVESTING IN THE FUND

SHARE PURCHASES

Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Shares of the Fund may be
purchased through the Trust Divisions of the Wachovia Banks, Wachovia
Investments, Inc. or authorized broker/dealers which have a sales agreement with
the Distributor. All purchase orders must be transmitted to the Fund by 5:00
p.m. (Eastern time). Texas residents must purchase shares through an authorized
registered broker/dealer or through Federated Securities Corp. at
1-800-618-8573. In connection with the sale of Fund shares, the Distributor may
from time to time offer certain items of nominal value to any shareholder or
investor. The Fund and the Distributor reserve the right to reject any purchase
request.

THROUGH THE TRUST DIVISIONS OF THE WACHOVIA BANKS. Trust customers of the
Wachovia Banks may place an order to purchase shares of the Fund by telephoning,
sending written instructions, or placing the order in person with their account
officer in accordance with the procedures established by the Wachovia Banks and
as set forth in the relevant account agreement.

Payment may be made to the Wachovia Banks by check, by wire of federal funds, or
by debiting a customer's account with the Wachovia Banks. Purchase orders must
normally be received by the Wachovia Banks by 3:00 p.m. (Eastern time), in order
for shares to be purchased at that day's price. It is the responsibility of the
Wachovia Banks to transmit orders promptly to the Fund. Shares of the Fund
cannot be purchased by wire on any day on which the Wachovia Banks, the New York
Stock Exchange and the Federal Reserve Wire System are not open for business.

THROUGH WACHOVIA INVESTMENTS, INC. Customers of Wachovia Investments, Inc. or
Wachovia Brokerage Service may place an order to purchase shares by telephoning
The Biltmore Service Center at 1-800-994-4414, sending written instructions, or
placing an order in person. Payment may be made by check, by wire of federal
funds (the customer's bank sends money to the Fund's bank through the Federal
Reserve Wire System) or by debiting a customer's account at Wachovia
Investments, Inc. Purchase orders must normally be received by Wachovia
Investments, Inc. before 3:30 p.m. (Eastern time). Wachovia Investments, Inc., a
wholly-owned subsidiary of Wachovia Corporation, is a registered broker/dealer
and a member of the National Association of Securities Dealers, Inc. Wachovia
Brokerage Service is a business unit of Wachovia Investments, Inc.

By Mail. To purchase shares of the Fund through Wachovia Investments, Inc. by
mail, send a check made payable to Georgia Municipal Bond Fund to The Biltmore
Service Center, 101 Greystone Boulevard,
SC-9215, Columbia, South Carolina, 29226. Orders by mail are considered received
after payment by check is converted by Wachovia Investments, Inc. into federal
funds. This is normally the next business day after Wachovia Investments, Inc.
receives the check.

By Wire. To purchase shares of the Fund through Wachovia Investments, Inc. by
wire, wire funds as follows:

Wachovia Investments, Inc.
ABA Number 0531-00494
Credit: 8735-001342
Further credit to: Biltmore Georgia Municipal Bond Fund
Re: (Customer name and brokerage account number)

Shares of the Fund cannot be purchased by wire on any day on which the Wachovia
Banks, the New York Stock Exchange and the Federal Reserve Wire System are not
open for business.

the Fund receives the purchase request. Purchase requests through registered
broker/dealers must normally be received by the broker/dealer and transmitted to
the Fund before 3:30 p.m. (Eastern time) in order for shares to be purchased at
that day's public offering price.

MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $500. Subsequent
investments must be in amounts of at least $100. These minimums may be waived
for purchases by the Trust Divisions of the Wachovia Banks for their fiduciary
or custodial accounts. An institutional investor's minimum investment will be
calculated by combining all accounts it maintains with the Fund.

WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:

<TABLE>
<S> <C> <C>
Sales Charge as a Sales Charge as a
Percentage of Percentage of Net
Amount of Transaction Public Offering Price Amount Invested
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million or more 0.25% 0.25%
</TABLE>

During a special offering period, there will be no sales charge assessed on
shares purchased on or before March 31, 1995. Purchases made during this special
offering period cannot be exchanged for shares of other portfolios of the Trust,
shares of portfolios of The Biltmore Funds or shares of International Equity
Fund, until April 30, 1995.

The net asset value is determined at or after the close of the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; or (iii)
the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day and Christmas Day.

PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset
value, without a sales charge, by investment advisers registered under the
Investment Advisers Act of 1940 purchasing on behalf of their clients, and by
the Wachovia Banks for funds which are held in a fiduciary, agency, custodial,
or similar capacity. Trustees, officers, directors and emeritus directors,
advisory board members, employees and retired employees of the Fund, the
Wachovia Banks, the spouses and children under the age of 21 of such persons,
and any trusts, pension profit-sharing plans and individual retirement accounts
operated for such persons, may purchase shares of the Fund at net asset value.
In addition, trustees, officers, directors and employees of the Distributor and
its affiliates, and any bank or investment dealer who has a sales agreement with
the Distributor relating to the Fund, may also purchase shares at their net
asset value.

SALES CHARGE REALLOWANCE
For shares sold with a sales charge, the Wachovia Banks or an affiliated broker
or a dealer will receive up to 100% of the applicable sales charge for purchases
of Fund shares made directly through the Wachovia Banks or such broker or
dealer.

The sales charge for shares sold other than through the Wachovia Banks or
registered broker/dealers will be retained by the Distributor. However, the
Distributor, at its sole discretion, may uniformly offer to pay cash, or
promotional incentives in the form of trips to sales seminars luxury resorts,
tickets or other items, to all dealers selling shares of the Fund. If accepted
by the dealer, such additional payments will be predicated upon the amount of
Fund shares sold by the dealers.

REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of Fund shares through:
quantity discounts and accumulated purchases;

signing a 13-month letter of intent; or

using the reinvestment privilege.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table in this
prospectus under the section entitled "What Shares Cost," larger purchases
reduce the sales charge paid. The Fund will combine purchases made on the same
day by the investor, his spouse, and his children under age 21 when it
calculates the sales charge.

If an additional purchase of Fund shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$90,000 and he purchases $10,000 more at the current public offering price, the
sales charge on the additional purchase according to the schedule now in effect
would be 3.75%, not 4.50%.

To receive the sales charge reduction, the Wachovia Banks, Wachovia Investments,
Inc., or the Distributor must be notified by the shareholder or by his financial
institution at the time the purchase is made that Fund shares are already owned
or that purchases are being combined. The Fund will reduce the sales charge
after it confirms the purchases.

LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the Fund over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the custodian to hold
4.50% of the total amount intended to be purchased in escrow (in shares) until
such purchase is completed.

The 4.50% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent is
not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.

This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.

CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of shares in
portfolios in The Biltmore Funds and in The Biltmore Municipal Funds (such as
the Fund), the purchase price of which includes a sales charge. For example, if
a shareholder concurrently invested $70,000 in one of the portfolios of The
Biltmore Funds with a sales charge, and $40,000 in a portfolio of The Biltmore
Municipal Funds with a sales charge, the sales charge would be reduced.

To receive this sales charge reduction, the Wachovia Banks, Wachovia
Investments, Inc. or the Distributor must be notified by the agent placing the
order at the time the concurrent purchases are made. The sales charge will be
reduced after the purchase is confirmed.

REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 90 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge. The
Wachovia Banks, Wachovia Investments, Inc., or the Distributor must be notified
by the shareholder in writing or by his financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder redeems
his shares in the Fund, there may be tax consequences.

SYSTEMATIC INVESTMENT PROGRAM. Once a Fund account has been opened, shareholders
may add to their investment on a regular basis in a minimum amount of $100.
Under this program, funds may be automatically withdrawn periodically from the
shareholder's checking account at the Wachovia Banks, and invested in Fund
shares at the net asset value next determined after an order is received by the
Fund, plus the applicable sales charge. A shareholder may apply for
participation in this program through the Wachovia Banks, Wachovia Investments,
Inc. or through the Distributor.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
in writing to the Fund.

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.

DIVIDENDS
Dividends are declared daily and are paid monthly. Dividends are declared just
prior to determining net asset value. If an order for shares is placed on the
preceding business day, shares purchased by wire begin earning dividends on the
business day wire payment is received by the Custodian. If the order for shares
and payment by wire are received on the same day, shares begin earning dividends
on the next business day. Shares purchased by check begin earning dividends on
the business day after the check is converted into federal funds. Unless cash
payments are requested by contacting the Fund, dividends are automatically
reinvested on payment dates in additional shares of the Fund at the payment
date's net asset value without a sales charge.

CAPITAL GAINS
Distributions of any net realized long-term capital gains realized by the Fund,
if any, will be made at least annually.

EXCHANGE PRIVILEGE

Shareholders of the Fund may exchange all or some of their Fund shares for:
shares in other portfolios of the Trust, shares in portfolios of The Biltmore
Funds or shares of the International Equity Fund. The Biltmore Funds are advised
by Wachovia Investment Management Group, a business unit of Wachovia Bank of
North Carolina, N.A., and distributed by Federated Securities Corp. The Trust
consists of the Fund, Biltmore North Carolina Municipal Bond Fund and South
Carolina Municipal Bond Fund. The South Carolina Municipal Bond Fund is advised
by Wachovia Bank of South Carolina, N.A., a national banking association
headquartered in Columbia, South Carolina. It is the primary subsidiary of South
Carolina National Corporation, a bank holding company with a commercial bank
subsidiary and a federal savings bank subsidiary in South Carolina. The Biltmore
North Carolina Municipal Bond Fund is advised by Wachovia Bank of North
Carolina, N.A. The Biltmore North Carolina and South Carolina Municipal Bond
Funds are distributed by Federated Securities Corp. The International Equity
Fund is advised by Fiduciary International, Inc. and distributed by Federated
Securities Corp. The Biltmore Funds consist of the following portfolios:
Biltmore Balanced Fund, Biltmore Emerging Markets Fund, Biltmore Equity Fund,
Biltmore Equity Index Fund, Biltmore Fixed Income Fund, Biltmore Money Market
Fund (Institutional Shares and Investment Shares), Biltmore Prime Cash
Management Fund (Institutional Shares only), Biltmore Quantitative Equity Fund,
Biltmore Short-Term Fixed Income Fund, Biltmore Special Values Fund, Biltmore
Tax-Free Money Market Fund (Institutional Shares and Investment Shares), and
Biltmore U.S. Treasury Money Market Fund (Institutional Shares and Investment
Shares). (The International Equity Fund, the portfolios of the Trust, and The
Biltmore Funds are referred to in this section as the "Portfolios.")

Shareholders of the Fund have easy access to the Portfolios through a telephone
exchange program. The exchange privilege is available to shareholders residing
in any state in which the shares being acquired may be legally sold. Prior to
any exchange, the shareholder should review a copy of the current prospectus of
the Portfolio into which an exchange is to be effected. Shareholders
contemplating exchanges between the Fund and the Trust's other portfolios should
consult their tax advisers, since the tax advantages of each Fund may vary.

Shares of the Portfolios may be exchanged for shares of the Fund at net asset
value without a sales charge (if previously paid). Shares of Portfolios with a
sales charge may be exchanged at net asset value for shares of other Portfolios
with an equal sales charge or no sales charge. Shares of Portfolios with no
sales charge acquired by direct purchase or reinvestment of dividends on such
shares may be exchanged for shares of Portfolios at net asset value.

Shareholders using this privilege must exchange shares having a net asset value
at least equal to the minimum investment of the Portfolio into which they are
exchanging. An exchange order must comply with the requirements for a redemption
and purchase order and must specify the dollar value or number of shares to be
exchanged. Shareholders who desire to automatically exchange shares of a
predetermined amount on a monthly, quarterly, or annual basis may take advantage
of a systematic exchange privilege. A shareholder may obtain further information
on these exchange privileges by calling the Fund, Wachovia Investments, Inc. or,
in the case of customers of the Wachovia Banks, the shareholder's account

officer.

Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange will be redeemed at the next-determined net asset
value. Written exchange instructions may require a signature guarantee. Exercise
of this privilege is treated as a sale for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the exchange
privilege.

EXCHANGE BY TELEPHONE. Instructions for exchanges between the Portfolios and the
Fund may be given by telephone to Wachovia Investments, Inc., and in the case of
customers of the Wachovia Banks, the customer's account officer. Shares may be
exchanged by telephone only between fund accounts having identical shareholder
registrations. Exchange instructions given by telephone may be electronically
recorded. If reasonable procedures are not followed by the Fund, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.

Telephone exchange instructions must be received before 4:00 p.m. (Eastern time)
for shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through banks, brokers, and other financial institutions
during times of drastic economic or market changes. If a shareholder cannot
contact his bank, broker, or financial institution by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail.

================================================================================
REDEEMING SHARES

The Fund redeems shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemptions
must be received in proper form and can be made through the Wachovia Banks,
Wachovia Investments, Inc., or directly to the Fund.

BY TELEPHONE. A shareholder may redeem shares of the Fund by calling the
Wachovia Banks (call toll-free
1-800-994-4414) to request the redemption. Telephone redemption instructions may
be recorded. Shares will be redeemed at the net asset value next determined
after the Fund receives the redemption request from the Wachovia Banks.
Redemption requests made through the Wachovia Banks must be received by the
Wachovia Banks before 3:00 p.m. (Eastern time) in order for shares to be
redeemed at that day's net asset value. The Wachovia Banks are responsible for
promptly submitting redemption requests and providing proper written redemption
instructions to the Fund. Registered broker/dealers may charge customary fees
and commissions for this service. If reasonable procedures are not followed by
the Fund, it may be liable for unauthorized or fraudulent telephone
instructions.

A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
of the Fund by phone by calling The Biltmore Service Center at 1-800-994-4414. A
shareholder who is a customer of the Wachovia Banks and whose account agreement
with the Wachovia Banks permits telephone redemption may redeem shares of the
Fund by telephoning his account officer. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request.

Redemption requests must be received by 4:00 p.m. (Eastern time) in order for
shares to be redeemed at that day's net asset value. In no event will proceeds
be credited more than seven days after a proper request for redemption has been
received. In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered.

BY MAIL. A shareholder may redeem Fund shares by sending a written request to
the Wachovia Banks. The written request should include the shareholder's name,
the Fund name, the account number, and the share or dollar amount requested. If
share certificates have been issued, they must be properly endorsed and should
be sent by registered or certified mail with the written request to the Fund.
Shareholders should call the Wachovia Banks for assistance in redeeming by mail.

Shareholders should call Wachovia Investments, Inc. for assistance in redeeming
by mail. Normally, a check for the proceeds is mailed within five business days,
but in no event more than seven days, after receipt of a proper written
redemption request.

Shareholders requesting a redemption of $50,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record must have signatures
on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance
Corporation ("FDIC");

a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;

a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or

any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Fund does not accept signatures guaranteed by a notary public.

The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.

Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Shareholders may redeem by periodic withdrawal payments in a
minimum amount of $100. Depending upon the amount of the withdrawal payments,
the amount of dividends paid and capital gains distributions with respect to
Fund shares, and the fluctuation of the net asset value of Fund shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through his financial institution. For
shares sold with a sales charge, it is not advisable for shareholders to be
purchasing shares while participating in this program.

ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $500. This requirement
does not apply, however, if the balance falls below $500 because of changes in
the Fund's net asset value. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.

================================================================================
SHAREHOLDER INFORMATION

VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each portfolio
in The Biltmore Municipal Funds have equal voting rights except that only shares
of the Fund are entitled to vote on matters affecting only the Fund. As a
Massachusetts business trust, The Biltmore Municipal Funds are not required to
hold annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the Trust's or the Fund's operation and for the election of
Trustees under certain circumstances. Trustees may be removed by the Trustees or
by shareholders at a special meeting. A special meeting of the shareholders
shall be called by the Trustees upon the written request of shareholders owning
at least 10% of the outstanding shares of The Biltmore Municipal Funds.

MASSACHUSETTS BUSINESS TRUSTS
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of the Fund. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign on behalf of the Fund.

In the unlikely event a shareholder is held personally liable for the Trust's
obligations on behalf of the Fund, the Trust is required by its Declaration of
Trust to use the property of the Fund to protect or compensate the shareholder.
On request, the Trust will defend any claim made and pay any judgment against a
shareholder for any act or obligation of the Trust on behalf of the Fund.
Therefore, financial loss resulting from liability as a shareholder of the Fund
will occur only if the Trust cannot meet its obligations to indemnify
shareholders and pay judgments against them from assets of the Fund.

================================================================================
EFFECT OF BANKING LAWS

Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing most securities. However,
such banking laws and regulations do not prohibit such a holding company
affiliate or banks generally from acting as investment adviser, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of such a customer. The Wachovia Banks
are subject to such banking laws and regulations.

The Wachovia Banks believe that they may perform the services for the Fund
contemplated by the advisory agreement and the Custodian Agreement with The
Biltmore Municipal Funds without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. Changes in either federal or state
statutes and regulations relating to the permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent the Wachovia Banks from continuing to perform all or a part of the above
services for their customers and/or the Fund. If they were prohibited from
engaging in these customer-related activities, the Trustees would consider
alternative advisers and means of continuing available investment services. In
such event, changes in the operation of the Fund may occur, including possible
termination of any automatic or other Fund share investment and redemption
services then being provided by the Wachovia Banks. It is not expected that
existing shareholders would suffer any adverse financial consequences (if
another adviser with equivalent abilities to Wachovia Bank of Georgia, N.A. is
found) as a result of any of these occurrences.

State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.

================================================================================
TAX INFORMATION

FEDERAL INCOME TAX
The Fund expects to pay no federal regular income tax because it intends to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.

The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by The
Biltmore Municipal Funds portfolios will not be combined for tax purposes with
those realized by the Fund.

Shareholders are not required to pay federal regular income tax on any dividends
received from the Fund that represent net interest on tax-exempt municipal
bonds. However, under the Tax Reform Act of 1986, dividends representing net
interest income earned on some municipal bonds may be included in calculating
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.

The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and increased or reduced by certain
alternative minimum tax adjustments.

The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons, and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.

In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may become subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporations's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of the taxpayer's "adjusted current earnings" over the taxpayer's
preadjustment alternative minimum taxable income as an alternative minimum tax
adjustment. "Adjusted current earnings" is based upon the concept of a
corporation's "earnings and profits". Since "earnings and profits" generally
includes the full amount of any Fund dividend, and preadjustment alternative
minimum taxable income does not include the portion of the Fund's dividend
attributable to municipal bonds which are not private activity bonds, 75% of the
difference will be included in the calculation of the corporation's alternative
minimum tax.

Shareholders should consult with their tax advisers to determine whether they
are subject to the alternative minimum tax or the corporate alternative minimum
tax and, if so, the tax treatment of dividends paid by the Fund.

Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
Distributions representing net long-term capital gains realized by the Fund, if
any, will be taxable as long-term capital gains regardless of the length of time
shareholders have held their shares.

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.

GEORGIA TAXES

Under existing Georgia law, shareholders of the Fund will not be subject to
Georgia income taxes on Fund dividends to the extent that such dividends
represent "exempt-interest dividends" as defined in the Internal Revenue Code of
1986, as amended, which are directly attributable to (i) interest-bearing
obligations issued by or on behalf of the State of Georgia or its political
subdivisions; or (ii) interest on obligations of the United States or any other
issuer whose obligations are exempt from state income taxes under federal law.

To the extent that distributions by the Fund are derived from capital gains on
such obligations, or from dividends or capital gains on other types of
obligations, such distributions will be subject to Georgia income taxes.

The Trust, as a Massachusetts business trust, is not expected to be required to
pay the annual Georgia intangible property tax on the securities it holds. It
is, however, the current practice of the Georgia Department of Revenue to
subject trust interests similar to the shares to the intangibles tax at a rate
equal to 10 cents per $1,000 of value, if the owners of such interests reside or
have their principal business location in Georgia. The Department of Revenue is
currently considering whether the taxable value of trust interests representing
beneficial interests in tax-exempt securities may be reduced to take into
account the exempt nature of such securities. Georgia law exempts the following
securities from the intangibles tax: (1) obligations of the United States
(including United States government agencies and corporations established by
Acts of Congress); (ii) obligations of the State of Georgia (including its
political subdivisions or public institutions); and (iii) industrial development
revenue bonds issued pursuant to the laws of Georgia.

OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from state income taxes in states
other than Georgia or from personal property taxes. State laws differ on this
issue, and shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.

================================================================================
PERFORMANCE INFORMATION

From time to time the Fund advertises its total return, yield, and
tax-equivalent yield.

Total return represents the change, over a specific period of time, in the value
of an investment in the Fund after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the offering price per share of the Fund on the last
day of the period. This number is then annualized using semi-annual compounding.
The tax-equivalent yield of the Fund is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming a specific tax rate. The yield and the
tax-equivalent yield do not necessarily reflect income actually earned by the
Fund and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.

The performance information reflects the effect of the maximum sales load which,
if excluded, would increase the total return, yield, and tax-equivalent yield.

From time to time, the Fund may advertise its performance using certain
reporting services and/or compare its performance to certain indices.

ADDRESSES

BILTMORE GEORGIA MUNICIPAL BOND FUND Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

DISTRIBUTOR Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

INVESTMENT ADVISER Wachovia Bank of Georgia, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303

CUSTODIAN Wachovia Bank of North Carolina, N.A.
Wachovia Trust Operations
301 North Main Street
Winston-Salem, North Carolina 27150

TRANSFER AGENT, DIVIDEND Federated Services Company
DISBURSING AGENT, Federated Investors Tower
AND PORTFOLIO RECORDKEEPER Pittsburgh, Pennsylvania 15222-3779

COUNSEL TO THE BILTMORE MUNICIPAL FUNDS Kirkpatrick & Lockhart
1800 M Street, N.W.
Washington, D.C. 20036-2430

COUNSEL TO THE INDEPENDENT TRUSTEES Piper & Marbury
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430

INDEPENDENT AUDITORS Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219

THE BILTMORE SERVICE CENTER 101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226

BILTMORE GEORGIA MUNICIPAL BOND FUND PROSPECTUS

A NON-DIVERSIFIED PORTFOLIO OF THE BILTMORE MUNICIPAL FUNDS
An Open-End, Management Investment Company

December 10, 1994 G00648-05 (12/94)

BILTMORE GEORGIA MUNICIPAL BOND FUND

(A PORTFOLIO OF THE BILTMORE MUNICIPAL FUNDS)

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the pro-
spectus of Biltmore Georgia Municipal Bond Fund (the "Fund"), dated De-
cember 10, 1994. This Statement is not a prospectus itself. To receive
a copy of the prospectus write the Fund or call The Biltmore Service
Center toll-free 1-800-994-4414.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated December 10, 1994

[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

Table of Contents
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- --------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- --------------------------------------
Acceptable Investments 1
When-Issued and Delayed Delivery
Transactions 1

Repurchase Agreements 2
Lending of Portfolio Securities 2
Portfolio Turnover 2
Municipal Bond Insurance 2

INVESTMENT LIMITATIONS 3
- --------------------------------------

Georgia Investment Risks 5

THE BILTMORE MUNICIPAL FUNDS
MANAGEMENT 5
- --------------------------------------

Officers and Trustees 5
Fund Ownership 6
Trustee Liability 6

INVESTMENT ADVISORY SERVICES 6
- --------------------------------------

Adviser to the Fund 6

Advisory Fees 7

ADMINISTRATIVE SERVICES 7
- --------------------------------------

Transfer Agent and Dividend
Disbursing Agent 7

BROKERAGE TRANSACTIONS 7
- --------------------------------------

PURCHASING SHARES 7
- --------------------------------------

Distribution of Shares 7
Conversion to Federal Funds 7

DETERMINING NET ASSET VALUE 7
- --------------------------------------

Valuing Municipal Bonds 8

REDEEMING SHARES 8
- --------------------------------------

Redemption in Kind 8

TAX STATUS 8
- --------------------------------------

The Fund's Tax Status 8
Shareholders' Tax Status 8

TOTAL RETURN 8
- --------------------------------------

YIELD 9
- --------------------------------------

TAX-EQUIVALENT YIELD 9
- --------------------------------------

Tax-Equivalency Table 9

PERFORMANCE COMPARISONS 9
- --------------------------------------

APPENDIX 11
- --------------------------------------

GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in The Biltmore Municipal Funds (the "Trust") which was
established as a Massachusetts business trust under a Declaration of Trust
dated August 15, 1990. Prior to June 3, 1993, the Trust was known as "The
Passageway Funds."

INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide for its shareholders current
income which is exempt from federal regular income tax and the personal income
taxes imposed by the State of Georgia. The objective cannot be changed without
approval of shareholders.

ACCEPTABLE INVESTMENTS
If a high-rated security loses its rating or has its rating reduced after
the Fund has purchased it, the Fund is not required to drop the security
from its portfolio, but may consider doing so. If ratings made by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P") change because of changes in those organizations or in their
rating systems, the Fund will try to use comparable ratings as standards
in accordance with the investment policies described in the Fund's
prospectus.

PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation
interests frequently provide or secure from another financial institution
irrevocable letters of credit or guarantees and give the Fund the right
to demand payment of the principal amounts of the participation interests
plus accrued interest on short notice (usually within seven days).

VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable rate municipal
securities than for fixed income obligations.

Many municipal securities with variable interest rates purchased by the
Fund are subject to repayment of principal (usually within seven days) on
the Fund's demand. The terms of these variable rate demand instruments
require payment of principal and accrued interest from the issuer of the
municipal obligations, the issuer of the participation interests, or a
guarantor of either issuer.

MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or non-profit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the certificate trustee cannot accelerate lease obligations upon default.
The trustee would only be able to enforce lease payments as they become
due. In the event of a default or failure of appropriation, it is
unlikely that the trustee would be able to obtain an acceptable
substitute source of payment or that the substitute source of payment
will generate tax-exempt income.

In determining the liquidity of municipal lease securities, the Fund's
adviser, under the authority delegated by the Board of Trustees, will
base its determination on the following factors:

. whether the lease can be terminated by the lessee;

. the potential recovery, if any, from a sale of the leased property upon
termination of the lease;

. the lessee's general credit strength (e.g., its debt, administrative,
economic and financial characteristics and prospects);

. the likelihood that the lessee will discontinue appropriating funding
for the leased property because the property is no longer deemed
essential to its operations (e.g., the potential for an "event of non-
appropriation"); and

. any credit enhancement or legal recourse provided upon an event of non-
appropriation or other termination of the lease.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. No fees or expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make

- --------------------------------------------------------------------------------
payment for the securities to be purchased are segregated on the Fund's records
at the trade date. These assets are marked to market daily and maintained until
the transaction has been settled. The Fund does not intend to engage in when-
issued and delayed delivery transactions to an extent that would cause the
segregation of more than 20% of the total value of its assets.

REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers, and
other recognized financial institutions sell U.S. government securities or
certificates of deposit to the Fund and agree at the time of sale to repurchase
them at a mutually agreed upon time and price within one year from the date of
acquisition. The Fund or its custodian will take possession of the securities
subject to repurchase agreements. To the extent that the original seller does
not repurchase the securities from the Fund, the Fund could receive less than
the repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action. The Fund believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund may only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker/dealers,
which are found by the Fund's adviser to be creditworthy.

LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the
option of the Fund or the borrower. The Fund may pay reasonable administrative
and custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash or equivalent collateral to the borrower or
placing broker.

PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking short-
term profits, securities in its portfolio will be sold whenever the Fund's ad-
viser believes it is appropriate to do so in light of the Fund's investment ob-
jective, without regard to the length of time a particular security may have
been held. It is not anticipated that the portfolio trading engaged in by the
Fund will result in its annual rate of portfolio turnover exceeding 100% under
normal market conditions.

MUNICIPAL BOND INSURANCE
Under the Policies (as such term is defined in the prospectus), municipal bond
insurers unconditionally guarantee to the Fund the timely payment of principal
and interest on the insured municipal securities when and as such payments
shall become due but shall not be paid by the issuer, except that in the event
of any acceleration of the due date of the principal by reason of mandatory or
optional redemption (other than acceleration by reason of mandatory sinking
fund payments), default or otherwise, the payments guaranteed will be made in
such amounts and at such times as payments of principal would have been due had
there not been such acceleration. The municipal bond insurers will be
responsible for such payments less any amounts received by the Fund from any
trustee for the municipal bond issuers or from any other source. The Policies
do not guarantee payment on an accelerated basis, the payment of any redemption
premium, the value for the shares of the Fund, or payments of any tender
purchase price upon the tender of the municipal securities. The Policies also
do not insure against nonpayment of principal of or interest on the securities
resulting from the insolvency, negligence or any other act or omission of the
trustee or other paying agent for the securities. However, with respect to
small issue industrial development municipal bonds and pollution control
revenue municipal bonds covered by the Policies, the municipal bond insurers
guarantee the full and complete payments required to be made by or on behalf of
an issuer of such municipal securities if there occurs any change in the tax-
exempt status of interest on such municipal securities, including principal,
interest or premium payments, if any, as and when required to be made by or on
behalf of the issuer pursuant to the terms of such municipal securities. A
when-issued municipal security will be covered under the Policies upon the
settlement date of the issuer of such when-issued municipal securities. In
determining to insure municipal securities held by the Fund, each municipal
bond insurer has applied its own standard, which corresponds generally to the
standards it has established for determining the insurability of new issues of
municipal securities. This insurance is intended to reduce financial risk, but
the cost thereof and compliance with investment restrictions imposed under the
Policies will reduce the yield to shareholders of the Fund.

- --------------------------------------------------------------------------------

If a Policy terminates as to municipal securities sold by the Fund on the date
of sale, in which event municipal bond insurers will be liable only for those
payments of principal and interest that are then due and owing, the provision
for insurance will not enhance the marketability of securities held by the
Fund, whether or not the securities are in default or subject to significant
risk of default, unless the option to obtain permanent insurance is exercised.
On the other hand, since issuer-obtained insurance will remain in effect as
long as the insured municipal securities are outstanding, such insurance may
enhance the marketability of municipal securities covered thereby, but the
exact effect, if any, on marketability cannot be estimated. The Fund generally
intends to retain any securities that are in default or subject to significant
risk of default and to place a value on the insurance, which ordinarily will be
the difference between the market value of the defaulted security and the
market value of similar securities of minimum investment grade (i.e., rated
"BBB" by S&P or "Baa" by Moody's) that are not in default. To the extent that
the Fund holds defaulted securities, it may be limited in its ability to manage
its investment and to purchase other municipal securities. Except as described
above with respect to securities that are in default or subject to significant
risk of default, the Fund will not place any value on the insurance in valuing
the municipal securities that it holds.

Municipal bond insurance may be provided by one or more of the following
insurers or any other municipal bond insurer which is rated "Aaa" by Moody's or
"AAA" by S&P:

MUNICIPAL BOND INVESTORS ASSURANCE CORP.
Municipal Bond Investors Assurance Corp. ("MBIA") is a wholly-owned
subsidiary of MBIA, Inc., a Connecticut insurance company, which is owned
by AEtna Casualty & Surety, Credit Local DeFrance CAECL, and the public.
The investors of MBIA, Inc., are not obligated to pay the obligations of
MBIA. MBIA, domiciled in New York, is regulated by the New York State
Insurance Department and licensed to do business in various states. The
address of MBIA is 113 King Street, Armonk, New York, 10504, and its
telephone number is (914) 273-4345. As of June 1, 1994, S&P has rated the
claims-paying ability of MBIA "AAA."

AMBAC INDEMNITY CORPORATION
AMBAC Indemnity Corporation ("AMBAC") is a Wisconsin-domiciled stock
insurance company, regulated by the Insurance Department of Wisconsin,
and licensed to do business in various states. AMBAC is a wholly-owned
subsidiary of AMBAC, Inc., a financial holding company which is owned by
the public. Copies of certain statutorily required filings of AMBAC can
be obtained from AMBAC. The address of AMBAC's administrative offices is
One State Street Plaza, 17th Floor, New York, New York 10004, and its
telephone number is (212) 668-0340. As of June 1, 1994, S&P has rated the
claims-paying ability of AMBAC "AAA."

FINANCIAL GUARANTY INSURANCE COMPANY
Financial Guaranty Insurance Company ("Financial Guaranty") is a wholly-
owned subsidiary of FGIC Corporation, a Delaware holding company. FGIC
Corporation is 99% owned by General Electric Capital Corporation, with
the other 1% ownership coming from the Sumitomo Marine & Fire Insurance
Company Ltd. The investors of FGIC Corporation are not obligated to pay
the debts of or the claims against Financial Guaranty. Financial Guaranty
is subject to regulation by the New York State Insurance Department and
is licensed to do business in various states. The address of Financial
Guaranty is 115 Broadway, New York, New York 10006, and its telephone
number is (212) 312-3000. As of June 1, 1994, S&P has rated the claims-
paying ability of Financial Guaranty "AAA."

INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------

SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of securities.

ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may
borrow money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.

PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets except to
secure permitted borrowings.

- --------------------------------------------------------------------------------
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.

INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, although it may invest in
municipal bonds secured by real estate or interests in real estate.

INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.

LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities. The
Fund may, however, acquire publicly or non-publicly issued municipal
bonds or temporary investments or enter into repurchase agreements in
accordance with its investment objective, policies, and limitations and
its Declaration of Trust.

CONCENTRATION OF INVESTMENTS

The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in
industrial development bonds or other securities, the interest upon which
is paid from revenues of similar type projects. The Fund will not
generally invest 25% or more of the value of its total assets in any one
industry, except that the Fund may invest 25% or more of its assets in
certain broader segments of the municipal securities market as described
in the prospectus. The Fund may invest 25% or more of the value of its
total assets in cash, cash items, or securities issued or guaranteed by
the government of the United States or its agencies, or instrumentalities
and repurchase agreement collateralized by such U.S. government
securities. Concentrating investments in one industry may subject the
Fund to more risk than if it did not concentrate.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.

INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its total assets
in securities subject to restrictions on resale under the Securities Act
of 1933, except for restricted securities determined to be liquid under
criteria established by the Trustees.

INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
obligations, including repurchase agreements providing for settlement in
more than seven days after notice, and certain restricted securities.

INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds where the principal and interest are the
responsibility of companies (or guarantors, where applicable) with less
than three years of continuous operations, including the operation of any
predecessor.

INVESTING IN OPTIONS
The Fund will not buy or sell puts, calls, straddles, spreads, or any
combination of these.

INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs, or leases.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund will not own more than 3% of the total outstanding voting stock
of any investment company, invest more than 5% of its total assets in any
investment company, or invest more than 10% of its total assets in
investment companies in general. The Fund will purchase securities of
investment companies only in open-market transactions involving only
customary broker's commissions. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation, or
acquisition of assets.

- --------------------------------------------------------------------------------

INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST

The Fund will not purchase or retain the securities of any issuers if the
Officers and Trustees of the Trust or its investment adviser, owning
individually more than 1/2 of 1% of the issuer's securities, together own
more than 5% of the issuer's securities.
Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5%
of the value of its net assets in the coming fiscal year.
In order to comply with certain state restrictions, the Fund will not invest in
real estate limited partnerships or oil, or other mineral leases.

GEORGIA INVESTMENT RISKS

Georgia's economy is based on manufacturing (textiles, food products, paper
products, electronic equipment and aircraft), trade and a growing service
sector. Atlanta, with a service-oriented economy, is a trade, service and
transportation center for the Southeast region and is the focus of economic
growth in the State. In most other cities in Georgia, manufacturing
predominates. The State economy was only mildly affected by the early 1980's
recession and grew rapidly for most of the decade, with employment and personal
income growth in excess of comparable national rates. Despite continued
population growth, personal income per capita has steadily gained relative to
the nation. The economy began to slow in 1989, with less vigorous job growth
evident and the State's relative per capita income position slipping.
Throughout the 1980's the State's expanding economy fostered strong income and
sales tax growth. This enabled the State to record fairly strong fiscal
operations from fiscal years 1984-1989.
The State experienced an economic downturn in the early 1990's, as operating
deficits were recorded in fiscal years 1990-1992. However, in fiscal years 1993
and 1994, the State ended with operating surpluses due to strong revenue growth
which will be used to augment reserves. The State's debt rating was affirmed as
"Aaa" by Moody's in July, 1994.
Except for the major building projects necessary for the 1996 Summer Olympics,
it appears unlikely that areas in and around metropolitan Atlanta will
experience the building construction rates of the mid to late 1980's.

THE BILTMORE MUNICIPAL FUNDS MANAGEMENT
- --------------------------------------------------------------------------------

OFFICERS AND TRUSTEES

Officers and Trustees are listed with their addresses, principal occupations
during the past five years and their present positions. Each of the Trustees
and officers listed below holds an identical position with The Biltmore Funds,
another investment company which is advised by Wachovia Bank of North Carolina,
N.A. Except as listed below, none of the Trustees or Officers are affiliated
with Wachovia Bank of Georgia, N.A., Wachovia Bank of North Carolina, N.A.,
Federated Investors, Federated Securities Corp., Federated Services Company or
Federated Administrative Services.

- --------------------------------------------------------------------------------
Samuel E. Hudgins
Trustee
President, Percival, Hudgins & Company, Inc. (investment bankers/financial
consultants); Director, Atlantic American Corporation (insurance holding
company); Director, Bankers Fidelity Life Insurance Company; Director and Vice
Chairman, Leath Furniture, Inc. (retail furniture); President, Atlantic
American Corporation until 1988; Director, Vice Chairman and Chief Executive
Officer, Rhodes, Inc. (retail furniture) until 1988; Chairman and Director,
Atlantic American Life Insurance Co., Georgia Casualty & Surety Company, and
Bankers Fidelity Life Insurance until 1988.
- --------------------------------------------------------------------------------
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel company).
- --------------------------------------------------------------------------------
D. Dean Kaylor
Trustee

John W. McGonigle
President and Treasurer
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Trustee, Federated Services Company;
Executive Vice President, Secretary and Trustee, Federated Administrative
Services; Executive Vice President and Director, Federated Securities Corp.
- --------------------------------------------------------------------------------
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly, Associate
Corporate Counsel, Federated Investors; Vice President and Assistant Treasurer
of certain investment companies for which Federated Securities Corp. is the
principal distributor.
- --------------------------------------------------------------------------------
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
- --------------------------------------------------------------------------------

The address of the Trustees and Officers of the Trust is Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.

TRUSTEE LIABILITY
The Biltmore Municipal Funds' Declaration of Trust provides that the Trustees
are not liable for errors of judgment or mistakes of fact or law. However, they
are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.

INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------

ADVISER TO THE FUND
The Fund's adviser is Wachovia Bank of Georgia, N.A. (the "Adviser").
The Adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, lending, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.

- --------------------------------------------------------------------------------
ADVISORY FEES
For its advisory services, Wachovia Bank of Georgia, N.A. receives an annual
investment advisory fee as described in the prospectus.

ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for the fees set
forth in the prospectus.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee is based on the size, type, and number of accounts
and transactions made by shareholders.

Federated Services Company also maintains the Fund's accounting records. The
fee is based on the level of the Fund's average net assets for the period plus
out-of-pocket expenses.

BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better
price and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees. The Adviser may select brokers and dealers who offer
brokerage and research services. These services may be furnished directly to
the Fund or to the Adviser and may include:
. advice as to the advisability of investing in securities;
. security analysis and reports;
. economic studies;
. industry studies;
. receipt of quotations for portfolio evaluations; and
. similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage
and research services provided.
Research services provided by brokers may be used by the Adviser or by its
affiliates in advising other accounts. To the extent that receipt of these
services may supplant services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses.

PURCHASING SHARES
- --------------------------------------------------------------------------------
Except under certain circumstances described in the prospectus, shares are sold
at their net asset value plus a sales charge on days the New York Stock
Exchange, the Wachovia Banks (as such term is defined in the prospectus) and
the Federal Reserve Wire System are open for business. The procedure for
purchasing shares of the Fund is explained in the prospectus under "Investing
in the Fund."

DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.

CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. The Wachovia Banks act as the shareholders' agent in depositing
checks and converting them to federal funds.

DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value
is calculated by the Fund are described in the prospectus.

- --------------------------------------------------------------------------------
VALUING MUNICIPAL BONDS
The Trustees use an independent pricing service to value municipal bonds. The
independent pricing service takes into consideration yield, stability, risk,
quality, coupon rate, maturity, type of issue, trading characteristics, special
circumstances of a security or trading market, and any other factors or market
data it considers relevant in determining valuations for normal institutional
size trading units of debt securities, and does not rely exclusively on quoted
prices.

REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares."

REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right,
under certain circumstances, to pay the redemption price in whole or in part by
a distribution of securities from the Fund's portfolio. Redemption in kind will
be made in conformity with applicable Securities and Exchange Commission rules,
taking such securities at the same value employed in determining net asset
value and selecting the securities in a manner the Trustees determine to be
fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.

TAX STATUS
- --------------------------------------------------------------------------------

THE FUND'S TAX STATUS
The Fund expects to pay no federal income tax because it intends to meet
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must, among
other requirements:
. derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
. derive less than 30% of its gross income from the sale of securities held
less than three months;
. invest in securities within certain statutory limits; and
. distribute to its shareholders at least 90% of its net income earned during
the year.

SHAREHOLDERS' TAX STATUS
No portion of any income dividend paid by the Fund is eligible for the
dividends received deductions available to corporations.

CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:
. the availability of higher relative yields;
. differentials in market values;
. new investment opportunities;
. changes in creditworthiness of an issuer; or
. an attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares.

TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at
the beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.

YIELD
- --------------------------------------------------------------------------------
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the net asset value per share on the last day of
the period. This value is then annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a twelve-month period and is reinvested
every six months. The yield does not necessarily reflect income actually earned
by the Fund because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, performance will be reduced for those shareholders paying those fees.

TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The tax-equivalent yield of the Fund is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Fund would have had to earn
to equal its actual yield, assuming that income is 100% tax-exempt.

TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's
portfolio generally remains free from federal regular income tax, and is
often free from state and local taxes as well. As the table below
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable
yields.

<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1994
STATE OF GEORGIA
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
Tax Bracket:
Federal: 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State: 21.000% 34.000% 37.000% 42.000% 45.600%
Joint Return: $1-38,000 $38,001-91,850 $91,851-100,000 $140,001-250,000 Over $250,000
Single Return: $1-22,750 $22,751-55,100 $55,101-115,000 $115,001-250,000 Over $250,000
- -----------------------------------------------------------------------------------------------------------
Tax-Exempt Yield Taxable Yield Equivalent
- -----------------------------------------------------------------------------------------------------------
1.50% 1.90% 2.27% 2.38% 2.59% 2.76%
2.00 2.53 3.03 3.17 3.45 3.68
2.50 3.16 3.79 3.97 4.31 4.60
3.00 3.80 4.55 4.76 5.17 5.51
3.50 4.43 5.30 5.56 6.03 6.43
4.00 5.06 6.06 6.35 6.90 7.35
4.50 5.70 6.82 7.14 7.76 8.27
5.00 6.33 7.58 7.94 8.62 9.19
5.50 6.96 8.33 8.73 9.48 10.11
6.00 7.59 9.09 9.52 10.34 11.03
6.50 8.23 9.85 10.32 11.21 11.95
7.00 8.86 10.61 11.11 12.07 12.87
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating
the taxable yield equivalent. Furthermore, additional state and local taxes
paid on comparable taxable investments were not used to increase federal
deductions.

PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
. portfolio quality;
. average portfolio maturity;
. type of instruments in which the portfolio is invested;
. changes in interest rates and market value of portfolio securities;
. changes in the Fund's expenses; and
. various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of yield and total return as
described below.

- --------------------------------------------------------------------------------
From time to time, the Fund may advertise its performance compared to similar
funds or portfolios using certain financial publications and/or compare its
performance to certain indices.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors, such as the composition of any index
used, prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Fund uses in advertising may
include:
.LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time.
From time to time, the Fund will quote its Lipper ranking in the general
municipal bond funds category in advertising and sales literature.
.MORNINGSTAR INC., an independent rating service is the publisher of the bi-
weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-
listed mutual funds of all types, according to their risk-adjusted returns.
The maximum rating is five stars, and ratings are effective for two weeks.
.LEHMAN BROTHERS STATE GENERAL OBLIGATIONS INDEX is an index comprised of all
state general obligation debt issues and is compiled without regard to
maturities. These bonds are rated A or better and represent a variety of
coupon ranges. Index figures are total returns calculated for one, three, and
twelve month periods as well as year-to-date. Total returns are also
calculated as of the index inception, December 31, 1979.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. The total returns
represent the historic change in the value of an investment in the Fund based
on monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of a sales load.

Appendix
- --------------------------------------------------------------------------------
STANDARD & POOR'S RATINGS GROUP MUNICIPAL BOND RATING DEFINITIONS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB, B, CCC, CC--Debt rated "BB," "B," "CCC" and "CC" is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
outweighed by large uncertainties of major risk exposure to adverse conditions.

C--The rating "C" is reversed for income bonds on which no interest is being
paid.
D--Debt rated "D" is in default, and payment of interest and/or repayment of
principal is in arrears.

STANDARD & POOR'S RATINGS GROUP MUNICIPAL NOTE RATING DEFINITIONS
SP-1--Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given
a plus sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
SP-3--Speculative capacity to pay principal and interest.

STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3--Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B--Issues rated "B" are regarded as having only speculative capacity for timely
payment.
C--This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.

MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATING DEFINITIONS
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in "Aaa"
securities.
A--Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

- --------------------------------------------------------------------------------
Ba--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

MOODY'S INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING DEFINITIONS
PRIME-1--ISSUERS rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
. Leading market positions in well established industries;
.High rates of return on funds employed;
.Conservative capitalization structure with moderate reliance on debt and ample
asset protection;
.Broad margins in earning coverage of fixed financial charges and high internal
cash generation; and
.Well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
PRIME-3--Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME--issuers rated NOT PRIME do not fall within any of the Prime rating
categories.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
.Leading market positions in well established industries;
.High rates of return on funds employed;
.Conservative capitalization structure with moderate reliance on debt and ample
asset protection;
.Broad margins in earning coverage of fixed financial charges and high internal
cash generation; and
.Well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
PRIME-3--Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effects 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 the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME--Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.

MOODY'S INVESTORS SERVICE, INC. SHORT TERM LOAN RATING DEFINITIONS
MIG 1/VMIG 1--This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG 2/VMIG 2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

- --------------------------------------------------------------------------------
MIG 3/VMIG 3--This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

G00481-06 (12/94)

PROSPECTUS

DECEMBER 10, 1994

The shares of Biltmore North Carolina Municipal Bond Fund (the "Fund") offered
by this prospectus represent interests in a non-diversified portfolio of
securities which is an investment portfolio of The Biltmore Municipal Funds
(the "Trust"), an open-end management investment company (a mutual fund). The
investment objective of the Fund is to provide current income which is exempt
from federal regular income tax and the income taxes imposed by the State of
North Carolina. The Fund invests primarily in a portfolio of municipal
securities which are exempt from federal regular income tax and the North
Carolina state income taxes ("North Carolina Municipal Securities"). These
securities include those issued by or on behalf of the State of North Carolina
and North Carolina political subdivisions and municipalities, as well as those
issued by states, territories, and possessions of the United States which are
exempt from federal regular income tax and the North Carolina state income
taxes. In addition, the Fund intends to qualify as an investment exempt from
the North Carolina Intangible Personal Property tax.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
WACHOVIA BANK OF NORTH CAROLINA, N.A. OR ITS AFFILIATES, ARE NOT ENDORSED OR
GUARANTEED BY WACHOVIA BANK OF NORTH CAROLINA, N.A. OR ITS AFFILIATES, AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.

Biltmore North Carolina

Municipal Bond Fund
(A Portfolio of The Biltmore Municipal Funds)

================================================================================
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- --------------------------------------------------------------------------------
GENERAL INFORMATION 2
- --------------------------------------------------------------------------------
INVESTMENT INFORMATION 2
Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Characteristics 3
Participation Interests 3
Variable Rate Municipal Securities 3
Municipal Leases 3
Investing in Securities of
Other Investment Companies 3
Restricted and Illiquid Securities 4
When-Issued and Delayed Delivery
Transactions 4
Lending of Portfolio Securities 4
Temporary Investments 4
North Carolina Municipal Securities 4
Municipal Bond Insurance 5
Investment Risks 6
Non-Diversification 6

Investment Limitation 7

- --------------------------------------------------------------------------------
THE BILTMORE MUNICIPAL FUNDS INFORMATION 7
Management of The Biltmore
Municipal Funds 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Distribution of Fund Shares 8
Shareholder Servicing Arrangements 8
Administration of the Fund 8
Administrative Services 8
Custodian 8
Transfer Agent, Dividend Disbursing
Agent and Portfolio Recordkeeper 8
Legal Services 8
Independent Auditor 8
Expenses of the Fund 8
- --------------------------------------------------------------------------------
NET ASSET VALUE 9
- --------------------------------------------------------------------------------
INVESTING IN THE FUND 9
Share Purchases 9
Through the Trust Divisions of the
Wachovia Banks 9

Through Wachovia Investments, Inc. 9

By Mail 9
By Wire 9
Through Authorized Broker/Dealers 10
Minimum Investment Required 10
What Shares Cost 10
Purchases at Net Asset Value 10
Sales Charge Reallowance 10
Reducing the Sales Charge 11
Quantity Discounts and Accumulated
Purchases 11
Letter of Intent 11
Concurrent Purchases 11
Reinvestment Privilege 11
Systematic Investment Program 11
Certificates and Confirmations 12
Dividends 12
Capital Gains 12
Exchange Privilege 12
Exchange by Telephone 13
- --------------------------------------------------------------------------------
REDEEMING SHARES 13
By Telephone 13
By Mail 13
Systematic Withdrawal Program 14
Accounts with Low Balances 14
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION 14
Voting Rights 14
Massachusetts Business Trusts 15
- --------------------------------------------------------------------------------
EFFECT OF BANKING LAWS 15
- --------------------------------------------------------------------------------
TAX INFORMATION 15
Federal Income Tax 15
North Carolina Taxes 16
Other State and Local Taxes 17
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION 17
- --------------------------------------------------------------------------------
ADDRESSES BACK COVER

================================================================================
SUMMARY OF FUND EXPENSES

SHAREHOLDER TRANSACTION EXPENSES

ANNUAL FUND OPERATING EXPENSES*

(As a percentage of projected average net assets)

<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.15%
12b-1 Fees None
Other Expenses (after waiver) (2) 0.70%
Shareholder Servicing Agent Fee (3) 0.00%
Total Fund Operating Expenses (after waiver) (4) 0.85%
</TABLE>

(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the investment adviser. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.75%.

(2) Other Expenses are 0.84% absent the voluntary waiver by the administrator.
The administrator can terminate the voluntary waiver at any time at its
sole discretion.

(3) The Fund has no present intention of paying or accruing the shareholder
servicing agent fee during the fiscal year ending November 30, 1995. If the
Fund were paying or accruing the shareholder servicing agent fee, the Fund
would be able to pay up to 0.25 of 1% of the Fund's average daily net
assets for the shareholder servicing agent fee. See "The Biltmore Municipal
Funds Information."

(4) The Total Fund Operating Expenses are estimated to be 1.59%, absent the
anticipated voluntary waivers by the Fund's adviser and administrator.

================================================================================
GENERAL INFORMATION

The Biltmore Municipal Funds (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated August 15, 1990. The
Declaration of Trust permits The Biltmore Municipal Funds to offer separate
series of shares of beneficial interest representing interests in separate
portfolios of securities. This prospectus relates only to The Biltmore Municipal
Funds' North Carolina municipal securities portfolio, known as Biltmore North
Carolina Municipal Bond Fund (the "Fund"). The shares in any one portfolio may
be offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") has not established classes of shares of the Fund. The
Fund is designed primarily for customers of the Wachovia Bank of North Carolina,
N.A. and its correspondents or affiliates who desire a convenient means of
accumulating an interest in a professionally managed, non-diversified portfolio
investing primarily in municipal bonds. The Wachovia Bank of North Carolina,
N.A. is the investment adviser to the Fund. A minimum initial investment of $500
is required. Subsequent investments must be in amounts of at least $100. The
Fund is not likely to be a suitable investment for non-North Carolina taxpayers
or for retirement plans since it intends to invest primarily in North Carolina
Municipal Securities.

Fund shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value.

The other portfolios in the Trust are Biltmore Georgia Municipal Bond Fund and
South Carolina Municipal Bond Fund (collectively, hereinafter referred to as the
"Funds").

================================================================================

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax and the income tax imposed by the State
of North Carolina. In addition, the Fund intends to qualify as an investment
substantially exempt from the North Carolina Intangible Personal Property tax
("intangibles tax"). (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Interest income of the Fund that is exempt from the income taxes
described above retains its tax-exempt status when distributed to the Fund's
shareholders. However, income distributed by the Fund may not necessarily be
exempt from state or municipal taxes in states other than North Carolina. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. The investment objective cannot be changed without approval of
shareholders. Unless indicated otherwise, the investment policies may be changed
by the Trustees without the approval of shareholders. Shareholders will be
notified before any material changes in these policies become effective.

INVESTMENT POLICIES

The Fund attempts to achieve its investment objective by investing in a
professionally managed portfolio consisting primarily of municipal securities
exempt from federal regular income tax and the North Carolina state income
taxes. As a matter of fundamental investment policy which may not be changed
without shareholder approval, the Fund will invest its assets so that, under
normal circumstances, at least 80% of its total assets are invested in
obligations, the interest income from which is exempt from federal regular
income tax and the income tax and intangibles tax imposed by the State of North
Carolina. While not a fundamental investment policy, the Fund's adviser may
consider the potential for capital appreciation in its selection of portfolio
investments.

ACCEPTABLE INVESTMENTS. The Fund invests primarily in North Carolina Municipal
Securities, which are:

obligations, including industrial development bonds, issued on behalf of the
State of North Carolina, its political subdivisions or agencies;

obligations issued by or on behalf of any state, territory or possession of the
United States, including the District of Columbia, or any political subdivision
or agency of any of these; and

participation interests, as described below, in any of the above obligations,

the interest from which is, in the opinion of bond counsel for the issuers or in
the opinion of officers of the Fund and/or the Fund's adviser, exempt from both
federal regular income tax and the North Carolina income tax and intangibles
tax. It is likely that shareholders who are subject to alternative minimum tax
will be required to include interest from a portion of the municipal securities
owned by the Fund in calculating the federal individual alternative minimum tax
or the federal alternative minimum tax for corporations.

While the Fund intends to invest primarily in securities issued by or on behalf
of the State of North Carolina and its political subdivisions, it will invest in
other securities issued by states, territories, and possessions of the United
States which are exempt from federal regular income tax and the North Carolina
income tax and intangibles tax. The Fund will invest in such securities in
instances where, in the judgment of the Fund's adviser, the supply and yield of
such securities would be beneficial to the Fund's performance.

Characteristics. The North Carolina Municipal Securities which the Fund buys are
rated A or above by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Group ("Standard & Poor's") (a description of the rating
categories is contained in the Appendix to the Statement of Additional
Information). In addition, the North Carolina Municipal Securities are subject
to one or more of the following quality standards:

insured by a municipal bond insurance company which is rated AAA by Standard &
Poor's or Aaa by Moody's; or

secured by an irrevocable escrow of direct obligations of the U.S. government;
or

unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Fund's adviser.

The prices of fixed income securities fluctuate inversely to the direction of
interest rates.

Participation Interests. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings and loan associations,
and insurance companies. These participation interests would give the Fund
undivided interests in North Carolina Municipal Securities. The financial
institutions from which the Fund purchases participation interests frequently
provide or secure irrevocable letters of credit or guarantees to assure that the
participation interests are of high quality. The Trustees will establish
guidelines pursuant to which the Fund's adviser determines that participation
interests meet the prescribed quality standards for the Fund.

Variable Rate Municipal Securities. Some of the North Carolina Municipal
Securities which the Fund purchases may have variable interest rates. Variable
interest rates are ordinarily based on a published interest rate, interest rate
index or a similar standard, such as the 91-day U.S. Treasury bill rate. Many
variable rate municipal securities are subject to payment of principal on demand
by the Fund, usually in not more than seven days. All variable rate municipal
securities will meet the quality standards for the Fund. The Fund's adviser
monitors the pricing, quality, and liquidity of the variable rate municipal
securities, including participation interests held by the Fund, on the basis of
published financial information and reports of the rating agencies and other
analytical services pursuant to guidelines established by the Trustees.

portfolio instruments. While it is the Fund's adviser's policy to waive its
investment advisory fee on assets invested in securities of open-end investment
companies, it should be noted that investment companies incur certain expenses,
such as custodian and transfer agent fees, and therefore, any investment by the
Fund in shares of another investment company would be subject to such duplicate
expenses. The Fund would, however, continue to pay its own investment advisory
fees and other expenses with respect to its investments in shares of closed-end
companies.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase North
Carolina Municipal Securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date.

NORTH CAROLINA MUNICIPAL SECURITIES
North Carolina Municipal Securities are generally issued to finance public
works, such as airports, bridges, highways, housing, hospitals, schools,
streets, and water and sewer works. They are also issued to repay outstanding
obligations, to raise funds for general operating expenses, and to make loans to
other public institutions and facilities. North Carolina Municipal Securities
include industrial development bonds issued by or on behalf of public
authorities to provide financing aid to acquire sites or construct or equip

facilities for privately or publicly owned corporations. The availability of
this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.

The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. However, interest on and principal of revenue bonds are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds; the industry which is the beneficiary of such bonds
is generally the only source of payment for the bonds.

MUNICIPAL BOND INSURANCE

The Fund may purchase municipal securities covered by insurance which guarantees
the timely payment of principal at maturity and interest on such securities.
These insured municipal securities are either (1) covered by an insurance policy
applicable to a particular security, whether obtained by the issuer of the
security or by a third party ("Issuer-Obtained Insurance") or (2) insured under
master insurance policies issued by municipal bond insurers, which may be
purchased by the Fund (the "Policies").

The premiums for the Policies are paid by the Fund and the yield on the Fund's
portfolio is reduced thereby. Premiums for the Policies are paid by the Fund
monthly, and are adjusted for purchases and sales of municipal securities during
the month. The Fund may purchase Policies from MBIA Corp. ("MBIA"), AMBAC
Indemnity Corporation ("AMBAC"), Financial Guaranty Insurance Company ("FGIC"),
or any other municipal bond insurer which is rated AAA by Standard & Poor's or
Aaa by Moody's. Each Policy guarantees the payment of principal and interest on
those municipal securities it insures. The Policies will have the same general
characteristics and features. A municipal security will be eligible for coverage
if it meets certain requirements set forth in a Policy. In the event interest or
principal on an insured municipal security is not paid when due, the insurer
covering the security will be obligated under its Policy to make such payment
not later than 30 days after it has been notified by the Fund that such
non-payment has occurred.

Additionally, the Trustees reserve the right to enter into contracts with
insurance carriers other than MBIA, AMBAC, or FGIC if such carriers are rated
AAA by Standard & Poor's or Aaa by Moody's.

INVESTMENT RISKS

Yields on North Carolina Municipal Securities depend on a variety of factors,
including: the general conditions of the municipal bond market; the size of the
particular offering; the maturity of the obligations; and the rating of the
issue. Further, any adverse economic conditions or developments affecting the
State of North Carolina or its municipalities could impact the Fund's portfolio.
The Fund's concentration in securities issued by the State of North Carolina and
its political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. North Carolina's
dependence on agriculture, manufacturing, tourism, and service industries leaves
it vulnerable to both the business cycle and long term national economic trends.
(Please refer to the Fund's Statement of Additional Information for an expanded
discussion of North Carolina investment risks.) The ability of the Fund to
achieve its investment objective also depends on the continuing ability of the
issuers of North Carolina Municipal Securities and participation interests, or
the guarantors of either, to meet their obligations for the payment of interest
and principal when due. Investing in North Carolina Municipal Securities which
meet the Fund's quality standards may not be possible if the State of North
Carolina or its municipalities do not maintain their current credit ratings. In
addition, the issuance, tax exemption and liquidity of North Carolina Municipal
Securities may be adversely affected by judicial, legislative or executive
action, including, but not limited to, rulings of state and federal courts,
amendments to the state and federal constitutions, changes in statutory law, and
changes in administrative regulations, as well as voter initiatives.

NON-DIVERSIFICATION
The Fund is a non-diversified investment company. As such, there is no limit on
the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risk than would exist in
a diversified investment company because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in the Fund's portfolio will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers. The Fund may purchase an issue of
municipal securities in its entirety.

INVESTMENT LIMITATION

The Fund will not:

borrow money or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge assets
to secure such borrowings.

The above investment limitation cannot be changed without shareholder approval.

================================================================================
THE BILTMORE MUNICIPAL FUNDS INFORMATION

MANAGEMENT OF THE BILTMORE MUNICIPAL FUNDS

INVESTMENT ADVISER. Pursuant to an investment advisory contract with The
Biltmore Municipal Funds, investment decisions for the Fund are made by Wachovia
Bank of North Carolina, N.A., the Fund's adviser (the "Bank" or the "Adviser"),
subject to direction by the Trustees. The Adviser continually conducts
investment research and supervision for the Fund and is responsible for the
purchase or sale of portfolio instruments, for which it receives an annual fee
from the Fund.

Investment decisions for the Fund will be made independently from those of any
fiduciary or other accounts that may be managed by the Bank or its affiliates.
If, however, such accounts, the Fund, or the Bank for its own account are
simultaneously engaged in transactions involving the same securities, the
transactions may be combined and allocated to each account. This system may
adversely affect the price the Fund pays or receives, or the size of the
position it obtains. The Adviser may engage, for its own account or for other
accounts managed by the Bank, in other transactions involving North Carolina
Municipal Securities which may have adverse effects on the market for securities
in the Fund's portfolio.

ADVISER'S BACKGROUND. Wachovia Bank of North Carolina, N.A. is a direct,
wholly-owned subsidiary of Wachovia Corporation, a registered bank holding
company headquartered in Winston-Salem, North Carolina and Atlanta, Georgia.
Through offices in eight states, Wachovia Corporation and its subsidiaries
provide a broad range of financial services to individuals and businesses.

Wachovia Bank of North Carolina, N.A., a national banking association, offers
financial services that include, but are not limited to, commercial and consumer
loans, corporate, institutional, and personal trust services, demand and time
deposit accounts, letters of credit and international financial services.

The Adviser employes an experienced staff of professional investment analysts,
portfolio managers and traders. The Adviser uses fundamental analysis and other
investment management disciplines to identify investment opportunities. Wachovia
Bank of North Carolina, N.A., Wachovia Bank of South Carolina, N.A., and
Wachovia Bank of Georgia, N.A. (collectively the "Wachovia Banks") have been
managing trust assets for over 100 years, with approximately $16.6 billion in
managed assets as of June 30, 1994. Wachovia Investment Management Group, a
business unit of the Adviser, has served as investment adviser to another
investment company, The Biltmore Funds, since March 9, 1992. The Adviser's
affiliate, Wachovia Bank of South Carolina, N.A., has served as investment
adviser to the Trust's South Carolina Municipal Bond Portfolio since its
inception on August 5, 1990.

Michael Peters has been the Fund's portfolio manager since the Fund's inception
in December of 1994. Mr. Peters joined Wachovia Bank of North Carolina, N.A. in
1993, and also serves as an officer of both Wachovia Bank of Georgia, N.A. and
Wachovia Bank of South Carolina, N.A. Mr. Peters was employed with NationsBank
from 1990 to 1993, and from 1986 to 1990 was employed with First Bank of
Whiting. Mr. Peters received his M.B.A. from Indiana University and is a member
of the Institute of Chartered Financial Analysts.

DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the distributor (the "Distributor") for shares of
the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.

ADMINISTRATION OF THE FUND

CUSTODIAN. Wachovia Bank of North Carolina, N.A., Winston-Salem, North Carolina
is custodian (the "Custodian") for the securities and cash of the Fund.

LEGAL SERVICES. Legal services for the Fund are provided by Kirkpatrick &
Lockhart, Washington, D.C. Piper & Marbury, Washington, D.C., serves as counsel
to the independent Trustees.

INDEPENDENT AUDITOR. The independent auditor for the Fund is Ernst & Young LLP,
Pittsburgh, Pennsylvania.

printing, mailing, auditing, accounting, and legal expenses; reports to
shareholders and government agencies; meetings of Trustees and shareholders and
proxy solicitations therefor; insurance premiums; association membership dues;
and such nonrecurring and extraordinary items as may arise. However, the Adviser
may voluntarily waive and/or reimburse some expenses.

================================================================================
NET ASSET VALUE

The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.

================================================================================
INVESTING IN THE FUND

SHARE PURCHASES

By Mail. To purchase shares of the Fund through Wachovia Investments, Inc. by
mail, send a check made payable to North Carolina Municipal Bond Fund to The
Biltmore Service Center, 101 Greystone Boulevard, SC-9215, Columbia, South
Carolina, 29226. Orders by mail are considered received after payment by check
is converted by Wachovia Investments, Inc. into federal funds. This is normally
the next business day after Wachovia Investments, Inc. receives the check.

By Wire. To purchase shares of the Fund through Wachovia Investments, Inc. by
wire, wire funds as follows:

Wachovia Investments, Inc.
ABA Number 0531-00494
Credit: 8735-001342
Further credit to: Biltmore North Carolina Municipal Bond Fund

Re: (Customer name and brokerage account number)

Shares of the Fund cannot be purchased by wire on any day on which the Wachovia
Banks, the New York Stock Exchange and the Federal Reserve Wire System are not
open for business.

THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of the Fund. Shares will be
purchased at the public offering price next determined after the Fund receives
the purchase request. Purchase requests through registered broker/dealers must
normally be received by the broker/dealer and transmitted to the Fund before
3:30 p.m. (Eastern time) in order for shares to be purchased at that day's
public offering price.

WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:

<TABLE>
<S> <C> <C>
Sales Charge as a Sales Charge as a
Percentage of Percentage of Net
Amount of Transaction Public Offering Price Amount Invested

Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million or more 0.25% 0.25%
</TABLE>

During a special offering period, there will be no sales charge assessed on
shares purchased on or before March 31, 1995. Purchases made during this special
offering period cannot be exchanged for shares of other portfolios of the Trust,
shares of portfolios of The Biltmore Funds, or shares of International Equity
Fund, until April 30, 1995.

items, to all dealers selling shares of the Fund. If accepted by the dealer,
such additional payments will be predicated upon the amount of Fund shares sold
by the dealers.

REDUCING THE SALES CHARGE

The sales charge can be reduced on the purchase of Fund shares through:

quantity discounts and accumulated purchases;

signing a 13-month letter of intent; or

using the reinvestment privilege.

the applicable sales charge. A shareholder may apply for participation in this
program through the Wachovia Banks, Wachovia Investments, Inc. or through the
Distributor.

CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
in writing to the Fund.

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.

CAPITAL GAINS
Distributions of any net realized long-term capital gains realized by the Fund,
if any, will be made at least annually.

EXCHANGE PRIVILEGE

Shareholders of the Fund may exchange all or some of their Fund shares for:
shares in other portfolios of the Trust, shares in portfolios of The Biltmore
Funds or shares of the International Equity Fund. The Biltmore Funds are advised
by Wachovia Investment Management Group, a business unit of the Adviser, and
distributed by Federated Securities Corp. The Trust consists of the Fund,
Biltmore Georgia Municipal Bond Fund and South Carolina Municipal Bond Fund. The
South Carolina Municipal Bond Fund is advised by Wachovia Bank of South
Carolina, N.A., a national banking association headquartered in Columbia, South
Carolina. It is the primary subsidiary of South Carolina National Corporation, a
bank holding company with a commercial bank subsidiary and federal savings bank
subsidiary in South Carolina. The Biltmore Georgia Municipal Bond Fund is
advised by Wachovia Bank of Georgia, N.A. The Biltmore Georgia and South
Carolina Municipal Bond Funds are distributed by Federated Securities Corp. The
International Equity Fund is advised by Fiduciary International, Inc. and
distributed by Federated Securities Corp. The Biltmore Funds consist of the
following portfolios: Biltmore Balanced Fund, Biltmore Emerging Markets Fund,
Biltmore Equity Fund, Biltmore Equity Index Fund, Biltmore Fixed Income Fund,
Biltmore Money Market Fund (Institutional Shares and Investment Shares),
Biltmore Prime Cash Management Fund (Institutional Shares only), Biltmore
Quantitative Equity Fund, Biltmore Short-Term Fixed Income Fund, Biltmore
Special Values Fund, Biltmore Tax-Free Money Market Fund (Institutional Shares
and Investment Shares), and Biltmore U.S. Treasury Money Market Fund
(Institutional Shares and Investment Shares). (The International Equity Fund,
the portfolios of the Trust, and The Biltmore Funds are referred to in this
section as the "Portfolios.")

the requirements for a redemption and purchase order and must specify the dollar
value or number of shares to be exchanged. Shareholders who desire to
automatically exchange shares of a predetermined amount on a monthly, quarterly,
or annual basis may take advantage of a systematic exchange privilege. A
shareholder may obtain further information on these exchange privileges by
calling the Fund, Wachovia Investments, Inc. or, in the case of customers of the
Wachovia Banks, the shareholder's account officer.

================================================================================
REDEEMING SHARES

should be sent by registered or certified mail with the written request to the
Fund. Shareholders should call the Wachovia Banks for assistance in redeeming by
mail.

A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
by sending a written request to Wachovia Investments, Inc. The written request
should include the shareholder's name and address, the Fund name, the brokerage
account number, and the share or dollar amount requested. Shareholders should
call Wachovia Investments, Inc. for assistance in redeeming by mail. Normally, a
check for the proceeds is mailed within five business days, but in no event more
than seven days, after receipt of a proper written redemption request.

a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;

a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or

any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Fund does not accept signatures guaranteed by a notary public.

Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.

SYSTEMATIC WITHDRAWAL PROGRAM

================================================================================
SHAREHOLDER INFORMATION

meetings. Shareholder approval will be sought only for certain changes in the
Trust's or the Fund's operation and for the election of Trustees under certain
circumstances. Trustees may be removed by the Trustees or by shareholders at a
special meeting. A special meeting of the shareholders shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of The Biltmore Municipal Funds.

MASSACHUSETTS BUSINESS TRUSTS

Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of the Fund. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign on behalf of the Fund.

================================================================================

EFFECT OF BANKING LAWS

Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing most securities. However,
such banking laws and regulations do not prohibit such a holding company
affiliate or banks generally from acting as investment adviser, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of such a customer. Wachovia Bank of
North Carolina, N.A. is subject to such banking laws and regulations.

Wachovia Bank of North Carolina, N.A. believes that it may perform the services
for the Fund contemplated by its advisory agreement and its Custodian Agreement
with The Biltmore Municipal Funds without violation of the Glass-Steagall Act or
other applicable banking laws or regulations. Changes in either federal or state
statutes and regulations relating to the permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent Wachovia Bank of North Carolina, N.A. from continuing to perform all or
a part of the above services for its customers and/or the Fund. If it were
prohibited from engaging in these customer-related activities, the Trustees
would consider alternative advisers and means of continuing available investment
services. In such event, changes in the operation of the Fund may occur,
including possible termination of any automatic or other Fund share investment
and redemption services then being provided by Wachovia Bank of North Carolina,
N.A. It is not expected that existing shareholders would suffer any adverse
financial consequences (if another adviser with equivalent abilities to Wachovia
Bank of North Carolina, N.A. is found) as a result of any of these occurrences.

================================================================================

TAX INFORMATION

FEDERAL INCOME TAX

The Fund expects to pay no federal regular income tax because it intends to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.

NORTH CAROLINA TAXES

Under existing North Carolina law, shareholders of the Fund will not be subject
to North Carolina income taxes on Fund dividends to the extent that such
dividends represent "exempt-interest dividends" as defined in the Internal
Revenue Code of 1986, as amended, which are directly attributable to (i)
interest on obligations of the State of North Carolina or any of its political
subdivisions; or (ii) interest on obligations of the United States or its
possessions.

For purposes of the North Carolina Intangibles Personal Property tax,
shareholders may exclude from the share value of the Fund that proportion of the
total share value which is attributable to the value of the direct obligations
of the State of North Carolina, its political subdivisions, the United States
and its political subdivisions held in the Fund as of December 31 of the taxable
year.

OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from state income taxes in states
other than North Carolina or from personal property taxes. State laws differ on
this issue, and shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.

================================================================================
PERFORMANCE INFORMATION

From time to time the Fund advertises its total return, yield, and
tax-equivalent yield.

The performance information reflects the effect of the maximum sales load which,
if excluded, would increase the total return, yield, and tax-equivalent yield.

From time to time, the Fund may advertise its performance using certain
reporting services and/or compare its performance to certain indices.

BILTMORE NORTH CAROLINA MUNICIPAL BOND FUND

(A PORTFOLIO OF THE BILTMORE MUNICIPAL FUNDS)

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the prospec-
tus of Biltmore North Carolina Municipal Bond Fund (the "Fund"), dated
December 10, 1994. This Statement is not a prospectus itself. To receive
a copy of the prospectus write the Fund or call The Biltmore Service Cen-
ter toll-free 1-800-994-4414.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated December 10, 1994

[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor

A subsidiary of FEDERATED INVESTORS

Table of Contents
- --------------------------------------------------------------------------------
General Information About the Fund 1
- --------------------------------------

Investment Objective and Policies 1
- --------------------------------------

Acceptable Investments 1

When-Issued and Delayed Delivery
Transactions 2

Repurchase Agreements 2
Lending of Portfolio Securities 2
Portfolio Turnover 2
Municipal Bond Insurance 2

Investment Limitations 3
- --------------------------------------

North Carolina Investment Risks 5

The Biltmore Municipal Funds
Management 5
- --------------------------------------

Officers and Trustees 5
Fund Ownership 6
Trustee Liability 6

Investment Advisory Services 7
- --------------------------------------

Adviser to the Fund 7

Advisory Fees 7

Administrative Services 7
- --------------------------------------

Transfer Agent and Dividend
Disbursing Agent 7
- --------------------------------------

Brokerage Transactions 7
- --------------------------------------

Purchasing Shares 7
- --------------------------------------

Distribution of Shares 7
Conversion to Federal Funds 7

Determining Net Asset Value 8
- --------------------------------------

Valuing Municipal Bonds 8

Redeeming Shares 8
- --------------------------------------

Redemption in Kind 8

Tax Status 8
- --------------------------------------

The Fund's Tax Status 8
Shareholders' Tax Status 8

Total Return 8
- --------------------------------------

Yield 9
- --------------------------------------

Tax-Equivalent Yield 9
- --------------------------------------

Tax-Equivalency Table 9

Performance Comparisons 9
- --------------------------------------

Appendix 11
- --------------------------------------

GENERAL INFORMATION ABOUT THE Fund
- --------------------------------------------------------------------------------
The Fund is a portfolio in The Biltmore Municipal Funds (the "Trust") which was
established as a Massachusetts business trust under a Declaration of Trust
dated August 15, 1990. Prior to June 3, 1993, the Trust was known as "The
Passageway Funds."

INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide for its shareholders current
income which is exempt from federal regular income tax and the income taxes
imposed by the State of North Carolina. In addition, the Fund intends to
qualify as an investment exempt from the North Carolina Intangibles Personal
Property tax. The objective cannot be changed without approval of shareholders.

In determining the liquidity of municipal lease securities, the Fund's
adviser, under the authority delegated by the Board of Trustees, will
base its determination on the following factors:

. whether the lease can be terminated by the lessee;

. the potential recovery, if any, from a sale of the leased property upon
termination of the lease;

. the lessee's general credit strength (e.g., its debt, administrative,
economic and financial characteristics and prospects);

. any credit enhancement or legal recourse provided upon an event of non-
appropriation or other termination of the lease.

- --------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. No fees or expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.

- --------------------------------------------------------------------------------
thereof and compliance with investment restrictions imposed under the Policies
will reduce the yield to shareholders of the Fund.

Municipal bond insurance may be provided by one or more of the following
insurers or any other municipal bond insurer which is rated "Aaa" by Moody's or
"AAA" by S&P:

INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets except to
secure permitted borrowings.

UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.

INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, although it may invest in
municipal bonds secured by real estate or interests in real estate.

INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.

CONCENTRATION OF INVESTMENTS

The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in
industrial development bonds or other securities, the interest upon which
is paid from revenues of similar type projects. The Fund will not
generally invest 25% or more of the value of its total assets in any one
industry, except that the Fund may invest 25% or more of its assets in
certain broader segments of the municipal securities market, as described
in the prospectus. The Fund may invest 25% or more of the value of its
total assets in cash, cash items, or securities issued or guaranteed by
the government of the United States or its agencies, or instrumentalities
and repurchase agreement collateralized by such U.S. government
securities. Concentrating investments in one industry may subject the
Fund to more risk than if it did not concentrate.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.

INVESTING IN OPTIONS
The Fund will not buy or sell puts, calls, straddles, spreads, or any
combination of these.

INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs, or leases.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

- --------------------------------------------------------------------------------

INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST

NORTH CAROLINA INVESTMENT RISKS

The State of North Carolina's credit strength is derived from a diversified
economy, relatively low unemployment rates, strong financial management, and a
low debt burden. In recent years, the State's economy has become less dependent
on agriculture (primarily tobacco) and manufacturing (textiles and furniture)
and has experienced increased activity in financial services, research, high
technology manufacturing, and tourism. North Carolina did not escape the
effects of the economic slowdown; however, the State is now experiencing an
increase in economic development. Long-term personal income trends indicate
gains; however, wealth levels still continue to lag the national average. State
unemployment rates consistently fall below the national average. For August,
1994, North Carolina reported an unemployment rate of 4.9% versus the national
average of 6.1%.

North Carolina is a very conservative debt issuer and has maintained debt
levels that are low due to constitutional debt limitations. Conservative
policies also dominate the State's financial operations. The State's
administration continually demonstrates its ability and willingness to adjust
financial planning and budgeting to preserve financial balance. The State's
finances, which enjoyed surpluses and adequate reserves throughout the 1980's,
began reflecting the economic downturn in fiscal 1990. To close the shortfalls
that emerged because of weakening revenues, the State increased its sales and
corporate tax rates and implemented expenditure reductions and restrictions.
Management's actions resulted in a budget surplus for fiscal 1992 and fiscal
1993. Available unreserved balances and budget stabilization reserves totaled
$440 million at the end of fiscal 1994, which is equivalent to 4.1% of annual
expenditures. The financials of many North Carolina municipalities are also
strong, and over 25% of all "Aaa" rated tax-exempt bonds issued by local
municipalities throughout the country are issued by cities and towns located in
the State.
The Fund's concentration in securities issued by the State and its political
subdivisions provides a greater level of risk than a fund which is diversified
across numerous states and municipal entities. The ability of the State or its
municipalities to meet their obligations will depend on the availability of tax
and other revenues; economic, political, and demographic conditions within the
State; and the underlying fiscal condition of the State, its counties, and its
municipalities.

THE BILTMORE MUNICIPAL FUNDS MANAGEMENT
- --------------------------------------------------------------------------------

OFFICERS AND TRUSTEES

Officers and Trustees are listed with their addresses, principal occupations
during the past five years, and their present positions. Each of the Trustees
and officers listed below holds an identical position with The Biltmore Funds,
another investment company which is advised by Wachovia Bank of North Carolina,
N.A. Except as listed below, none of the Trustees or Officers are affiliated
with Wachovia Bank of North Carolina, N.A., Federated Investors, Federated
Securities Corp., Federated Services Company or Federated Administrative
Services.

- --------------------------------------------------------------------------------

Malcolm T. Hopkins
Trustee
Private investor and consultant; Director, The Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution); Director,
MAPCO, Inc. (diversified energy); Director, Metropolitan Series Funds, Inc. and
MetLife Portfolios, Inc. (investment companies); Director, Kinder-Care Learning
Centers, Inc. (child care); and Director, U.S. Home Corp. (residential builders
and land development).
- --------------------------------------------------------------------------------
Samuel E. Hudgins
Trustee
President, Percival, Hudgins & Company, Inc. (investment bankers/financial
consultants); Director, Atlantic American Corporation (insurance holding
company); Director, Bankers Fidelity Life Insurance Company; Director and Vice
Chairman, Leath Furniture, Inc. (retail furniture); President, Atlantic
American Corporation until 1988; Director, Vice Chairman and Chief Executive
Officer, Rhodes, Inc. (retail furniture) until 1988; Chairman and Director,
Atlantic American Life Insurance Co., Georgia Casualty & Surety Company, and
Bankers Fidelity Life Insurance until 1988.
- --------------------------------------------------------------------------------
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel company).
- --------------------------------------------------------------------------------
D. Dean Kaylor
Trustee

Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) until 1990.
- --------------------------------------------------------------------------------
John W. McGonigle
President and Treasurer
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Trustee, Federated Services Company;
Executive Vice President, Secretary and Trustee, Federated Administrative
Services; Executive Vice President and Director, Federated Securities Corp.
- --------------------------------------------------------------------------------
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly, Associate
Corporate Counsel, Federated Investors; Vice President and Assistant Treasurer
of certain investment companies for which Federated Securities Corp. is the
principal distributor.
- --------------------------------------------------------------------------------
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
- --------------------------------------------------------------------------------

The address of the Trustees and Officers of the Trust is Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.

INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------

Adviser to the Fund
The Fund's adviser is Wachovia Bank of North Carolina, N.A. (the "Adviser").
The Adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, lending, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.

ADVISORY FEES
For its advisory services, Wachovia Bank of North Carolina, N.A. receives an
annual investment advisory fee as described in the prospectus.

Federated Services Company also maintains the Fund's accounting records. The
fee is based on the level of the Fund's average net assets for the period plus
out-of-pocket expenses.

DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.

DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------

Net asset value generally changes each day. The days on which net asset value
is calculated by the Fund are described in the prospectus.

VALUING MUNICIPAL BONDS
The Trustees use an independent pricing service to value municipal bonds. The
independent pricing service takes into consideration yield, stability, risk,
quality, coupon rate, maturity, type of issue, trading characteristics, special
circumstances of a security or trading market, and any other factors or market
data it considers relevant in determining valuations for normal institutional
size trading units of debt securities, and does not rely exclusively on quoted
prices.

TAX STATUS
- --------------------------------------------------------------------------------

SHAREHOLDERS' TAX STATUS
No portion of any income dividend paid by the Fund is eligible for the
dividends received deductions available to corporations.

- --------------------------------------------------------------------------------
end of the period. The number of shares owned at the end of the period is based
on the number of shares purchased at the beginning of the period with $1,000,
less any applicable sales load, adjusted over the period by any additional
shares, assuming the monthly reinvestment of all dividends and distributions.

Tax-Equivalency Table
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's
portfolio generally remains free from federal regular income tax, and is
often free from state and local taxes as well. As the table below
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable
yields.

<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1994
STATE OF NORTH CAROLINA
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
Tax Bracket:
Federal: 15.00% 28.00% 31.00% 31.00% 36.00% 39.60%
Combined
Federal
and State: 22.00% 35.00% 38.00% 38.75% 43.75% 47.35%
- ------------------------------------------------------------------------------------------------------------------
Joint Return: $1-38,000 $38,001-91,850 $91,851-100,000 $100,001-140,000 $140,001-250,000 Over $250,000
Single Return: $1-22,750 $22,751-55,100 $55,101-60,000 $60,001-115,000 $115,001-250,000 Over $250,000
- ------------------------------------------------------------------------------------------------------------------
Tax-Exempt Yield Taxable Yield Equivalent
- ------------------------------------------------------------------------------------------------------------------
3.50% 4.49% 5.38% 5.65% 5.71% 6.22% 6.65%
4.00 5.13 6.15 6.45 6.53 7.11 7.60
4.50 5.77 6.92 7.26 7.35 8.00 8.55
5.00 6.41 7.69 8.06 8.16 8.89 9.50
5.50 7.05 8.46 8.87 8.98 9.78 10.45
6.00 7.69 9.23 9.68 9.80 10.67 11.40
6.50 8.33 10.00 10.48 10.61 11.56 12.35
7.00 8.97 10.77 11.29 11.43 12.44 13.30
7.50 9.62 11.54 12.10 12.24 13.33 14.25
8.00 10.26 12.31 12.90 13.06 14.22 15.19
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating
the taxable yield equivalent. Furthermore, additional state and local taxes
paid on comparable taxable investments were not used to increase federal
deductions.

- --------------------------------------------------------------------------------
. changes in interest rates and market value of portfolio securities;
. changes in the Fund's expenses; and
. various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of yield and total return as
described below.
From time to time, the Fund may advertise its performance compared to similar
funds or portfolios using certain financial publications and/or compare its
performance to certain indices.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors, such as the composition of any index
used, prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Fund uses in advertising may
include:
.LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time.
From time to time, the Fund will quote its Lipper ranking in the general
municipal bond funds category in advertising and sales literature.
.MORNINGSTAR INC., an independent rating service is the publisher of the bi-
weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-
listed mutual funds of all types, according to their risk-adjusted returns.
The maximum rating is five stars, and ratings are effective for two weeks.
.LEHMAN BROTHERS STATE GENERAL OBLIGATIONS INDEX is an index comprised of all
state general obligation debt issues and is compiled without regard to
maturities. These bonds are rated A or better and represent a variety of
coupon ranges. Index figures are total returns calculated for one, three, and
twelve month periods as well as year-to-date. Total returns are also
calculated as of the index inception, December 31, 1979.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. The total returns
represent the historic change in the value of an investment in the Fund based
on monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of a sales load.

C--The rating "C" is reversed for income bonds on which no interest is being
paid.
D--Debt rated "D" is in default, and payment of interest and/or repayment of
principal is in arrears.

- --------------------------------------------------------------------------------
Ba--Bonds which are "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated "Ca" represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

MOODY'S INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING DEFINITIONS
PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
. Leading market positions in well established industries;
.High rates of return on funds employed;
.Conservative capitalization structure with moderate reliance on debt and ample
asset protection;
.Broad margins in earning coverage of fixed financial charges and high internal
cash generation; and
.Well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
PRIME-3--Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME--Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.

G00481-04 (12/94)

BILTMORE GEORGIA MUNICIPAL BOND FUND
(A Portfolio of The Biltmore Municipal Funds)

Supplement to Statement of Additional Information dated December 10,
1994

A. Please delete Malcolm T. Hopkins from the "Officers and Trustees"
table on page 5 of the Statement of Additional Information.
B. Please delete Joseph M. Huber from the "Officers and Trustees"
table on page 6 of the Statement of Additional Information and
replace with the following information:
"Peter J. Germain
Secretary
Senior Corporate Counsel, Federated Investors"

C. Please insert the following information as a second paragraph
under the section entitled "Fund Ownership" on page 6 of the
Statement of Additional Information:

"As of June 6, 1995, there were no shareholders of record who
owned 5% or more of the outstanding shares of the Fund."
D. Please insert the following "Trustees' Compensation" table after
the section entitled "Fund Ownership" on page 6 of the Statement of
Additional Information. In addition, please add the heading "Trustees'
Compensation" to the Table of Contents on page I after the heading "Fund
Ownership":

"Trustees' Compensation

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

James A. Hanley, $ 1,089 $ 22,275 for the Trust
and
Trustee 1 other investment
company in the Fund Complex
Samuel E. Hudgins, $ 1,134 $ 23,400 for the Trust
and
Trustee 1 other investment company
in the Fund Complex
J. Berkley Ingram, Jr., $ 900 $ 18,000 for
the Trust and
Trustee 1 other investment company
in the Fund Complex
D. Dean Kaylor, $ 900 $ 18,000 for the Trust
and
Trustee 1 other investment company
in the Fund Complex

*Information is furnished for the fiscal year ended November 30, 1994.
#The aggregate compensation is provided for the Trust, which is
comprised of 3 portfolios.
+The information is provided for the last calendar year."

E. Please insert the following as the last paragraph in the sub-
section entitled "Advisory Fees" under the main section entitled
"Investment Advisory Services" on page 7 of the Statement of
Additional Information:
"From the date of initial public investment, December 26, 1994, to
May 31, 1995, the Adviser earned $15,204, of which $12,162 was
voluntarily waived. "

F. Please insert the following information as the second sentence
under the section entitled "Administrative Services" on page 7 of the
Statement of Additional Information:
"From the date of initial public investment, December 26, 1994, to
May 31, 1995, the Fund incurred costs for administrative services of
$1,794."

G. Please add the following information as the final paragraph under
the section entitled "Brokerage Transactions" on page 7 of the
Statement of Additional Information:
"From the date of initial public investment, December 26, 1994, to
May 31, 1995, no brokerage commissions were paid by the Fund."

H. Please replace the section entitled "Total Return" on page 8 of
the Statement of Additional Information with the following
information:
"From the date of initial public investment, December 26, 1994, to
May 31, 1995, the Fund's cumulative total return was 4.13%.
Cumulative total return reflects the Fund's total performance over
a specific period of time. This total return assumes and is reduced
by the payment of the maximum sales load. The Fund's total return
is representative of only five months of investment activity since the
Fund's effective date."
I. Please insert the following information as a final paragraph under
the section entitled "Yield" on page 9 of the Statement of
Additional Information:

"The Fund's yield for the thirty-day period ended May 31, 1995,
was 4.22%."

J. Please insert the following information as a final paragraph under
the section entitled "Tax- Equivalent Yield" on page 9 of the
Statement of Additional Information:

"The Fund's tax-equivalent yield for the seven-day period ended
May 31, 1995, was 6.39%. "

June 30, 1995

FEDERATED SECURITIES CORP.

Distributor
A subsidiary of Federated
Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 090313206
G00807-04 (6/95)

BILTMORE GEORGIA MUNICIPAL BOND FUND
(A PORTFOLIO OF THE BILTMORE MUNICIPAL FUNDS)

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated December 10, 1994

[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subisidiary of FEDERATED INVESTORS

TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- --------------------------------------

INVESTMENT OBJECTIVE AND POLICIES 1
- --------------------------------------

Acceptable Investments 1
When-Issued and Delayed Delivery
Transactions 1
Repurchase Agreements 2
Lending of Portfolio Securities 2
Portfolio Turnover 2
Municipal Bond Insurance 2

INVESTMENT LIMITATIONS 3
- --------------------------------------

Georgia Investment Risks 5

THE BILTMORE MUNICIPAL FUNDS
MANAGEMENT 5
- --------------------------------------

Officers and Trustees 5
Fund Ownership 6
Trustee Liability 6

INVESTMENT ADVISORY SERVICES 6
- --------------------------------------

Adviser to the Fund 6
Advisory Fees 7

ADMINISTRATIVE SERVICES 7
- --------------------------------------

Transfer Agent and Dividend
Disbursing Agent 7

BROKERAGE TRANSACTIONS 7
- --------------------------------------

PURCHASING SHARES 7
- --------------------------------------

Distribution of Shares 7
Conversion to Federal Funds 7

DETERMINING NET ASSET VALUE 7
- --------------------------------------

Valuing Municipal Bonds 8

REDEEMING SHARES 8
- --------------------------------------

Redemption in Kind 8

TAX STATUS 8
- --------------------------------------

The Fund's Tax Status 8
Shareholders' Tax Status 8

TOTAL RETURN 8
- --------------------------------------

YIELD 9
- --------------------------------------

TAX-EQUIVALENT YIELD 9
- --------------------------------------

Tax-Equivalency Table 9

PERFORMANCE COMPARISONS 9
- --------------------------------------

APPENDIX 11
- --------------------------------------

GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------

The Fund is a portfolio in The Biltmore Municipal Funds (the "Trust") which was
established as a Massachusetts business trust under a Declaration of Trust
dated August 15, 1990. Prior to June 3, 1993, the Trust was known as "The
Passageway Funds."

INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------

The Fund's investment objective is to provide for its shareholders current
income which is exempt from federal regular income tax and the personal income
taxes imposed by the State of Georgia. The objective cannot be changed without
approval of shareholders.

ACCEPTABLE INVESTMENTS

If a high-rated security loses its rating or has its rating reduced after
the Fund has purchased it, the Fund is not required to drop the security
from its portfolio, but may consider doing so. If ratings made by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P") change because of changes in those organizations or in their
rating systems, the Fund will try to use comparable ratings as standards
in accordance with the investment policies described in the Fund's
prospectus.

PARTICIPATION INTERESTS

The financial institutions from which the Fund purchases participation
interests frequently provide or secure from another financial institution
irrevocable letters of credit or guarantees and give the Fund the right
to demand payment of the principal amounts of the participation interests
plus accrued interest on short notice (usually within seven days).

VARIABLE RATE MUNICIPAL SECURITIES

Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable rate municipal
securities than for fixed income obligations.
Many municipal securities with variable interest rates purchased by the
Fund are subject to repayment of principal (usually within seven days) on
the Fund's demand. The terms of these variable rate demand instruments
require payment of principal and accrued interest from the issuer of the
municipal obligations, the issuer of the participation interests, or a
guarantor of either issuer.

MUNICIPAL LEASES

The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or non-profit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the certificate trustee cannot accelerate lease obligations upon default.
The trustee would only be able to enforce lease payments as they become
due. In the event of a default or failure of appropriation, it is
unlikely that the trustee would be able to obtain an acceptable
substitute source of payment or that the substitute source of payment
will generate tax-exempt income.
In determining the liquidity of municipal lease securities, the Fund's
adviser, under the authority delegated by the Board of Trustees, will
base its determination on the following factors:

. whether the lease can be terminated by the lessee;

. the potential recovery, if any, from a sale of the leased property upon
termination of the lease;

. the lessee's general credit strength (e.g., its debt, administrative,
economic and financial characteristics and prospects);

. any credit enhancement or legal recourse provided upon an event of non-
appropriation or other termination of the lease.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. No fees or expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and
maintained until the transaction has been settled. The Fund does not intend to
engage in when- issued and delayed delivery transactions to an extent that
would cause the segregation of more than 20% of the total value of its assets.

REPURCHASE AGREEMENTS

Repurchase agreements are arrangements in which banks, broker/dealers, and
other recognized financial institutions sell U.S. government securities or
certificates of deposit to the Fund and agree at the time of sale to repurchase
them at a mutually agreed upon time and price within one year from the date of
acquisition. The Fund or its custodian will take possession of the securities
subject to repurchase agreements. To the extent that the original seller does
not repurchase the securities from the Fund, the Fund could receive less than
the repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action. The Fund believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund may only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker/dealers,
which are found by the Fund's adviser to be creditworthy.

LENDING OF PORTFOLIO SECURITIES

The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the
option of the Fund or the borrower. The Fund may pay reasonable administrative
and custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash or equivalent collateral to the borrower or
placing broker.

PORTFOLIO TURNOVER

Although the Fund does not intend to invest for the purpose of seeking short-
term profits, securities in its portfolio will be sold whenever the Fund's ad-
viser believes it is appropriate to do so in light of the Fund's investment ob-
jective, without regard to the length of time a particular security may have
been held. It is not anticipated that the portfolio trading engaged in by the
Fund will result in its annual rate of portfolio turnover exceeding 100% under
normal market conditions.

MUNICIPAL BOND INSURANCE

Under the Policies (as such term is defined in the prospectus), municipal bond
insurers unconditionally guarantee to the Fund the timely payment of principal
and interest on the insured municipal securities when and as such payments
shall become due but shall not be paid by the issuer, except that in the event
of any acceleration of the due date of the principal by reason of mandatory or
optional redemption (other than acceleration by reason of mandatory sinking
fund payments), default or otherwise, the payments guaranteed will be made in
such amounts and at such times as payments of principal would have been due had
there not been such acceleration. The municipal bond insurers will be
responsible for such payments less any amounts received by the Fund from any
trustee for the municipal bond issuers or from any other source. The Policies
do not guarantee payment on an accelerated basis, the payment of any redemption
premium, the value for the shares of the Fund, or payments of any tender
purchase price upon the tender of the municipal securities. The Policies also
do not insure against nonpayment of principal of or interest on the securities
resulting from the insolvency, negligence or any other act or omission of the
trustee or other paying agent for the securities. However, with respect to
small issue industrial development municipal bonds and pollution control
revenue municipal bonds covered by the Policies, the municipal bond insurers
guarantee the full and complete payments required to be made by or on behalf of
an issuer of such municipal securities if there occurs any change in the tax-
exempt status of interest on such municipal securities, including principal,
interest or premium payments, if any, as and when required to be made by or on
behalf of the issuer pursuant to the terms of such municipal securities. A
when-issued municipal security will be covered under the Policies upon the
settlement date of the issuer of such when-issued municipal securities. In
determining to insure municipal securities held by the Fund, each municipal
bond insurer has applied its own standard, which corresponds generally to the
standards it has established for determining the insurability of new issues of
municipal securities. This insurance is intended to reduce financial risk, but
the cost thereof and compliance with investment restrictions imposed under the
Policies will reduce the yield to shareholders of the Fund.

Municipal bond insurance may be provided by one or more of the following
insurers or any other municipal bond insurer which is rated "Aaa" by Moody's or
"AAA" by S&P:

MUNICIPAL BOND INVESTORS ASSURANCE CORP.

Municipal Bond Investors Assurance Corp. ("MBIA") is a wholly-owned
subsidiary of MBIA, Inc., a Connecticut insurance company, which is owned
by AEtna Casualty & Surety, Credit Local DeFrance CAECL, and the public.
The investors of MBIA, Inc., are not obligated to pay the obligations of
MBIA. MBIA, domiciled in New York, is regulated by the New York State
Insurance Department and licensed to do business in various states. The
address of MBIA is 113 King Street, Armonk, New York, 10504, and its
telephone number is (914) 273-4345. As of June 1, 1994, S&P has rated the
claims-paying ability of MBIA "AAA."

AMBAC INDEMNITY CORPORATION

AMBAC Indemnity Corporation ("AMBAC") is a Wisconsin-domiciled stock
insurance company, regulated by the Insurance Department of Wisconsin,
and licensed to do business in various states. AMBAC is a wholly-owned
subsidiary of AMBAC, Inc., a financial holding company which is owned by
the public. Copies of certain statutorily required filings of AMBAC can
be obtained from AMBAC. The address of AMBAC's administrative offices is
One State Street Plaza, 17th Floor, New York, New York 10004, and its
telephone number is (212) 668-0340. As of June 1, 1994, S&P has rated the
claims-paying ability of AMBAC "AAA."

FINANCIAL GUARANTY INSURANCE COMPANY

Financial Guaranty Insurance Company ("Financial Guaranty") is a wholly-
owned subsidiary of FGIC Corporation, a Delaware holding company. FGIC
Corporation is 99% owned by General Electric Capital Corporation, with
the other 1% ownership coming from the Sumitomo Marine & Fire Insurance
Company Ltd. The investors of FGIC Corporation are not obligated to pay
the debts of or the claims against Financial Guaranty. Financial Guaranty
is subject to regulation by the New York State Insurance Department and
is licensed to do business in various states. The address of Financial
Guaranty is 115 Broadway, New York, New York 10006, and its telephone
number is (212) 312-3000. As of June 1, 1994, S&P has rated the claims-
paying ability of Financial Guaranty "AAA."

INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------

SELLING SHORT AND BUYING ON MARGIN

The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of securities.

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities, except that the Fund may
borrow money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Fund will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate its assets except to
secure permitted borrowings.

UNDERWRITING

The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.

INVESTING IN REAL ESTATE

The Fund will not buy or sell real estate, although it may invest in
municipal bonds secured by real estate or interests in real estate.

INVESTING IN COMMODITIES

The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets except portfolio securities. The
Fund may, however, acquire publicly or non-publicly issued municipal
bonds or temporary investments or enter into repurchase agreements in
accordance with its investment objective, policies, and limitations and
its Declaration of Trust.

CONCENTRATION OF INVESTMENTS

The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.

INVESTING IN RESTRICTED SECURITIES

The Fund will not invest more than 10% of the value of its total assets
in securities subject to restrictions on resale under the Securities Act
of 1933, except for restricted securities determined to be liquid under
criteria established by the Trustees.

INVESTING IN ILLIQUID SECURITIES

The Fund will not invest more than 15% of its net assets in illiquid
obligations, including repurchase agreements providing for settlement in
more than seven days after notice, and certain restricted securities.

INVESTING IN NEW ISSUERS

The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds where the principal and interest are the
responsibility of companies (or guarantors, where applicable) with less
than three years of continuous operations, including the operation of any
predecessor.

INVESTING IN OPTIONS

The Fund will not buy or sell puts, calls, straddles, spreads, or any
combination of these.

INVESTING IN MINERALS

The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs, or leases.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST

Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.

The Fund does not expect to borrow money or pledge securities in excess of 5%
of the value of its net assets in the coming fiscal year.

In order to comply with certain state restrictions, the Fund will not invest in
real estate limited partnerships or oil, or other mineral leases.

GEORGIA INVESTMENT RISKS

The State experienced an economic downturn in the early 1990's, as operating
deficits were recorded in fiscal years 1990-1992. However, in fiscal years 1993
and 1994, the State ended with operating surpluses due to strong revenue growth
which will be used to augment reserves. The State's debt rating was affirmed as
"Aaa" by Moody's in July, 1994.

Except for the major building projects necessary for the 1996 Summer Olympics,
it appears unlikely that areas in and around metropolitan Atlanta will
experience the building construction rates of the mid to late 1980's.

THE BILTMORE MUNICIPAL FUNDS MANAGEMENT
- --------------------------------------------------------------------------------

OFFICERS AND TRUSTEES

- --------------------------------------------------------------------------------
James A. Hanley
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) until 1992.
- --------------------------------------------------------------------------------
Malcolm T. Hopkins
Trustee
Private investor and consultant; Director, The Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution); Director,
MAPCO, Inc. (diversified energy); Director, Metropolitan Series Funds, Inc. and
MetLife Portfolios, Inc. (investment companies); Director, Kinder-Care Learning
Centers, Inc. (child care); and Director, U.S. Home Corp. (residential builders
and land development).
- --------------------------------------------------------------------------------
Samuel E. Hudgins
Trustee
President, Percival, Hudgins & Company, Inc. (investment bankers/financial
consultants); Director, Atlantic American Corporation (insurance holding
company); Director, Bankers Fidelity Life Insurance Company; Director and Vice
Chairman, Leath Furniture, Inc. (retail furniture); President, Atlantic
American Corporation until 1988; Director, Vice Chairman and Chief Executive
Officer, Rhodes, Inc. (retail furniture) until 1988; Chairman and Director,
Atlantic American Life Insurance Co., Georgia Casualty & Surety Company, and
Bankers Fidelity Life Insurance until 1988.
- --------------------------------------------------------------------------------
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel company).
- --------------------------------------------------------------------------------
D. Dean Kaylor
Trustee
Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) until 1990.
- --------------------------------------------------------------------------------
John W. McGonigle
President and Treasurer
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Trustee, Federated Services Company;
Executive Vice President, Secretary and Trustee, Federated Administrative
Services; Executive Vice President and Director, Federated Securities Corp.
- --------------------------------------------------------------------------------
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly, Associate
Corporate Counsel, Federated Investors; Vice President and Assistant Treasurer
of certain investment companies for which Federated Securities Corp. is the
principal distributor.
- --------------------------------------------------------------------------------
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
- --------------------------------------------------------------------------------
The address of the Trustees and Officers of the Trust is Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779.

FUND OWNERSHIP

Officers and Trustees own less than 1% of the Fund's outstanding shares.

TRUSTEE LIABILITY

The Biltmore Municipal Funds' Declaration of Trust provides that the Trustees
are not liable for errors of judgment or mistakes of fact or law. However, they
are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.

INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------

ADVISER TO THE FUND

The Fund's adviser is Wachovia Bank of Georgia, N.A. (the "Adviser").
The Adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, lending, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.

ADVISORY FEES

For its advisory services, Wachovia Bank of Georgia, N.A. receives an annual
investment advisory fee as described in the prospectus.

ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------

Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for the fees set
forth in the prospectus.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee is based on the size, type, and number of accounts
and transactions made by shareholders.

Federated Services Company also maintains the Fund's accounting records. The
fee is based on the level of the Fund's average net assets for the period plus
out-of-pocket expenses.

BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better
price and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees. The Adviser may select brokers and dealers who offer
brokerage and research services. These services may be furnished directly to
the Fund or to the Adviser and may include:

. advice as to the advisability of investing in securities;

. security analysis and reports;

. economic studies;

. industry studies;

. receipt of quotations for portfolio evaluations; and

. similar services.

The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage
and research services provided.

Research services provided by brokers may be used by the Adviser or by its
affiliates in advising other accounts. To the extent that receipt of these
services may supplant services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses.

PURCHASING SHARES
- --------------------------------------------------------------------------------

Except under certain circumstances described in the prospectus, shares are sold
at their net asset value plus a sales charge on days the New York Stock
Exchange, the Wachovia Banks (as such term is defined in the prospectus) and
the Federal Reserve Wire System are open for business. The procedure for
purchasing shares of the Fund is explained in the prospectus under "Investing
in the Fund."

DISTRIBUTION OF SHARES

Federated Securities Corp. is the principal distributor for shares of the Fund.

DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------

Net asset value generally changes each day. The days on which net asset value
is calculated by the Fund are described in the prospectus.

VALUING MUNICIPAL BONDS

The Trustees use an independent pricing service to value municipal bonds. The
independent pricing service takes into consideration yield, stability, risk,
quality, coupon rate, maturity, type of issue, trading characteristics, special
circumstances of a security or trading market, and any other factors or market
data it considers relevant in determining valuations for normal institutional
size trading units of debt securities, and does not rely exclusively on quoted
prices.

REDEEMING SHARES
- --------------------------------------------------------------------------------

The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares."

REDEMPTION IN KIND

Although the Trust intends to redeem shares in cash, it reserves the right,
under certain circumstances, to pay the redemption price in whole or in part by
a distribution of securities from the Fund's portfolio. Redemption in kind will
be made in conformity with applicable Securities and Exchange Commission rules,
taking such securities at the same value employed in determining net asset
value and selecting the securities in a manner the Trustees determine to be
fair and equitable.

The Trust has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.

TAX STATUS
- --------------------------------------------------------------------------------

THE FUND'S TAX STATUS

The Fund expects to pay no federal income tax because it intends to meet
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must, among
other requirements:

. derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;

. derive less than 30% of its gross income from the sale of securities held
less than three months;

. invest in securities within certain statutory limits; and

. distribute to its shareholders at least 90% of its net income earned during
the year.

SHAREHOLDERS' TAX STATUS

No portion of any income dividend paid by the Fund is eligible for the
dividends received deductions available to corporations.

CAPITAL GAINS

Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:

. the availability of higher relative yields;

. differentials in market values;

. new investment opportunities;

. changes in creditworthiness of an issuer; or

. an attempt to preserve gains or limit losses.

Distribution of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares.

TOTAL RETURN
- --------------------------------------------------------------------------------

The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at
the beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.

YIELD
- --------------------------------------------------------------------------------

The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the net asset value per share on the last day of
the period. This value is then annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a twelve-month period and is reinvested
every six months. The yield does not necessarily reflect income actually earned
by the Fund because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, performance will be reduced for those shareholders paying those fees.

TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------

The tax-equivalent yield of the Fund is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Fund would have had to earn
to equal its actual yield, assuming that income is 100% tax-exempt.

TAX-EQUIVALENCY TABLE

The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's
portfolio generally remains free from federal regular income tax, and is
often free from state and local taxes as well. As the table below
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable
yields.

<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1994
STATE OF GEORGIA
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
TAX BRACKET:
FEDERAL: 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE: 21.000% 34.000% 37.000% 42.000% 45.600%
JOINT RETURN: $1-38,000 $38,001-91,850 $91,851-100,000 $140,001-250,000 Over $250,000
SINGLE RETURN: $1-22,750 $22,751-55,100 $55,101-115,000 $115,001-250,000 Over $250,000
- -----------------------------------------------------------------------------------------------------------
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- -----------------------------------------------------------------------------------------------------------
1.50% 1.90% 2.27% 2.38% 2.59% 2.76%
2.00 2.53 3.03 3.17 3.45 3.68
2.50 3.16 3.79 3.97 4.31 4.60
3.00 3.80 4.55 4.76 5.17 5.51
3.50 4.43 5.30 5.56 6.03 6.43
4.00 5.06 6.06 6.35 6.90 7.35
4.50 5.70 6.82 7.14 7.76 8.27
5.00 6.33 7.58 7.94 8.62 9.19
5.50 6.96 8.33 8.73 9.48 10.11
6.00 7.59 9.09 9.52 10.34 11.03
6.50 8.23 9.85 10.32 11.21 11.95
7.00 8.86 10.61 11.11 12.07 12.87
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating
the taxable yield equivalent. Furthermore, additional state and local taxes
paid on comparable taxable investments were not used to increase federal
deductions.

PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:

. portfolio quality;

. average portfolio maturity;

. type of instruments in which the portfolio is invested;

. changes in interest rates and market value of portfolio securities;

. changes in the Fund's expenses; and

. various other factors.

The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of yield and total return as
described below.

From time to time, the Fund may advertise its performance compared to similar
funds or portfolios using certain financial publications and/or compare its
performance to certain indices.

Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors, such as the composition of any index
used, prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Fund uses in advertising may
include:

.LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time.
From time to time, the Fund will quote its Lipper ranking in the general
municipal bond funds category in advertising and sales literature.

.MORNINGSTAR INC., an independent rating service is the publisher of the bi-
weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-
listed mutual funds of all types, according to their risk-adjusted returns.
The maximum rating is five stars, and ratings are effective for two weeks.

.LEHMAN BROTHERS STATE GENERAL OBLIGATIONS INDEX is an index comprised of all
state general obligation debt issues and is compiled without regard to
maturities. These bonds are rated A or better and represent a variety of
coupon ranges. Index figures are total returns calculated for one, three, and
twelve month periods as well as year-to-date. Total returns are also
calculated as of the index inception, December 31, 1979.

Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. The total returns
represent the historic change in the value of an investment in the Fund based
on monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of a sales load.

APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S RATINGS GROUP MUNICIPAL BOND RATING DEFINITIONS

AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

C--The rating "C" is reversed for income bonds on which no interest is being
paid.

D--Debt rated "D" is in default, and payment of interest and/or repayment of
principal is in arrears.

STANDARD & POOR'S RATINGS GROUP MUNICIPAL NOTE RATING DEFINITIONS

SP-1--Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given
a plus sign (+) designation.

SP-2--Satisfactory capacity to pay principal and interest.

SP-3--Speculative capacity to pay principal and interest.

STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS

A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."

A-3--Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.

B--Issues rated "B" are regarded as having only speculative capacity for timely
payment.

C--This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.

D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.

MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATING DEFINITIONS

AAA--Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

AA--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in "Aaa"
securities.

A--Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.

BAA--Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

MOODY'S INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING DEFINITIONS

PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:

. Leading market positions in well established industries;

.High rates of return on funds employed;

.Conservative capitalization structure with moderate reliance on debt and ample
asset protection;

.Broad margins in earning coverage of fixed financial charges and high internal
cash generation; and

.Well-established access to a range of financial markets and assured sources of
alternate liquidity.

PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.

PRIME-3--Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.

NOT PRIME--Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS

.Leading market positions in well established industries;

.High rates of return on funds employed;

.Conservative capitalization structure with moderate reliance on debt and ample
asset protection;

.Broad margins in earning coverage of fixed financial charges and high internal
cash generation; and

.Well-established access to a range of financial markets and assured sources of
alternate liquidity.

PRIME-3--Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effects 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 the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.

NOT PRIME--Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.

MOODY'S INVESTORS SERVICE, INC. SHORT TERM LOAN RATING DEFINITIONS

MIG 1/VMIG 1--This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.

MIG 2/VMIG 2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

MIG 3/VMIG 3--This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

G00481-06 (12/94)

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE

Dear Shareholder:

I am pleased to present your first Semi-Annual Report for the Biltmore North
Carolina Municipal Bond Fund. This report covers the period from December 26,
1994, when the Fund began operation, through May 31, 1995.

On your behalf, the Biltmore North Carolina Municipal Bond Fund pursues monthly,
double-tax-free income through a portfolio of high-quality North Carolina
municipal bonds. Income earned by the Fund is exempt from federal regular income
tax and the North Carolina state personal income taxes.* In addition, the Fund
is operated to qualify as an investment exempt from the North Carolina
Intangibles Personal Property Tax.

I am also pleased to report that the Fund rewarded shareholders with strong
performance over the period. Its net asset value increased from $10.00, on the
first day of the period, to $10.72 on May 31, 1995, the last day of the period.
The Fund paid $0.19 per share in dividends, and its total return figures based
on net asset value and offering price were 9.14% and 4.24%, respectively.**
Total assets at the end of the period reached $11.9 million.

Thank you for choosing the Biltmore North Carolina Municipal Bond Fund to pursue
double-tax-free income. We look forward to keeping you informed about your
investment as we provide you with the highest quality service. Of course, we
welcome your comments and suggestions.

Sincerely,

John W. McGonigle
President
June 15, 1995

*Income may be subject to the federal alternative minimum tax or other state
and local taxes.

The municipal bond market rebounded form a difficult year in 1994 with some of
its strongest monthly gains in nine years. The powerful rally was fueled by
widespread signs of a slowing economy, modest inflation reports and the
perception that interest rate hikes would no longer be necessary in the near
future. From November 30, 1994 to May 31, 1995, the Lehman Brothers State
General Obligations Bonds Index* had a total return of 10.04%.

A weaker economy helped push the yield on 10-year AAA general obligation
municipal bonds down, from 6% on November 30, 1994 to 4.95% on May 31, 1995.
Municipal bond prices continued to gain additional support from a share decline
in volume. The Fund's portfolio manager adopted a less defensive posture, moving
to a duration that was more in line with the municipal bond market. The
portfolio manager also reduced overweighted positions in long- and short-term
bonds as the yield curve steepened.

On May 31, 1995, net assets of the Fund totaled $11.9 million. Since inception
on December 26, 1994, the net asset value of the Fund increased from $10.00 to
$10.72, and the 30-day SEC yield was 4.17%.** The Fund had an average duration
of 7.73 years on May 31, 1995.

*This index is unmanaged.

(A PORTFOLIO OF THE BILTMORE MUNICIPAL FUNDS)
- --------------------------------------------------------------------------------

SEMI-ANNUAL REPORT AND SUPPLEMENT TO PROSPECTUS DATED DECEMBER 10, 1994

We suggest that you keep this information for your records.

A. Please delete the "Summary of Fund Expenses" table on page 1 of the
Prospectus and replace it with the following table:

SUMMARY OF FUND EXPENSES

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)

(1)The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the investment adviser. The adviser can terminate this
voluntary waiver at anytime at its sole discretion. The maximum management
fee is 0.75%.

(2)Other expenses are 0.84% absent the voluntary waiver by the administrator.
The administrator can terminate the voluntary waiver at any time at its sole
discretion.

(4)The Total Fund Operating Expenses are estimated to be 1.59%, absent the
anticipated voluntary waivers by the Fund's adviser and administrator.

BILTMORE NORTH CAROLINA MUNICIPAL BOND FUND FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
Period Ended
May 31, 1995(a)
(unaudited)
<S> <C>
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Income from investment operations
Net investment income 0.19
Net realized and unrealized gain (loss) on investments 0.72
-------
Total from investment operations 0.91
Less distributions
Distributions from net investment income (0.19)
-------
NET ASSET VALUE, END OF PERIOD $ 10.72
-------
Total Return (b) 9.14%
Ratios to Average Net Assets
Expenses 0.85%(c)
Net investment income 4.31%(c)
Expense waiver/reimbursement (d) 0.84%(c)
Supplemental Data
Net assets, end of period (000 omitted)
$11,852
Portfolio turnover rate 3%
</TABLE>

(a) Reflects operations for the period from December 26, 1994 (date of initial
public investment) to May 31, 1995.

(b) Based on net asset value, which does not reflect the sales charges, if
applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(See Notes which are an integral part of the Financial Statements)

C. Please insert the following financial statements at the end of the
Prospectus, beginning on page 18. In addition, please add the heading
"Financial Statements" to the Table of Contents on page I of the
Prospectus, immediately before "Addresses."

BILTMORE NORTH CAROLINA MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS

MAY 31, 1995 (UNAUDITED)

<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
<C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Long-Term Municipal Securities--89.9%
$ 190,000 Buncombe County, NC, 5.20% GO UT Bonds (Callable
5/1/2003 @102), 5/1/2008 Aa $ 189,460
500,000 Cabarrus County, NC, 4.60% GO UT Refunding Bonds (Callable
3/1/2003 @102)/(FGIC Insured), 3/1/2007 AAA 466,315
800,000 Cabarrus County, NC, 4.60% GO UT Refunding Bonds (Callable
3/1/2003 @102)/(FGIC Insured), 3/1/2008 AAA 733,880
840,000 Charlotte, NC, 5.00% GO UT Refunding Bonds (Original Issue Yield:
5.15%), 2/1/2012 AAA 805,543
100,000 Charlotte, NC, Water & Sewer, 5.70% GO UT Bonds (Callable
2/1/2004 @101 1/2), 2/1/2007 AAA 105,699
460,000 Charlotte-Mecklenburg, NC, Hospital Authority, 5.75% Health Care
System Revenue Refunding Bonds (Callable 1/1/2002 @102)/(Original
Issue Yield: 6.498%), 1/1/2012 AA 456,578
100,000 Cumberland County, NC, 5.70% GO UT Bonds (Callable
2/1/2003 @101 1/2)/(MBIA Insured), 2/1/2006 AAA 104,974
100,000 Cumberland County, NC, 6.375% Certificate of Participation (Civic
Center Project)/(Series A)/(Callable 12/1/2004 @102)/ (AMBAC
Insured)/(Original Issue Yield: 6.50%), 12/1/2010 AAA 106,506
210,000 Cumberland County, NC, Hospital System, 6.00% Revenue Bonds
(Callable 10/1/2001 @100)/(MBIA Insured)/(Original Issue Yield:
6.84%), 10/1/2021 AAA 212,734
110,000 Dare County, NC, 5.00% GO UT Refunding Bonds (Callable
5/1/2003 @102)/(MBIA Insured), 5/1/2010 AAA 105,744
100,000 Durham County, NC, 5.75% GO UT Bonds (Callable 2/1/2002 @102),
2/1/2009 AAA 104,362
50,000 Durham County, NC, Public Improvements, 5.80% GO UT Bonds
(Callable 4/1/2004 @102)/(Original Issue Yield: 6.00%), 4/1/2010 AAA 52,298
100,000 Durham, NC, 5.80% GO UT Revenue Bonds (Callable
2/1/2005 @102)/(Original Issue Yield: 5.95%), 2/1/2012 AAA 103,860
50,000 Durham, NC, Water & Sewer Utility System, 5.80% Revenue Bonds
(Original Issue Yield: 5.85%), 12/1/2003 AA 53,187
</TABLE>

<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
<C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Long-Term Municipal Securities--continued
$ 410,000 East Carolina University, NC, 5.25% Revenue Bonds (Student
Services System)/(Callable 5/1/2003 @102), 5/1/2007 A $ 404,625
100,000 East Carolina University, NC, 5.50% Revenue Bonds (Student
Services System)/(Callable 5/1/2003 @102)/(Original Issue Yield:
5.60%), 5/1/2018 A 94,285
500,000 Fayetteville, NC, Public Works Community, 4.75% Revenue Refunding
Bonds (Callable 3/1/2003 @100)/(FGIC Insured)/ (Original Issue
Yield: 5.23%), 3/1/2014 AAA 449,400
340,000 Fremont, NC, Housing Development Corp., 6.75% Revenue Refunding
Bonds (Torhunta Apartments)/(Callable 7/15/2003 @100)/(FNMA
Guaranteed)/(FHA Insured), 7/15/2022 Aaa 350,013
100,000 Gastonia, NC, Combined Utilities System, 6.00% Revenue Bonds
(Callable 5/1/2004 @102)/(MBIA Insured)/(Original Issue Yield:
6.10%), 5/1/2014 AAA 103,228
105,000 Greensboro, NC, 6.65% Certificate of Participation (Coliseum
Arena Expansion Project)/(Callable 12/1/2001 @102)/(Original
Issue Yield: 6.70%), 12/1/2004 AA 115,852
100,000 Greenville, NC, Combined Enterprise System, 5.70% Revenue Bonds
(Callable 9/1/2004 @102)/(Original Issue Yield: 5.75%), 9/1/2006 A+ 103,863
75,000 Harnett County, NC, 5.90% Certificate of Participation (AMBAC
Insured), 12/1/2000 AAA 79,877
600,000 High Point, NC, 5.60% GO UT Revenue Bonds (Callable
3/1/2005 @101 1/2), 3/1/2008 AA 626,382
100,000 Martin County, NC, Industrial Facilities, 6.80% Pollution Control
Revenue Bonds (Solid Waste Disposal-Weyerhaeuser)/ (Callable
5/1/2004 @102)/(Subject to AMT), 5/1/2024 A2 105,309
100,000 Mecklenburg County, NC, 5.90% GO UT Refunding Bonds (Callable
3/1/2002 @101), 3/1/2004 AAA 107,474
100,000 Mecklenburg County, NC, Public Improvements, 6.25% GO UT Bonds,
1/1/2010, Prerefunded 1/1/2002 @102 AAA 110,457
505,000 Monroe, NC, Combined Enterprise System, 6.00% Revenue Bonds
(Callable 3/1/2004 @102)/(Original Issue Yield: 6.20%), 3/1/2019 A 512,939
100,000 North Carolina Educational Facilities, 6.00% GO Revenue Refunding
Bonds (Davidson College Project)/(Callable
12/1/2002 @102)/(Original Issue Yield: 6.20%), 12/1/2012 AA- 102,841
</TABLE>

<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
<C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Long-Term Municipal Securities--continued
$ 100,000 North Carolina HFA, 6.60% Revenue Bonds (Series Z)/ (Callable
9/1/2004 @102)/(Subject to AMT), 9/1/2026 Aa $ 102,217
20,000 North Carolina HFA, 6.90% Revenue Refunding Bonds (Series
B)/(Callable 7/1/2002 @102)/(FHA Insured), 7/1/2024 Aa 20,931
50,000 North Carolina Medical Care Community, 6.125% Revenue Refunding
Bonds (Rex Hospital Project)/(Callable 6/1/2003 @102)/(Original
Issue Yield: 6.219%), 6/1/2010 A1 51,220
850,000 North Carolina Medical Care Community, 7.375% Revenue Refunding
Bonds (Presbyterian Hospital Project)/(Original Issue Yield:
7.417%), 10/1/2020, Prerefunded 10/1/2000 @102 AAA 976,752
115,000 North Carolina Municipal Power Agency, 5.90% Revenue Refunding
Bonds (No. 1 Catawba Electric)/(Original Issue Yield: 5.95%),
1/1/2003 A 119,621
100,000 North Carolina Municipal Power Agency, 7.875% Revenue Refunding
Bonds, 1/1/2019, Prerefunded 1/1/1998 @102 AAA 110,465
1,000,000 North Carolina State, 4.80% GO UT Refunding Bonds (Prison
Facilities)/(Series C)/(Callable 3/1/2002 @102), 3/1/2009 AAA 954,350
400,000 Raleigh, NC, 6.40% GO UT Refunding Bonds (Callable
3/1/2001 @102), 3/1/2006 AAA 435,348
250,000 Rutherford County, NC, 5.10% GO UT Refunding Bonds (Callable
6/1/2003 @102)/(MBIA Insured), 6/1/2009 AAA 245,343
50,000 University of North Carolina, Utility System, 7.30% Revenue
Bonds, 8/1/2011, Prerefunded 8/1/1996 @103 AAA 53,314
650,000 Wake County, NC, 4.70% GO UT Refunding Bonds (Callable 4/1/2003
@101), 4/1/2005 AAA 637,917
75,000 Wilmington, NC, Water Utilities, 5.60% GO UT Revenue Bonds
(Callable 6/1/2004 @102), 6/1/2010 A1 76,374
-------------
Total Long-Term Municipal Securities
(identified cost $10,235,544) 10,651,537
-------------
Short-Term Municipal Securities--5.4%
400,000 Alamance County, NC, Industrial Facilities, Daily VRDNs Pollution
Control Revenue Bonds (Science Manufacturing, Inc.
Project)/(Credit Lyonnais LOC) A1 400,000
</TABLE>

<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
<C> <S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Short-Term Municipal Securities--continued
$ 245,000 Halifax County, NC, Industrial Facilities, Daily VRDNs Pollution
Control Revenue Bonds (LG & E Roanoke)/(Credit Suisse LOC) AA+ $ 245,000
-------------
Total Short-Term Municipal Securities
(at amortized cost) 645,000
-------------
Open-end Investment Company--2.3%
266,099 Fidelity Tax-Exempt Money Market Fund (at net asset value) 266,099
-------------
Total Investments (identified cost $11,146,643) $ 11,562,636+
-------------
</TABLE>

* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings.

+ The cost of investments for federal tax purposes amounts to $11,146,643. The
unrealized appreciation of investments on a federal tax basis amounts to
$415,993 at May 31, 1995.

Note: The categories of investments are shown as a percentage of net assets
($11,851,700) at
May 31, 1995.

The following abbreviations are used throughout this portfolio:

AMBAC--American Municipal Bond Assurance Corporation
AMT--Alternative Minimum Tax
FGIC--Financial Guaranty Insurance Company
FHA--Federal Housing Administration
FNMA--Federal National Mortgage Association
GO--General Obligation
HFA--Housing Finance Agency
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance
UT--Unlimited Tax

(See Notes which are an integral part of the Financial Statements)

MAY 31, 1995 (UNAUDITED)

<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (identified and tax cost $11,146,643) $ 11,562,636
Cash 903
Income receivable 157,998
Receivable for shares sold 153,589
-------------
Total assets 11,875,126
Liabilities:
Income distribution payable $ 12,105
Accrued expenses 11,321
---------
Total liabilities 23,426
-------------
Net Assets for 1,105,303 shares outstanding $ 11,851,700
-------------
Net Assets Consists of:
Paid-in capital $ 11,432,034
Net unrealized appreciation of investments 415,993
Accumulated net realized gain on investments 3,673
-------------
Total Net Assets $ 11,851,700
-------------
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Net Asset Value Per Share ($11,851,700 / 1,105,303 shares outstanding) $10.72
-------------
Offering Price Per Share (100/95.50 of $10.72)* $11.23
-------------
</TABLE>

*See 'What Shares Cost' in the Prospectus.

(See Notes which are an integral part of the Financial Statements)

PERIOD ENDED MAY 31, 1995 (UNAUDITED)*

<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest $ 148,136
Expenses:
Investment advisory fee $ 21,542
Administrative personnel and services fee 2,588
Custodian fees 574
Transfer agent and dividend disbursing agent fees and expenses 3,762
Trustees' fees 126
Legal fees 280
Portfolio accounting fees 12,624
Printing and postage 4,085
Insurance premiums 1,214
Miscellaneous 1,462
---------
Total expenses 48,257
Deduct--
Waiver of investment advisory fee $ 17,234
Reimbursement of other operating expenses 6,608
---------
Total waivers/reimbursements 23,842
---------
Net expenses 24,415
----------
Net investment income 123,721
----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 3,673
Net change in unrealized appreciation of investments 415,993
----------
Net realized and unrealized gain on investments 419,666
----------
Change in net assets resulting from operations $ 543,387
----------
</TABLE>

*For the period from December 26, 1994 (date of initial public investment) to
May 31, 1995.

(See Notes which are an integral part of the Financial Statements)

<TABLE>
<CAPTION>
Period Ended
May 31, 1995*
(unaudited)
<S> <C>
- ---------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 123,721
Net realized gain on investments ($3,673 net gain as computed for federal tax
purposes) 3,673
Net change in unrealized appreciation of investments 415,993
-------------------
Change in net assets resulting from operations 543,387
-------------------
Distributions to Shareholders--
Distributions from net investment income (123,721)
-------------------
Share Transactions--
Proceeds from sale of shares 11,463,716
Net asset value of shares issued to shareholders in payment of distributions
declared 90,050
Cost of shares redeemed (121,732)
-------------------
Change in net assets resulting from share transactions 11,432,034
-------------------
Change in net assets 11,851,700
Net Assets:
Beginning of period --
End of period $ 11,851,700
-------------------
</TABLE>

*For the period from December 26, 1994 (date of initial public investment) to
May 31, 1995.

(See Notes which are an integral part of the Financial Statements)

MAY 31, 1995 (UNAUDITED)

(1) ORGANIZATION

The Biltmore Municipal Funds (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. The Trust consists of three non-diversified portfolios. The
financial statements included herein present only those of Biltmore North
Carolina Municipal Bond Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.

(2) SIGNIFICANT ACCOUNTING POLICIES

E. OTHER--Investment transactions are accounted for on the trade date.

(3) SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Board of Trustees ("Trustees") to issue an
unlimited number of full and fractional shares of beneficial interest (without
par value). Transactions in shares were as follows:

<TABLE>
<CAPTION>
Period Ended
May 31, 1995*
<S> <C>
- ---------------------------------------------------------------------------------------------------------
Shares sold 1,108,368
Shares issued to shareholders in payment of distributions declared 8,541
Shares redeemed (11,606)
-------------------
Net change resulting from share transactions 1,105,303
-------------------
</TABLE>

*For the period from December 26, 1994 (date of initial public investment) to
May 31, 1995.

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Wachovia Bank of North Carolina, N.A., the Fund's
investment adviser (the "Adviser"), is entitled to receive for its services an
annual investment advisory fee equal to 0.75 of 1% of the Fund's average daily
net assets. The Adviser may voluntarily choose to waive a portion of its fee and
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and reimbursement at any time at its sole
discretion.

SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with FAS, the Fund will pay FAS up to 0.25 of 1% of average daily net assets of
the Fund for the period. This fee is to obtain certain services for shareholders
and to maintain shareholder accounts. For the period ended May 31, 1995, the
Fund did not incur a shareholder services fee.

TRANSFER AND DIVIDEND DISBURSING AGENT, PORTFOLIO ACCOUNTING AND CUSTODIAN
FEES--Federated Services Company ("FServ") serves as transfer and dividend
disbursing agent for the Fund. The fee is based on the size, type, and number of
accounts and transactions made by shareholders.

FServ also maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average net assets for the period,
plus out-of-pocket expenses.

Wachovia Bank of North Carolina, N.A., is the Fund's custodian for which it
receives a fee. The fee is based on the level of the Fund's average net assets
for the period, plus out-of-pocket expenses.

GENERAL--Certain of the Officers of the Trust are Officers and Directors or
Trustees of the above companies.

(5) INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1995, were as follows:

<TABLE>
<S> <C>
Purchases $ 10,395,614
-------------
Sales $ 163,253
-------------
</TABLE>

(6) CONCENTRATION OF CREDIT RISK

Since the Fund invests a substantial portion of its assets in issuers located in
one state, it will be more susceptible to factors adversely affecting issuers in
that state than would be a comparable general tax-exempt mutual fund. In order
to reduce the credit risk associated with such factors, at May 31, 1995, 31.3%
of the securities in the Fund's portfolio of investments were backed by letters
of credit or bond insurance of various financial institutions and financial
guaranty assurance agencies. The value of investments insured by or supported
(backed) by a letter of credit from any one institution or agency did not exceed
15.2% of total investments.

D. Please replace the references to Kirkpatrick & Lockhart on page 8 and the
outside back cover with Kirkpatrick & Lockhart LLP.

E. Please replace the references to Piper & Marbury on page 8 and the outside
back cover with Piper & Marbury L.L.P.

Prospectus

December 10, 1994

The shares of Biltmore North Carolina Municipal Bond Fund (the "Fund")
offered by this prospectus represent interests in a non-diversified
portfolio of securities which is an investment portfolio of The
Biltmore Municipal Funds (the "Trust"), an open-end management
investment company (a mutual fund). The investment objective of the
Fund is to provide current income which is exempt from federal regular
income tax and the income taxes imposed by the State of North Carolina.
The Fund invests primarily in a portfolio of municipal securities which
are exempt from federal regular income tax and the North Carolina state
income taxes ("North Carolina Municipal Securities"). These securities
include those issued by or on behalf of the State of North Carolina and
North Carolina political subdivisions and municipalities, as well as
those issued by states, territories, and possessions of the United
States which are exempt from federal regular income tax and the North
Carolina state income taxes. In addition, the Fund intends to qualify
as an investment exempt from the North Carolina Intangible Personal
Property tax.

The shares offered by this prospectus are not deposits or obligations
of Wachovia Bank of North Carolina, N.A. or its affiliates, are not
endorsed or guaranteed by Wachovia Bank of North Carolina, N.A. or its
affiliates, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency.
Investment in these shares involves investment risks, including the
possible loss of principal.

This prospectus contains the information you should read and know
before you invest in the Fund. Keep this prospectus for future
reference.

Biltmore North Carolina
Municipal Bond Fund
(A Portfolio of The Biltmore Municipal Funds)

The Fund has also filed a Statement of Additional Information dated
December 10, 1994 with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy
of the Statement of Additional Information free of charge, obtain other
information, or make inquiries about the Fund by calling 1-800-994-4414
or writing The Biltmore Service Center, 101 Greystone Boulevard,
SC-9215, Columbia, South Carolina 29226.

These securities have not been approved or disapproved by the
securities and exchange commission or any state securities commission
nor has the securities and exchange commission or any state securities
commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.

- ---------------------------------------------------
- ---------------------------------------------------
TABLE OF CONTENTS

- ---------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ---------------------------------------------------
GENERAL INFORMATION 2
- ---------------------------------------------------
INVESTMENT INFORMATION 2

Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Characteristics 3
Participation Interests 3
Variable Rate Municipal Securities 3
Municipal Leases 3
Investing in Securities of
Other Investment Companies 3
Restricted and Illiquid Securities 4
When-Issued and Delayed Delivery
Transactions 4
Lending of Portfolio Securities 4
Temporary Investments 4
North Carolina Municipal Securities 4
Municipal Bond Insurance 5
Investment Risks 6
Non-Diversification 6
Investment Limitation 7
- ---------------------------------------------------
THE BILTMORE MUNICIPAL FUNDS INFORMATION 7
Management of The Biltmore
Municipal Funds 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Distribution of Fund Shares 8
Shareholder Servicing Arrangements 8
Administration of the Fund 8
Administrative Services 8
Custodian 8
Transfer Agent, Dividend Disbursing
Agent and Portfolio Recordkeeper 8
Legal Services 8
Independent Auditor 8
Expenses of the Fund 8
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NET ASSET VALUE 9
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INVESTING IN THE FUND 9

Share Purchases 9
Through the Trust Divisions of the
Wachovia Banks 9
Through Wachovia Investments, Inc. 9
By Mail 9
By Wire 9
Through Authorized Broker/Dealers 10
Minimum Investment Required 10
What Shares Cost 10
Purchases at Net Asset Value 10
Sales Charge Reallowance 10
Reducing the Sales Charge 11
Quantity Discounts and Accumulated
Purchases 11
Letter of Intent 11
Concurrent Purchases 11
Reinvestment Privilege 11
Systematic Investment Program 11
Certificates and Confirmations 12
Dividends 12
Capital Gains 12
Exchange Privilege 12
Exchange by Telephone 13
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REDEEMING SHARES 13
By Telephone 13
By Mail 13
Systematic Withdrawal Program 14
Accounts with Low Balances 14
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SHAREHOLDER INFORMATION 14
Voting Rights 14
Massachusetts Business Trusts 15
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EFFECT OF BANKING LAWS 15
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TAX INFORMATION 15
Federal Income Tax 15
North Carolina Taxes 16
Other State and Local Taxes 17
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PERFORMANCE INFORMATION 17
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ADDRESSES BACK COVER

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SUMMARY OF FUND EXPENSES

SHAREHOLDER TRANSACTION EXPENSES

ANNUAL FUND OPERATING EXPENSES*

(As a percentage of projected average net assets)

(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the investment adviser. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.75%.

(2) Other Expenses are 0.84% absent the voluntary waiver by the administrator.
The administrator can terminate the voluntary waiver at any time at its
sole discretion.

(3) The Fund has no present intention of paying or accruing the shareholder
servicing agent fee during the fiscal year ending November 30, 1995. If the
Fund were paying or accruing the shareholder servicing agent fee, the Fund
would be able to pay up to 0.25 of 1% of the Fund's average daily net
assets for the shareholder servicing agent fee. See "The Biltmore Municipal
Funds Information."

(4) The Total Fund Operating Expenses are estimated to be 1.59%, absent the
anticipated voluntary waivers by the Fund's adviser and administrator.

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GENERAL INFORMATION

The Biltmore Municipal Funds (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated August 15, 1990. The
Declaration of Trust permits The Biltmore Municipal Funds to offer separate
series of shares of beneficial interest representing interests in separate
portfolios of securities. This prospectus relates only to The Biltmore Municipal
Funds' North Carolina municipal securities portfolio, known as Biltmore North
Carolina Municipal Bond Fund (the "Fund"). The shares in any one portfolio may
be offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") has not established classes of shares of the Fund. The
Fund is designed primarily for customers of the Wachovia Bank of North Carolina,
N.A. and its correspondents or affiliates who desire a convenient means of
accumulating an interest in a professionally managed, non-diversified portfolio
investing primarily in municipal bonds. The Wachovia Bank of North Carolina,
N.A. is the investment adviser to the Fund. A minimum initial investment of $500
is required. Subsequent investments must be in amounts of at least $100. The
Fund is not likely to be a suitable investment for non-North Carolina taxpayers
or for retirement plans since it intends to invest primarily in North Carolina
Municipal Securities.

Fund shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value.

The other portfolios in the Trust are Biltmore Georgia Municipal Bond Fund and
South Carolina Municipal Bond Fund (collectively, hereinafter referred to as the
"Funds").

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INVESTMENT INFORMATION

INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax and the income tax imposed by the State
of North Carolina. In addition, the Fund intends to qualify as an investment
substantially exempt from the North Carolina Intangible Personal Property tax
("intangibles tax"). (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Interest income of the Fund that is exempt from the income taxes
described above retains its tax-exempt status when distributed to the Fund's
shareholders. However, income distributed by the Fund may not necessarily be
exempt from state or municipal taxes in states other than North Carolina. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. The investment objective cannot be changed without approval of
shareholders. Unless indicated otherwise, the investment policies may be changed
by the Trustees without the approval of shareholders. Shareholders will be
notified before any material changes in these policies become effective.

INVESTMENT POLICIES
The Fund attempts to achieve its investment objective by investing in a
professionally managed portfolio consisting primarily of municipal securities
exempt from federal regular income tax and the North Carolina state income
taxes. As a matter of fundamental investment policy which may not be changed
without shareholder approval, the Fund will invest its assets so that, under
normal circumstances, at least 80% of its total assets are invested in
obligations, the interest income from which is exempt from federal regular
income tax and the income tax and intangibles tax imposed by the State of North
Carolina. While not a fundamental investment policy, the Fund's adviser may
consider the potential for capital appreciation in its selection of portfolio
investments.