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. 10 ........ X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 10 ........................ X
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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:
immediately upon filing pursuant to paragraph (b)
X on January 31, 1996, 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.
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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 16, 1996; or
intends to file the Notice required by that Rule on or about
; or
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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 LLP Piper & Marbury L.L.P.
1800 Massachusetts Avenue, N.W. 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-1800 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, 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..............(1-3) 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
Securities; (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.
Item 6. Capital Stock and Other
Securities...............(1-3) Dividends; Capital Gains;
Shareholder Information; Voting Rights;
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; Minimum
Investment Required; What Shares Cost;
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.
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) The Financial Statements for the
fiscal year ended November 30, 1995 are
incorporated herein by reference to each
Fund's Annual Report dated November 30,
1995. (File Nos. 33-37525 and 811-6201)
Prospectus
January 31, 1996
The shares of Biltmore South 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 South Carolina state income taxes. The Fund
invests primarily in South Carolina municipal securities.
The shares offered by this prospectus are not deposits or obligations of
Wachovia Bank of South Carolina, N.A. or its affiliates, are not endorsed or
guaranteed by Wachovia Bank of South 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 South Carolina
Municipal Bond Fund
(A Portfolio of The Biltmore Municipal Funds)
The Fund has also filed a Statement of Additional Information dated January
31,
1996 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.
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TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Municipal Securities 3
Characteristics 4
Participation Interests 4
Variable Rate Municipal Securities 4
Municipal Leases 4
Investing in Securities of Other Investment
Companies 4
Restricted Securities 4
When-Issued and Delayed Delivery
Transactions 4
Lending of Portfolio Securities 5
Temporary Investments 5
South Carolina Municipal Securities 5
Municipal Bond Insurance 5
Investment Risks 6
Non-Diversification 7
Investment Limitations 7
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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 8
Distribution of Fund Shares 8
Administration of the Fund 8
Administrative Services 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
Through Authorized Broker/Dealers 9
Minimum Investment Required 9
What Shares Cost 10
Purchases at Net Asset Value 10
Sales Charge Reallowance 10
Reducing the Sales Charge 10
Quantity Discounts and Accumulated
Purchases 10
Letter of Intent 11
Concurrent Purchases 11
Reinvestment Privilege 11
Systematic Investment Program 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 12
Exchange Privilege 12
Exchange by Telephone 12
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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
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EFFECT OF BANKING LAWS 14
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TAX INFORMATION 15
Federal Income Tax 15
South Carolina Taxes 16
Other State and Local Taxes 16
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PERFORMANCE INFORMATION 16
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ADDRESSES BACK COVER
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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 average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver) (1) 0.20%
12b-1 Fees None
Other Expenses 0.38%
Shareholder Servicing Agent Fee (2) 0.00%
Total Fund Operating Expenses (after waiver) (3) 0.58%
</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) As of the date of this prospectus, the Fund is not paying or accruing
shareholder servicing agent fees. The Fund will not pay or accrue
shareholder servicing agent fees until a separate class of shares has been
created for certain trust and institutional investors. At that time, the
Fund will be able to pay up to 0.25 of 1% of the Fund's average daily net
assets for shareholder servicing agent fees. See "The Biltmore Municipal
Funds Information."
(3) Total Fund Operating Expenses would have been 1.13% absent the voluntary
waiver described above in Note 1.
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> <C> <C>
Example 1 Year 3 Years 5 years 10 years
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period; and (3)
payment of the maximum sales load. As noted in the
table above, the Fund charges no redemption fees. $51 $63 $76 $114
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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SOUTH CAROLINA MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the year ended November 30, 1995, and on the following
table for the periods presented, is included in the Annual Report to
shareholders dated November 30, 1995, which is incorporated herein by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained free of charge from the Trust.
<TABLE>
<CAPTION>
Year Ended 11/30/95 11/30/94 11/30/93** 9/30/93 9/30/92 9/30/91*
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.05 $ 11.12 $ 11.27 $ 10.53 $ 10.17 $ 10.00
Income from investment operations
Net investment income 0.56 0.56 0.10 0.59 0.60 0.43
Net realized and unrealized gain (loss)
on investments 1.10 (1.04) (0.15) 0.74 0.36 0.17
----------- ----------- ------------- ----------- ----------- -----------
Total from investment operations 1.66 (0.48) (0.05) 1.33 0.96 0.60
----------- ----------- ------------- ----------- ----------- -----------
Less distributions
Distributions from net investment
income (0.56) (0.56) (0.10) (0.59) (0.60) (0.43)
Distributions from net realized gain
on investments (0.10) (0.03) 0.00 0.00 0.00 0.00
----------- ----------- ------------- ----------- ----------- -----------
Total distributions (0.66) (0.59) (0.10) (0.59) (0.60) (0.43)
----------- ----------- ------------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.05 $ 10.05 $ 11.12 $ 11.27 $ 10.53 $ 10.17
----------- ----------- ------------- ----------- ----------- -----------
Total Return (a) 16.97% (4.52%) (0.48%) 13.03% 9.73% 6.32%
Ratios to Average Net Assets
Expenses 0.58% 0.60% 0.55%(c) 0.55% 0.61% 0.82%(c)
Net investment income 5.23% 5.22% 5.11%(c) 5.46% 5.83% 5.73%(c)
Expense waiver/reimbursement (b) 0.55% 0.59% 0.60%(c) 0.62% 0.73% 0.86%(c)
Supplemental Data
Net assets, end of period (000 omitted) $93,725 $75,995 $83,371 $82,674 $63,139 $21,438
Portfolio turnover 15% 23% 2% 4% 0% 0%
</TABLE>
* Reflects operations for the period from January 11, 1991 (date of initial
public investment) to
September 30, 1991.
** Reflects operations for the two months ended November 30, 1993.
(a) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
Annual Report dated November 30, 1995, which can be obtained free of charge.
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GENERAL INFORMATION
The Biltmore Municipal Funds 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' South Carolina
municipal securities portfolio, known as Biltmore South Carolina Municipal Bond
Fund. The Fund is designed primarily for customers of Wachovia Bank of South
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. Wachovia Bank of South
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-South
Carolina taxpayers or for retirement plans since it intends to invest primarily
in South 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
Biltmore North 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 South Carolina state income taxes.
(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 federal regular income tax and South
Carolina state 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
South 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 Board of Trustees (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 South 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 annual interest income is exempt from federal
regular income tax and South Carolina state income tax or that at least 80% of
its total assets are invested in obligations, the interest income from which is
exempt from federal regular income tax and South Carolina state income taxes.
While not a fundamental investment policy, the Fund's investment adviser may
consider the potential for capital appreciation in the selection of portfolios
investments.
ACCEPTABLE INVESTMENTS
Municipal Securities. The municipal securities in which the Fund invests are:
obligations, including industrial development bonds, issued on behalf of the
state of South 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 investment adviser to the
Fund, exempt from both federal regular income tax and the personal income tax
imposed by
the state of South Carolina. 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.
Characteristics. The municipal securities which the Fund buys are subject to the
following quality standards:
rated "A" or above by Moody's Investors Service, Inc. ("Moody's") or by
Standard & Poor's Ratings Group ("S&P"). A description of the rating categories
is contained in the Appendix to the Statement of Additional Information;
insured by a municipal bond insurance company which is rated "AAA" by S&P or
"Aaa" by Moody's;
guaranteed at the time of purchase by the U.S. government as to the payment of
principal and interest;
fully collateralized by an escrow of U.S. government securities; or
unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Fund's adviser.
Participation Interests. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies. These participation interests would give the Fund undivided
interests in South 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 determine that
participation interests meet the prescribed quality standards for the Fund.
Variable Rate Municipal Securities. Some of the South Carolina municipal
securities which the Fund purchases may have variable interest rates. Variable
interest rates are normally based on a published interest rate or 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 investment
adviser has been instructed by the Trustees to monitor the pricing, quality, and
liquidity of the variable rate municipal securities, including participation
interests held by the Fund, on the basis of published financial information and
reports of the rating agencies and other analytical services.
Municipal Leases. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and 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. The adviser
will waive its investment advisory fee on assets invested in securities of
open-end investment companies.
RESTRICTED SECURITIES. The Fund may invest up to 10% of its net assets 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 deemed to be illiquid, the Fund will limit its
purchase together with other securities considered to be illiquid to 15% of its
net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete 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
investment adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell 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 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 up to
one-third of the value of its total assets 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
investment 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. The Fund will not
loan securities with a value in excess of one-third of the Fund's total assets.
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. The Fund normally invests its assets so that at least 80%
of its annual interest income is exempt from federal regular income tax and
South Carolina state income tax or that at least 80% of its total assets are
invested in obligations, the interest income from which is exempt from federal
regular income tax and South Carolina state income taxes. However, from time to
time on a temporary basis, or when the investment 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 investment adviser will limit temporary investments to those it considers to
be of good quality.
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 South Carolina state income tax.
SOUTH CAROLINA MUNICIPAL SECURITIES
South 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. South 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 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 investment adviser, such insurance would benefit the Fund (for example,
through improvement of portfolio quality or increased liquidity of certain
securities). The Fund's investment adviser anticipates that between 30% and 60%
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 investment 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 S&P 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 S&P or "Aaa" by Moody's.
INVESTMENT RISKS
Yields on South 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 South Carolina or its municipalities could impact the Fund's portfolio.
The Fund's concentration in securities issued by the state of South Carolina and
its political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. South Carolina's
dependence on agriculture, manufacturing and tourism leaves it vulnerable to
both the business cycle and long
term national economic trends. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of South
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 South Carolina municipal securities which meet the Fund's
quality standards may not be possible if the state of South Carolina or its
municipalities do not maintain their current credit ratings. In addition, the
issuance, tax exemption and liquidity of South 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.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, the
aggregate value of all investments in any one issuer (except U.S. government
obligations, cash, and cash items) which exceed 5% of the Fund's total assets
shall not exceed 50% of the value of its total assets.
INVESTMENT LIMITATIONS
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 up to
10% of the value of those assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following limitations, however, can be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
invest more than 5% of its total assets in industrial development bonds when
the payment of principal and interest is the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor; or
own securities of open-end or closed-end investment companies, except under
certain circumstances and subject to certain limitations described in this
prospectus, and, not exceeding 10% of its net assets.
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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 Trustees are 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 South Carolina, N.A. (formerly known as The South Carolina National
Bank), the Fund's investment 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 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 Bank may engage, for its own account or for other
accounts managed by the Bank, in other transactions involving South Carolina
municipal securities which may have adverse effects on the market for securities
in the Fund's portfolio.
ADVISER'S BACKGROUND. Wachovia Bank of South Carolina, N.A., a national banking
association headquartered in Columbia, South Carolina, is a wholly-owned
subsidiary of Wachovia Corporation. The activities of the Bank encompass a full
range of commercial banking services, including trust services. Wachovia
Corporation, a registered bank holding company, is 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.
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. The
Adviser, Wachovia Bank of North Carolina, N.A., and Wachovia Bank of Georgia,
N.A. (collectively the "Wachovia Banks") have been managing trust assets for
over 100 years, with over $19 billion in managed assets as of September 30,
1995. Wachovia Asset Management, a business unit of Wachovia Bank of North
Carolina, N.A., has served as investment adviser to another investment company,
The Biltmore Funds, since March 9, 1992. The Adviser's affiliates, Wachovia Bank
of North Carolina, N.A. and Wachovia Bank of Georgia, N.A., have served as
investment advisers to the Trust's North Carolina Municipal Bond and Georgia
Municipal Bond Funds, respectively, since their inception in December, 1994. As
part of its regular banking operations, the Adviser may make loans to public
companies. Thus, it may be possible, from time to time, for the Fund to hold or
acquire the securities of issuers which are also lending clients of the Adviser.
The lending relationship will not be a factor in the selection of securities.
Michael Peters is Vice President of Wachovia Bank of South Carolina, N.A. and an
officer of both Wachovia Bank of North Carolina, N.A. and Wachovia Bank of
Georgia, N.A. He has served as portfolio manager of the Fund since 1993. 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
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
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall aggregate at least
$50,000 for the Fund. Federated Administrative Services may choose voluntarily
to waive or reimburse a portion of its fee at any time.
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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.
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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 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 Biltmore South 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.
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.
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>
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on 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, advisory, 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 at 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
up to 4.50% of the total amount intended to be purchased in escrow (in shares)
until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
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 $30,000 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 Asset Management, a business unit of Wachovia Bank of North
Carolina, N.A., and distributed by Federated Securities Corp. The Trust consists
of the Fund, Biltmore Georgia Municipal Bond Fund and Biltmore North Carolina
Municipal Bond Fund. The Biltmore Georgia Municipal Bond Fund is advised by
Wachovia Bank of Georgia, N.A. The Biltmore North Carolina Municipal Bond Fund
is advised by Wachovia Bank of North Carolina, N.A. The Biltmore Georgia and
North Carolina Municipal Bond Funds are distributed by Federated Securities
Corp. The International Equity Fund is advised by Federated Global Research
Corp. 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.
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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.
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 three business days, but in no event
more than seven days, after receipt of a proper written redemption request.
Shareholders requesting 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 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.
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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 a 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.
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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, based on the advice of their counsel, that they may
perform the services for the Fund contemplated by their advisory agreement and
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 the Wachovia Banks 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 service provider with equivalent
abilities to the Wachovia Banks is found) as a result of any of these
occurrences.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the administrative capacities described above, or
should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the services.
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.
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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 corporation'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.
SOUTH CAROLINA TAXES
Under current South Carolina law, shareholders of the Fund who are subject to
South Carolina individual or corporate income taxes will not be subject to such
taxes on Fund dividends to the extent that such dividends qualify as either (1)
exempt-interest dividends under the Internal Revenue Code, which are derived
from interest on obligations of the state of South Carolina or any of its
political subdivisions; (2) dividends derived from interest on certain
obligations of the United States; and (3) dividends derived from interest on
obligations of any agency or instrumentality of the United States that is
prohibited by federal law from being taxed by a state or any political
subdivision of a state. To the extent that Fund dividends are attributable to
other sources, such dividends will not be exempt from South Carolina taxes.
OTHER STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from taxes in states other than
South Carolina. 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.
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PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return, and 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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
Addresses
Biltmore South Carolina 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 South Carolina, N.A.
1426 Main Street
Columbia, South Carolina 29226
Custodian Wachovia Bank of North Carolina, N.A.
Wachovia Trust Operations
301 North Main Street
Winston-Salem, North Carolina 27150
Transfer Agent, Dividend Disbursing Agent, Federated Services Company
and Portfolio Recordkeeper Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Counsel to The Biltmore Funds Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Counsel to the Independent Trustees Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
Special South Carolina Tax Counsel Sinkler & Boyd, PA
1426 Main Street
Columbia, South Carolina 29201
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 South Carolina Municipal Bond Fund Prospectus
A Non-Diversified Portfolio of The Biltmore Municipal Funds
An Open-End, Management Investment Company
January 31, 1996
822-15 (1/96)
Cusip 090313107
0120501A (1/96)
BILTMORE SOUTH 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
prospectus of Biltmore South Carolina Municipal Bond Fund (the "Fund"), a
portfolio in The Biltmore Municipal Funds (the "Trust"), dated January 31,
1996. 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 at
1800-994-4414.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1996
FEDERATED SECURITIES
CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
GENERAL INFORMATION ABOUT THE FUND TRANSFER AGENT 23
3 LEGAL SERVICES 23
INDEPENDENT AUDITORS 23
INVESTMENT OBJECTIVE AND POLICIES3
ACCEPTABLE INVESTMENTS 3
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 5
REPURCHASE AGREEMENTS 5
LENDING OF PORTFOLIO SECURITIES 6
PORTFOLIO TURNOVER 6
MUNICIPAL BOND INSURANCE 6
INVESTMENT LIMITATIONS 9
SOUTH CAROLINA INVESTMENT RISKS13
THE BILTMORE MUNICIPAL FUNDS
MANAGEMENT 15
OFFICERS AND TRUSTEES 15
FUND OWNERSHIP 19
TRUSTEES COMPENSATION 19
TRUSTEE LIABILITY 20
INVESTMENT ADVISORY SERVICES 20
ADVISER TO THE FUND 20
ADVISORY FEES 20
BROKERAGE TRANSACTIONS 21
OTHER SERVICES 22
FUND ADMINISTRATION 22
CUSTODIAN 22
PURCHASING SHARES 23
DISTRIBUTION OF SHARES 24
CONVERSION TO FEDERAL FUNDS 24
DETERMINING NET ASSET VALUE 24
VALUING MUNICIPAL BONDS 24
REDEEMING SHARES 24
REDEMPTION IN KIND 24
MASSACHUSETTS BUSINESS TRUST 25
TAX STATUS 26
THE FUND'S TAX STATUS 26
SHAREHOLDERS' TAX STATUS 26
TOTAL RETURN 27
YIELD 27
TAX-EQUIVALENT YIELD 28
TAX-EQUIVALENCY TABLE 28
PERFORMANCE COMPARISONS 30
FINANCIAL STATEMENTS 31
APPENDIX 32
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in the Trust. The Trust 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." Prior to
December 30, 1994, the Fund was known as "South Carolina Municipal Bond Fund."
Capitalized terms not otherwise defined in this Statement have the same meaning
assigned to them in the prospectus.
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 South Carolina state
income taxes. 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 the Board of Trustees ("Trustees")
will base its determination of the following factors:
o whether the lease can be terminated by the lessee;
o the potential recovery , if any, from a sale of the leased property upon
termination of the lease;
o the lessee's general credit strength (e.g., its debt, administrative,
economic and financial characteristics and prospects);
o 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
o 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 or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund`s
records at the trade date. These assets are marked to market daily and are
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.
From time to time, such as when suitable South Carolina municipal securities are
not available, the Fund may invest a portion of its assets in cash. Any portion
of the Fund's assets maintained in cash will reduce the amount of assets in
South Carolina municipal securities and thereby reduce the Fund's yield.
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
The Fund will not attempt to set or meet a portfolio turnover rate, since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objectives. For the fiscal years ended November 30, 1995
and 1994, the portfolio turnover rates were 15%, and 23%, respectively.
MUNICIPAL BOND INSURANCE
Under the Policies, 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. 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) 273-4545. As of June 1, 1995, 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, 1995, 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 wholly-owned by General Electric Capital Corporation.
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 175, Water Street, New York, New York 10038, and its
telephone number is 1-800-352-0001. As if June 1, 1995, 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. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value of
its total assets at the time of the pledge.
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.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities subject to restrictions on resale, under the Securities Act of
1933.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up to
one-third of the value of its total assets. 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 or the Trust's Declaration of Trust.
DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, straddles, spreads, or any
combination of these.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase, 25%
or more of the value of its total assets would be invested in any one
industry, or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of the
value of its assets in cash or cash items, securities issued or guaranteed
by the U.S. government, its agencies, or instrumentalities, or instruments
secured by these money market instruments, such as repurchase agreements.
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 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 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 the 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.
For purposes of its policies and limitations, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings assosiation, having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment, to be "cash items."
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets and has no present intent to do so 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.
SOUTH CAROLINA INVESTMENT RISKS
The State of South Carolina has an economy dominated from the early 1920's to
the present by the textile industry, with over one of every three manufacturing
jobs directly or indirectly related to the textile industry. However, since 1950
the economic bases of the State have become more diversified, as the trade and
service sectors and durable goods manufacturing industries have developed.
Currently, Moody's rated South Carolina general obligation bonds "Aaa" and S&P
rates such bonds "AA+." There can be no assurance that the economic conditions
on which those ratings are based will continue or that particular bond issues
may not be adversely affected by changes in economic or political conditions.
The South Carolina State Constitution mandates a balanced budget. If a deficit
occurs, the General Assembly must account for it in the succeeding fiscal year.
In addition, if a deficit appears likely, the State Budget and Control Board
(the "State Board") may reduce appropriations during the current fiscal year as
necessary to prevent the deficit. The State Constitution limits annual increases
in State employees' wages to the average growth rate of the economy of the State
and annual increases in the number of State employees to the average growth of
the population of the State.
The State Constitution requires a General Reserve Fund ("General Fund") that
equals three percent of General Fund revenue for the latest fiscal year. When
deficits have occurred, the State has funded them out of the General Fund. The
State Constitution also requires a Capital Reserve Fund ("Capital Fund") equal
to two percent of General Fund revenue. Before March 1st of each year, the
Capital Fund must be used to offset mid-year budget reductions before mandating
cuts in operating appropriations. After March 1st, the Capital Fund may be
appropriated by a special vote of the General Assembly to finance previously
authorized capital improvement bond projects, to retire bond principal or pay
interest on bonds previously issued, and to pay for capital improvements or
other nonrecurring purposes. Monies in the Capital Fund not appropriated or any
appropriation for a particular project or item that has been reduced due to
application of the monies to a year-end deficit must go back to the General
Fund.
The shutdown of the Charleston Naval Base exacted a heavy toll in North
Charleston. In addition, contractors at the Savannah River Site nuclear complex
laid off more than 4,000 workers. However, plant expansions and openings by
companies such as BMW, Michelin, AMP, and Fuji Photo have helped to mitigate
these negative economic developments.
The Fund's concentration in securities issued by the State or its subdivisions
provides a greater level of risk than an investment company which is diversified
across a larger geographic area. For example, the passage of the North American
Free Trade Agreement could result in increased competition for the State's
textile industry due to the availability of less-expensive foreign labor.
Presently, South Carolina subjects bonds issued by other states to its income
tax. If this tax was declared unconstitutional, the value of bonds in the Fund
could decline a small but measurable amount. Also, the Fund could become
slightly less attractive to potential future investors.
The Fund's investment adviser believes that the information summarized above
describes some of the more significant matters relating to the Fund. The sources
of the information are the official statements of issuers located in South
Carolina, other publicly available documents, and oral statements from various
State agencies. The Fund's investment adviser has not independently verified any
of the information contained in the official statement, other publicly available
documents, or oral statements from various State agencies.
THE BILTMORE MUNICIPAL FUNDS MANAGEMENT
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, birthdates, principal
occupations, and present positions. Each of the Trustees and officers listed
below holds an identical position with The Biltmore Funds, another investment
company. Except as listed below, none of the Trustees or officers are affiliated
with Wachovia Bank of South Carolina, N.A., Wachovia Bank of North Carolina,
N.A., Federated Investors, Federated Securities Corp., Federated Services
Company or Federated Administrative Services.
James A. Hanley
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Samuel E. Hudgins
3100 Cumberland Circle
Suite 1525
Atlanta, GA
March 4, 1929
Trustee
President, Percival Hudgins & Company, LLC (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.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924
Trustee
Real estate investor and partner; formerly, Vice Chairman, Massachusetts Mutual
Life Insurance Company.
D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930
Trustee
Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).
Charles S. Way, Jr.
200 Meeting Street
Suite 401
Charleston, S.C.
December 18, 1937
Trustee
President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chariman of the Executive Committee, Kiawah Resort Associates,
L.P.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
October 26, 1938
President and Treasurer
President and Chief Executive Officer, Federated Investors Management Company;
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, Federated
Research, and Federated Services Company; and Director, Federated Securities
Corp.
Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
February 27, 1960
Vice President and Assistant Treasurer
Senior Vice President, Federated Services Company; Director of Proprietary
Client Services and member of the Office of the President, Federated
Administrative Services; formerly Associate Corporate Counsel, Federated
Investors; Vice President and Assistant Treasurer for certain investment
companies for which Federated Securities Corp. is the principal distributor.
Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959
Secretary
Senior Corporate Counsel, Federated Investors.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEES COMPENSATION
NAME AND AGGREGATE TOTAL COMPENSATION
POSITION WITH THE COMPENSATION FROM PAID FROM THE
TRUST THE TRUST*# FUND COMPLEX+
James A. Hanley, $868 $22,725 for the Trust and
Trustee one other investment company
in the Fund Complex
Samuel E. Hudgins, $913 $23,850 for the Trust and
Trustee one other investment company
in the Fund Complex
J. Berkley Ingram, Jr., $767 $20,250 for the Trust and
Trustee one other investment company
in the Fund Complex
D. Dean Kaylor, $767 $20,250 for the Trust and
Trustee one other investment company
in the Fund Complex
Charles S. Way, Jr., $0 $0 for the Trust and
Trustee one other investment company
in the Fund Complex
* Information is furnished for the fiscal year ended November 30, 1995.
# The aggregate compensation is provided for the Trust, which is comprised of
three portfolios.
+ The information is provided for the last calendar year.
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 investment adviser is Wachovia Bank of South Carolina, N.A. (the
"Adviser") (formerly known as The South Carolina National Bank).
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.
Because of the internal controls maintained by Wachovia Banks to restrict the
flow of non-public information, Fund investments are typically made without any
knowledge of Wachovia Banks' or their affiliates' lending relationship with an
issuer.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. During the fiscal years ended November 30,
1995, 1994, the two months ended November 30, 1993, and the fiscal year ended
September 30, 1993, the Adviser earned $639,686, $624,986, $103,802, and
$531,849, respectively, of which $469,407, $488,215, $83,041, and $438,960,
respectively, was voluntarily waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2-1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1-1/2% per year of the
remaining average net assets, the Adviser will waive its fee or reimburse
the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
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. For the fiscal years ended November 30,
1995, 1994, the two months ended November 30, 1993, and the fiscal year ended
September 30, 1993, no brokerage commissions were paid by the Fund.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus. During the fiscal years ended November 30, 1995, 1994, the two
months ended November 30, 1993, and the fiscal year ended September 30, 1993,
the Fund's administrator earned $76,587, $101,152, $20,760 and $106,370
respectively, of which $3,488 was voluntarily waived during the fiscal year
ended November 30, 1994.
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
Federated Services Company, Pittsburgh, Pennsylvania, 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 provides certain accounting and recordkeeping services with respect
to the Fund's portfolio investments. The fee is based on the level of the Fund's
average net assets for the period plus out-of-pocket expenses.
LEGAL SERVICES
Legal services for the Fund are provided by Kirkpatrick & Lockhart LLP,
Washington, D.C. Piper & Marbury L.L.P., Washington, D.C., serves as counsel to
the independent Trustees. Special South Carolina tax counsel to the Fund is
Sinkler & Boyd, P.A., Columbia, South Carolina.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
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, 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. To the extent available,
such securities will be readily marketable.
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.
Redemption in kind is not as liquid as cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940, which obligates the Fund 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. Any redemption beyond this amount will also be in
cash unless the Trustees determine that payments should be in kind.
MASSACHUSETTS BUSINESS TRUST
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.
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:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o 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:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan 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 Fund's average annual total returns for the one-year period ended
November 30, 1995, and for the period from January 11, 1991 (start of
performance) to November 30, 1995, were 11.75% and 7.12% , respectively.
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 charge, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
YIELD
The Fund's yield for the thirty-day period ended November 30, 1995 ,was
4.34%.
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 maximum offering price 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 Fund's tax-equivalent yield for the thirty-day period ended November 30,
1995 was 7.00%, assuming a 31% tax bracket.
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.
TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF SOUTH CAROLINA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
22.00% 35.00% 38.00% 43.00% 46.60%
JOINT $1- $40,401- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
Tax-Exempt
Yield Taxable Yield Equivalent
2.50% 3.21% 3.85% 4.03% 4.39% 4.68%
3.00% 3.85% 4.62% 4.84% 5.26% 5.62%
3.50% 4.49% 5.38% 5.65% 6.14% 6.55%
4.00% 5.13% 6.15% 6.45% 7.02% 7.49%
4.50% 5.77% 6.92% 7.26% 7.89% 8.43%
5.00% 6.41% 7.69% 8.06% 8.77% 9.36%
5.50% 7.05% 8.46% 8.87% 9.65% 10.30%
6.00% 7.69% 9.23% 9.68% 10.53% 11.24%
6.50% 8.33% 10.00% 10.48% 11.40% 12.17%
7.00% 8.97% 10.77% 11.29% 12.28% 13.11%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state and
local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in the Fund's expenses; and
ovarious other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and the maximum offering price (i.e., net asset value plus any sales charge)
per share fluctuate daily. Both net earnings and offering price per share are
factors in the computation of yield and total return.
From time to time, the Fund may advertise its performance 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:
oLIPPER 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.
oMORNINGSTAR 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.
oLEHMAN BROTHERS FIVE-YEAR STATE GENERAL OBLIGATIONS BONDS is an index
comprised of all state general obligation debt issues with maturities between
four and six years. 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.
oLEHMAN BROTHERS THREE-YEAR STATE GENERAL OBLIGATIONS BONDS is an index
comprised of the same issues noted above except that the maturities range
between two and four years. Index figures are total returns calculated for the
same periods as listed above.
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 the sales charge.
FINANCIAL STATEMENTS
The financial statements for Biltmore South Carolina Municipal Bond Fund for the
fiscal year ended November 30, 1995, are incorporated herein by
reference to the Annual Report to Shareholders of Biltmore South Carolina
Municipal Bond Fund dated November 30, 1995 (File Nos. 33-37525 and 811-6201). A
copy of the Annual Report may be obtained without charge by contacting the Fund
at the address located on the back cover of the prospectus.
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.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC. 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 applies numerical modifiers 1, 2 and 3 in each generic rating
classification from AA through B in its corporate or municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Prospectus
January 31, 1996
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
Cusip 090313107
0120501B (1/96)
(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 January
31,
1996 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.
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TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Characteristics 4
Participation Interests 4
Variable Rate Municipal Securities 4
Municipal Leases 4
Investing in Securities of
Other Investment Companies 4
Restricted and Illiquid Securities 5
When-Issued and Delayed Delivery
Transactions 5
Lending of Portfolio Securities 5
Temporary Investments 5
North Carolina Municipal Securities 5
Municipal Bond Insurance 6
Investment Risks 7
Non-Diversification 7
Investment Limitation 8
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THE BILTMORE MUNICIPAL FUNDS INFORMATION 8
Management of The Biltmore
Municipal Funds 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Fund Shares 9
Shareholder Servicing Arrangements 9
Administration of the Fund 9
Administrative Services 9
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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 10
Through Wachovia Investments, Inc. 10
By Mail 10
Through Authorized Broker/Dealers 10
Minimum Investment Required 10
What Shares Cost 10
Purchases at Net Asset Value 11
Sales Charge Reallowance 11
Reducing the Sales Charge 11
Quantity Discounts and Accumulated
Purchases 11
Letter of Intent 11
Concurrent Purchases 11
Reinvestment Privilege 12
Systematic Investment Program 12
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 14
Systematic Withdrawal Program 14
Accounts with Low Balances 15
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SHAREHOLDER INFORMATION 15
Voting Rights 15
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EFFECT OF BANKING LAWS 15
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TAX INFORMATION 16
Federal Income Tax 16
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
<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)
<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.14%
12b-1 Fees None
Other Expenses (after waivers) (2) 0.71%
Shareholder Servicing Agent Fee (3) 0.00%
Total Fund Operating Expenses (after waivers) (4) 0.85%
</TABLE>
(1) The management fee has been reduced to reflect the 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 would have been 1.29% absent the voluntary waivers by the
administrator and portfolio accountant. The administrator and portfolio
accountant can terminate these voluntary waivers at any time at its sole
discretion.
(3) As of the date of this prospectus, the Fund is not paying or accruing
shareholder servicing agent fees. The Fund will not pay or accrue
shareholder servicing agent fees until a separate class of shares has been
created for certain trust and institutional investors. At that time, the
Fund will be able to pay up to 0.25 of 1% of the Fund's average daily net
assets for shareholder servicing agent fees. See "The Biltmore Municipal
Funds Information."
(4) Total Fund Operating Expenses would have been 2.04% absent the voluntary
waivers described above in Notes 1 and 2.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER 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> <C> <C>
Example 1 Year 3 Years 5 Years 10 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. $53 $71 $90 $145
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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BILTMORE NORTH CAROLINA MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 15, 1995, on the Fund's
financial statements for the year ended November 30, 1995, and on the following
table for the period presented is included in the Annual Report to shareholders
dated November 30, 1995, which is incorporated herein by reference. This table
should be read in conjunction with the Fund's financial statements and notes
thereto, which may be obtained free of charge from the Trust.
<TABLE>
<CAPTION>
Period Ended November 30, 1995(a)
<S> <C>
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NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Income from investment operations
Net investment income 0.43
Net realized and unrealized gain (loss) on investments 0.99
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Total from investment operations 1.42
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Less distributions
Distributions from net investment income (0.43)
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NET ASSET VALUE, END OF PERIOD $ 10.99
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Total Return (b) 14.40%
Ratios to Average Net Assets
Expenses 0.85%*
Net investment income 4.40%*
Expense waiver/reimbursement (c) 1.19%*
Supplemental Data
Net assets, end of period (000 omitted) $18,679
Portfolio turnover 19 %
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 26, 1994 (date of initial
public investment) to November 30, 1995.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Fund's performance is contained in the Fund's
Annual Report dated November 30, 1995, which can be obtained free of charge.
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GENERAL INFORMATION
The Biltmore Municipal Funds 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 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
Biltmore 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. (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 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. 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. 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 ("S&P") (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 S&P 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 S&P 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 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.
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 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.
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 North Carolina state income tax.
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.
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 investment 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 S&P 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 S&P 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.
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.
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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 Trustees are 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 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.
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 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 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. The
Adviser, 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 over $19 billion in managed assets as of September 30,
1995. Wachovia Asset Management, 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 affiliates, Wachovia Bank of South Carolina, N.A.
and Wachovia Bank of Georgia, N.A., have served as investment advisers to the
Trust's South Carolina Municipal Bond and Georgia Municipal Bond Funds,
respectively, since their inception. As part of its regular banking operations,
the Adviser may make loans to public companies and municipalities. Thus, it may
be possible, from time to time, for the Fund to hold or acquire the securities
of issuers which are also lending clients of the Adviser. The lending
relationship will not be a factor in the selection of securities.
Michael Peters is Vice President of Wachovia Bank of North Carolina, N.A. and an
officer of both Wachovia Bank of Georgia, N.A. and Wachovia Bank of South
Carolina, N.A. He has served as the portfolio manager of the Fund since the
Fund's inception in December of 1994. 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
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall 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.
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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.
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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 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 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.
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.
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>
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on 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 at 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
up to 4.50% of the total amount intended to be purchased in escrow (in shares)
until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
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 $30,000 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 Asset Management, a business unit of the Adviser, and distributed by
Federated Securities Corp. The Trust consists of the Fund, Biltmore Georgia
Municipal Bond Fund and Biltmore South Carolina Municipal Bond Fund. The
Biltmore 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 Biltmore
South Carolina Municipal Bond Funds are distributed by Federated Securities
Corp. The International Equity Fund is advised by Federated Global Research
Corp. 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.
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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.
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 three business days, but in no event
more than seven days, after receipt of a proper written redemption request.
Shareholders requesting 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 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.
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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.
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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 their advisory agreement and 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 the Wachovia Banks 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 service provider with equivalent abilities to the
Wachovia Banks is found) as a result of any of these occurrences.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the administrative capacities described above, or
should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the services.
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.
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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 corporation'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.
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 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.
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 North Carolina income taxes.
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.
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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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
Addresses
Biltmore North Carolina 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 North Carolina, N.A.
301 North Main Street
Winston-Salem, North Carolina 27150
Custodian Wachovia Bank of North Carolina, N.A.
Wachovia Trust Operations
301 North Main Street
Winston-Salem, North Carolina 27150
Transfer Agent, Dividend Disbursing Agent, Federated Services Company
and Portfolio Recordkeeper Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Counsel to The Biltmore Funds Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Counsel to the Independent Trustees Piper & Marbury L.L.P.
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 North Carolina Municipal Bond Fund Prospectus
A Non-Diversified Portfolio of The Biltmore Municipal Funds
An Open-End, Management Investment Company
January 31, 1996
822-25 (1/96)
Cusip 090313305
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
prospectus of Biltmore North Carolina Municipal Bond Fund (the "Fund"), a
portfolio in The Biltmore Municipal Funds (the "Trust"), dated
January 31, 1996 . 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 at 1-800-994-4414.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1996
FEDERATED SECURITIES
CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
GENERAL INFORMATION ABOUT THE
FUND 1
INVESTMENT OBJECTIVE AND POLICIES1
ACCEPTABLE INVESTMENTS 1
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 3
REPURCHASE AGREEMENTS 3
LENDING OF PORTFOLIO SECURITIES 4
PORTFOLIO TURNOVER 4
MUNICIPAL BOND INSURANCE 5
INVESTMENT LIMITATIONS 8
NORTH CAROLINA INVESTMENT RISKS11
THE BILTMORE MUNICIPAL FUNDS
MANAGEMENT 13
OFFICERS AND TRUSTEES 13
FUND OWNERSHIP 16
TRUSTEES COMPENSATION 17
TRUSTEE LIABILITY 18
INVESTMENT ADVISORY SERVICES 18
ADVISER TO THE FUND 18
ADVISORY FEES 18
BROKERAGE TRANSACTIONS 19
OTHER SERVICES 20
FUND ADMINISTRATION 20
CUSTODIAN 20
TRANSFER AGENT 21
LEGAL SERVICES 21
INDEPENDENT AUDITORS 21
PURCHASING SHARES 21
DISTRIBUTION OF SHARES 21
CONVERSION TO FEDERAL FUNDS 22
DETERMINING NET ASSET VALUE 22
VALUING MUNICIPAL BONDS 22
REDEEMING SHARES 22
REDEMPTION IN KIND 22
MASSACHUSETTS BUSINESS TRUST 23
TAX STATUS 24
THE FUND'S TAX STATUS 24
SHAREHOLDERS' TAX STATUS 24
TOTAL RETURN 25
YIELD 25
TAX-EQUIVALENT YIELD 26
TAX-EQUIVALENCY TABLE 13
PERFORMANCE COMPARISONS 28
FINANCIAL STATEMENTS 30
APPENDIX 30
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in the Trust. The Trust 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."
Capitalized terms not otherwise defined in this Statement have the same meaning
assigned to them in the prospectus.
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. 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
("Trustees"), will base its determination on the following factors:
owhether the lease can be terminated by the lessee;
othe potential recovery, if any, from a sale of the leased property upon
termination of the lease;
othe lessee's general credit strength (e.g., its debt, administrative,
economic and financial characteristics and prospects);
othe 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
oany 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
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. 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. The Fund's portfolio turnover rate for the period from
December 26, 1994 (date of initial public investment) to November 30, 1995 was
19%.
MUNICIPAL BOND INSURANCE
Under the Policies, 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. 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) 273-4545. As of June 1, 1995, 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, 1995, 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 wholly-owned by General Electric Capital Corporation.
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 175 Water Street, New York, New York 10038, and its
telephone number is 1-800-352-0001. As of June 1, 1995, 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.
For purposes of its policies and limitations, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association, having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment, to be "cash items."
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, gas, or other mineral leases.
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. North Carolina ranks among the top ten states in terms of
economic growth, as measured by job and personal income growth. 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 November 1995, North Carolina reported an unemployment
rate of 4.2% versus the national average of 5.6%.
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, 1993 and in
1994. Available unreserved balances and budget stabilization reserves are
projected to $359 million for 1995. 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 Fund's investment adviser believes that the information summarized above
describes some of the more significant matters relating to the Fund. The sources
of the information are the official statements of issuers located in North
Carolina, other publicly available documents, and oral statements from various
State agencies. The Fund's investment adviser has not independently verified any
of the information contained in the official statement, other publicly available
documents, or oral statements from various State agencies.
THE BILTMORE MUNICIPAL FUNDS MANAGEMENT
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, birthdates, 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.
James A. Hanley
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Samuel E. Hudgins
3100 Cumberland Circle
Suite 1525
Atlanta, GA
March 4, 1929
Trustee
President, Percival Hudgins & Company, LLC (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.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924
Trustee
Real estate investor and partner; formerly, Vice Chairman, Massachusetts Mutual
Life Insurance Company.
D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930
Trustee
Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).
Charles S. Way, Jr.
200 Meeting Street
Suite 401
Charleston, S.C.
December 18, 1937
Trustee
President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chairman of the Executive Committee, Kiawah Resort Associates,
L.P.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
October 26, 1938
President and Treasurer
President and Chief Executive Officer, Federated Investors Management Company;
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, Federated
Research, and Federated Services Company; and Director, Federated Securities
Corp.
Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
February 27, 1960
Vice President and Assistant Treasurer
Senior Vice President, Federated Services Company; Director of Proprietary
Client Services and member of the Office of the President, Federated
Administrative Services; formerly Associate Corporate Counsel, Federated
Investors; Vice President and Assistant Treasurer for certain investment
companies for which Federated Securities Corp. is the principal distributor.
Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959
Secretary
Senior Corporate Counsel, Federated Investors.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 10, 1996, the following shareholder of record owned 5% or more of
the outstanding shares of the Fund: Wachovia Securities Inc., for the benefit
of 1007900119, Winston-Salem, North Carolina, owned approximately 101,200 shares
(5.54%).
TRUSTEES COMPENSATION
NAME AND AGGREGATE TOTAL COMPENSATION
POSITION WITH THE COMPENSATION FROM PAID FROM THE
TRUST THE TRUST*# FUND COMPLEX+
James A. Hanley, $868 $22,725 for the Trust and
Trustee one other investment company
in the Fund Complex
Samuel E. Hudgins, $913 $23,850 for the Trust and
Trustee one other investment company
in the Fund Complex
J. Berkley Ingram, Jr., $767 $20,250 for the Trust and
Trustee one other investment company
in the Fund Complex
D. Dean Kaylor, $767 $20,250 for the Trust and
Trustee one other investment company
in the Fund Complex
Charles S. Way, Jr., $0 $0 for the Trust and
Trustee one other investment company
in the Fund Complex
* Information is furnished for the fiscal year ended November 30, 1995
# The aggregate compensation is provided for the Trust, which is comprised of
three portfolios.
+ The information is provided for the last calendar year.
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 investment 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, the Adviser receives an annual investment advisory
fee as described in the prospectus. For the period from December 26, 1994 (date
of initial public investment) to November 30, 1995, the adviser earned $77,710,
of which $63,053, was voluntarily waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2-1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1-1/2% per year of the
remaining average net assets, the Adviser will waive its fee or reimburse
the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
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. For the period from December 26, 1994 (date of
initial public investment) to November 30, 1995, no brokerage commissions were
paid by the Fund.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus. For the period from December 26, 1994 (date of initial public
investment) to November 30, 1995, the Fund incurred costs for administrative
services of $50,000, of which, $40,270 was voluntarily waived.
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
Federated Services Company, Pittsburgh, Pennsylvania, 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 provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments. The fee is based on
the level of the Fund's average net assets for the period plus out-of-pocket
expenses.
LEGAL SERVICES
Legal services for the Fund are provided by Kirkpatrick & Lockhart LLP,
Washington, D.C. Piper & Marbury L.L.P., Washington, D.C., serves as counsel to
the independent Trustees.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
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 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. To the extent available,
such securities will be readily marketable.
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.
Redemption in kind is not as liquid as cash redemption. If redemption is made in
kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
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. Any redemption beyond this amount will
also be in cash unless the Trustees determine that payments should be in kind.
MASSACHUSETTS BUSINESS TRUST
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.
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:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o 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:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan 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 Fund's cumulative total return for the period from December 26, 1994
(date of initial public investment) to November 30, 1995, was 9.26%.
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 charge. The Fund's total return is representative of only eleven
months investment activity since the Fund's effective date.
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 charge, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
YIELD
The Fund's yield for the thirty-day period ended November 30, 1995, was 4.07%.
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 maximum offering price 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 Fund's tax-equivalent yield for the thirty-day period ended November 30,
1995 was 6.64%, assuming a 31% tax bracket.
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.
TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF NORTH CAROLINA
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED
FEDERAL
AND STATE 22.00% 35.00% 38.75% 43.75% 47.35%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
Tax-Exempt
Yield Taxable Yield Equivalent
3.50% 4.49% 5.38% 5.71% 6.22% 6.65%
4.00% 5.13% 6.15% 6.53% 7.11% 7.60%
4.50% 5.77% 6.92% 7.35% 8.00% 8.55%
5.00% 6.41% 7.69% 8.16% 8.89% 9.50%
5.50% 7.05% 8.46% 9.98% 9.78% 10.45%
6.00% 7.69% 9.23% 9.80% 10.67% 11.40%
6.50% 8.33% 10.00% 10.61% 11.56% 12.35%
7.00% 8.97% 10.77% 11.43% 12.44% 13.30%
7.50% 9.62% 11.54% 12.24% 13.33% 14.25%
8.00% 10.26% 12.31% 13.06% 14.22% 15.19%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state and
local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator
of past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price (i.e., net asset value plus any sales charge) per
share fluctuate daily. Both net earnings and offering price per share are
factors in the computation of yield and total return.
From time to time, the Fund may advertise its performance 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:
O 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.
O 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.
O 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 charge.
FINANCIAL STATEMENTS
The financial statements for Biltmore North Carolina Municipal Bond Fund for the
period from December 26, 1994 (date of initial public investment) to November
30, 1995, are incorporated herein by reference to the Annual Report to
Shareholders of Biltmore North Carolina Municipal Bond Fund dated November 30,
1995 (File Nos. 33-37525 and 811-6201). A copy of the Annual Report may be
obtained without charge by contacting the Fund at the address located on the
back cover of the prospectus.
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.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
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:
o Leading market positions in well established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o 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:
o Leading market positions in well established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o 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.
Cusip 090313305
G00648-04(1/96)
Prospectus
January 31, 1996
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 January 31,
1996 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.
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TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Characteristics 4
Participation Interests 4
Variable Rate Municipal Securities 4
Municipal Leases 4
Investing in Securities of
Other Investment Companies 4
Restricted and Illiquid Securities 4
When-Issued and Delayed Delivery
Transactions 5
Lending of Portfolio Securities 5
Temporary Investments 5
Georgia Municipal Securities 5
Municipal Bond Insurance 6
Investment Risks 7
Non-Diversification 7
Investment Limitation 7
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THE BILTMORE MUNICIPAL FUNDS INFORMATION 8
Management of The Biltmore
Municipal Funds 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Fund Shares 9
Shareholder Servicing Arrangements 9
Administration of the Fund 9
Administrative Services 9
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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. 10
By Mail 10
Through Authorized Broker/Dealers 10
Minimum Investment Required 10
What Shares Cost 10
Purchases at Net Asset Value 11
Sales Charge Reallowance 11
Reducing the Sales Charge 11
Quantity Discounts and Accumulated
Purchases 11
Letter of Intent 11
Concurrent Purchases 11
Reinvestment Privilege 12
Systematic Investment Program 12
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 14
Systematic Withdrawal Program 14
Accounts with Low Balances 15
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SHAREHOLDER INFORMATION 15
Voting Rights 15
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EFFECT OF BANKING LAWS 15
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TAX INFORMATION 16
Federal Income Tax 16
Georgia 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
<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 average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.13%
12b-1 Fees None
Other Expenses (after waivers) (2) 0.79%
Shareholder Servicing Agent Fee (3) 0.00%
Total Fund Operating Expenses (after waivers) (4) 0.92%
</TABLE>
(1) The management fee has been reduced to reflect the 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 would have been 2.05% absent the voluntary waivers by the
administrator and portfolio accountant. The administrator and portfolio
accountant can terminate these voluntary waivers at any time at its sole
discretion.
(3) As of the date of this prospectus, the Fund is not paying or accruing
shareholder servicing agent fees. The Fund will not pay or accrue
shareholder servicing agent fees until a separate class of shares has been
created for certain trust and institutional investors. At that time, the
Fund will be able to pay up to 0.25 of 1% of the Fund's average daily net
assets for shareholder servicing agent fees. See "The Biltmore Municipal
Funds Information."
(4) Total Fund Operating Expenses would have been 2.80% absent the voluntary
waivers described above in Notes l and 2.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear either directly or indirectly.
For more complete descriptions of the various costs and expenses, see "The
Biltmore Funds Information" and "Investing in the Fund."
<TABLE>
<S> <C> <C> <C> <C>
Example 1 Year 3 Years 5 Years 10 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 $94 $153
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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BILTMORE GEORGIA MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 15, 1995, on the Fund's
financial statements for the year ended November 30, 1995, and the following
table for the period presented is included in the Annual Report to shareholders
dated November 30, 1995, which is incorporated herein by reference. This table
should be read in conjunction with the Fund's financial statements and notes
thereto, which may be obtained free of charge from the Trust.
<TABLE>
<CAPTION>
Period Ended November 30, 1995(a)
<S> <C>
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NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Income from investment operations
Net investment income 0.41
Net realized and unrealized gain (loss) on investments 0.96
-------
Total from investment operations 1.37
-------
Less distributions
Distributions from net investment income (0.41)
-------
NET ASSET VALUE, END OF PERIOD $ 10.96
-------
Total Return (b) 13.93%
Ratios to Average Net Assets
Expenses 0.92%*
Net investment income 4.30%*
Expense waiver/reimbursement (c) 1.88%*
Supplemental Data
Net assets, end of period (000 omitted) $10,220
Portfolio turnover 14 %
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 26, 1994 (date of initial
public investment) to November 30, 1995.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Fund's performance is contained in the Fund's
Annual Report dated November 30, 1995, which can be obtained free of charge.
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GENERAL INFORMATION
The Biltmore Municipal Funds 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 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 Biltmore 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 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 ("S&P") (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 S&P 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 S&P 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 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.
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.
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 investment 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 S&P 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 S&P 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.
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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 Trustees are 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. The
Adviser, Wachovia Bank of North Carolina, N.A., and Wachovia Bank of South
Carolina, N.A. (collectively the "Wachovia Banks") have been managing trust
assets for over 100 years, with over $19 billion in managed assets as of
September 30, 1995. Wachovia Asset Management, a business unit of Wachovia Bank
of North Carolina, N.A., has served as investment adviser to another investment
company, The Biltmore Funds, since March 9, 1992. The Adviser's affiliates,
Wachovia Bank of North Carolina, N.A. and Wachovia Bank of South Carolina, N.A.,
have served as investment advisers to the Trust's North Carolina Municipal Bond
and South Carolina Municipal Bond Funds, respectively, since their inception. As
part of its regular banking operations, the Adviser may make loans to public
companies and municipalities. Thus, it may be possible, from time to time, for
the Fund to hold or acquire the securities of issuers which are also lending
clients of the Adviser. The lending relationship will not be a factor in the
selection of securities.
Michael Peters is Vice President of Wachovia Bank of Georgia, N.A. and an
officer of both Wachovia Bank of North Carolina, N.A. and Wachovia Bank of South
Carolina, N.A. He has served as portfolio manager of the Fund since the Fund's
inception in December of 1994. 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 of The Biltmore Funds
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall 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.
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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.
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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 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.
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.
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>
The net asset value is determined as of the close of trading (normally 4:00 p.m.
Eastern time) on 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
up to 4.50% of the total amount intended to be purchased in escrow (in shares)
until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
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 $30,000 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 Asset Management, 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 Biltmore South
Carolina Municipal Bond Fund. The Biltmore 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 Biltmore South Carolina Municipal
Bond Funds are distributed by Federated Securities Corp. The International
Equity Fund is advised by Federated Global Research Corp. 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.
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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.
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 three business
days, but in no event more than seven days, after receipt of a proper written
redemption request.
Shareholders requesting 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 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.
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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.
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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 the Wachovia Banks 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 service provider with equivalent abilities to the
Wachovia Banks is found) as a result of any of these occurrences.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings association) from being an underwriter of distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the administrative capacities described above, or
should Congress relax current restrictions on depository institution, the
Trustees will consider appropriate changes in the services.
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.
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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 corporation'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 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.
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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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's 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 Disbursing Agent, Federated Services Company
and Portfolio Recordkeeper Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Counsel to The Biltmore Funds Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
Counsel to the Independent Trustees Piper & Marbury L.L.P.
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
January 31, 1996
822-26 (1/96)
Cusip 090313206
G00648-05 (1/96)
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
prospectus of Biltmore Georgia Municipal Bond Fund (the "Fund"), a portfolio
in The Biltmore Municipal Funds (the "Trust"), dated January 31, 1996. 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 at 1-800-994-
4414.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1996
FEDERATED SECURITIES
CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
GENERAL INFORMATION ABOUT THE
FUND 1
INVESTMENT OBJECTIVE AND POLICIES1
ACCEPTABLE INVESTMENTS 1
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 3
REPURCHASE AGREEMENTS 3
LENDING OF PORTFOLIO SECURITIES 4
PORTFOLIO TURNOVER 4
MUNICIPAL BOND INSURANCE 5
INVESTMENT LIMITATIONS 8
GEORGIA INVESTMENT RISKS 12
THE BILTMORE MUNICIPAL FUNDS
MANAGEMENT 13
OFFICERS AND TRUSTEES 13
FUND OWNERSHIP 16
TRUSTEES COMPENSATION 8
TRUSTEE LIABILITY 17
INVESTMENT ADVISORY SERVICES 18
ADVISER TO THE FUND 18
ADVISORY FEES 8
BROKERAGE TRANSACTIONS 19
OTHER SERVICES 20
FUND ADMINISTRATION 20
CUSTODIAN 20
TRANSFER AGENT 9
LEGAL SERVICES 21
INDEPENDENT AUDITORS 21
PURCHASING SHARES 21
DISTRIBUTION OF SHARES 21
CONVERSION TO FEDERAL FUNDS 22
DETERMINING NET ASSET VALUE 22
VALUING MUNICIPAL BONDS 22
REDEEMING SHARES 22
REDEMPTION IN KIND 22
MASSACHUSETTS BUSINESS TRUST 23
TAX STATUS 24
THE FUND'S TAX STATUS 24
SHAREHOLDERS' TAX STATUS 24
TOTAL RETURN 11
YIELD 25
TAX-EQUIVALENT YIELD 26
TAX-EQUIVALENCY TABLE 13
PERFORMANCE COMPARISONS 28
FINANCIAL STATEMENTS 30
APPENDIX 30
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in the Trust. The Trust 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."
Capitalized terms not otherwise defined in this Statement have the same
meaning assigned to them in the prospectus.
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
("Trustees"), will base its determination on the following factors:
owhether the lease can be terminated by the lessee;
othe potential recovery, if any, from a sale of the leased property
upon termination of the lease;
othe lessee's general credit strength (e.g., its debt, administrative,
economic and financial characteristics and prospects);
othe 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
oany 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 adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular
security may have been held. 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. The Fund's portfolio turnover
rate for the period from December 26, 1994 (date of initial public
investment) to November 30, 1995 was 14%.
MUNICIPAL BOND INSURANCE
Under the Policies, 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. 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) 273-4545. As of June 1,
1995, 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, 1995, 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 wholly-owned by General Electric Capital Corporation.
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 175 Water Street, New York, New
York 10038, and its telephone number is 1-800-352-0001. As of June 1,
1995, 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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch
of a domestic bank or savings association, having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment, to be
"cash items."
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. Preparations for
the 1996 Summer Olympics have helped propel Georgia's economy. Businesses and
local governments have created a total of 400,000 jobs over the last three
years and the unemployment rate has dropped to just 4.9%.
The Fund's investment adviser believes that the information summarized above
describes some of the more significant matters relating to the Fund. The
sources of the information are the official statements of issuers located in
Georgia, other publicly available documents, and oral statements from various
State agencies. The Fund's investment adviser has not independently verified
any of the information contained in the official statement, other publicly
available documents, or oral statements from various State agencies.
THE BILTMORE MUNICIPAL FUNDS MANAGEMENT
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, birthdates, 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.
James A. Hanley
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Samuel E. Hudgins
3100 Cumberland Circle
Suite 1525
Atlanta, GA
March 4, 1929
Trustee
President, Percival Hudgins & Company, LLC (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.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924
Trustee
Real estate investor and partner; Director, Vice Chairman, Massachusetts
Mutual Life Insurance Company.
D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930
Trustee
Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).
Charles S. Way , Jr.
200 Meeting Street
Suite 401
Charleston, S.C.
December 18, 1937
Trustee
President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chairman of the Executive Committee, Kiawah Resort Associates,
L.P.
John W. McGonigle
Federated Investor Tower
Pittsburgh, PA
October 26, 1938
President and Treasurer
President and Chief Executive Officer, Federated Investors Management
Company; Executive Vice President, Secretary, General Counsel, and Trustee,
Federated Investors; Trustee, Federated Advisers, Federated Management,
Federated Research, and Federated Services Company; and Director, Federated
Securities Corp.
Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
February 27, 1960
Vice President and Assistant Treasurer
Senior Vice President, Federated Services Company; Director o f Proprietary
Client Services and member of the Office of the President, Federated
Administrative Services; formerly Corporate Counsel, Federated Investors;
Vice President and Assistant Treasurer for certain investment companies for
which Federated Securities Corp. is the principal distributor.
Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959
Secretary
Senior Corporate Counsel, Federated Investors.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEES COMPENSATION
NAME AND AGGREGATE TOTAL COMPENSATION
POSITION WITH THE COMPENSATION FROM PAID FROM THE
TRUST THE TRUST*# FUND COMPLEX+
James A. Hanley, $868 $22,725 for the Trust and
Trustee one other investment company
in the Fund Complex
Samuel E. Hudgins, $913 $23,850 for the Trust and
Trustee one other investment company
in the Fund Complex
J. Berkley Ingram, Jr., $767 $20,250 for the Trust and
Trustee one other investment company
in the Fund Complex
D. Dean Kaylor, $767 $20,250 for the Trust and
Trustee one other investment company
in the Fund Complex
Charles S. Way, Jr., $0 $0 for the Trust and
Trustee one other investment company
in the Fund Complex
* Information is furnished for the fiscal year ended November 30, 1995.
# The aggregate compensation is provided for the Trust, which is comprised of
three portfolios.
+ The information is provided for the last calendar year.
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 investment 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.
Because of the internal controls maintained by Wachovia Banks to restrict
the flow of non-public information, Fund investments are typically made
without any knowledge of Wachovia Banks' or their affiliates' lending
relationship with an issuer.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. For the period from December 26, 1994
(date of initial public investment ) to November 30, 1995, the Adviser earned
$49,436 of which $40,609 was voluntarily waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets,
2% per year of the next $70 million of average net assets, and 1-1/2%
per year of the remaining average net assets, the Adviser will waive its
fee or reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
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. For the period from December 26, 1994 (date of initial
public investment) to November 30, 1995, no brokerage commissions were paid
by the Fund.
Although investment decisions for the Fund are made independently from those
of the other accounts managed by the adviser, investments of the type the
Fund may make may also be made by those other accounts. When the Fund and one
or more other accounts managed by the adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained
or disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for the fees set
forth in the prospectus. For the period from December 26, 1994 (date of
initial public investment) to November 30, 1995, the Fund incurred costs for
administrative services of $50,000 of which, $44,142 was voluntarily waived.
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
Federated Services Company, Pittsburgh, Pennsylvania, 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 provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments. The fee is based
on the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
LEGAL SERVICES
Legal services for the Fund are provided by Kirkpatrick & Lockhart LLP,
Washington, D.C. Piper & Marbury L.L.P., Washington, D.C., serves as counsel
to the independent Trustees.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
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 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. To the
extent available, such securities will be readily marketable.
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.
Redemption in kind is not as liquid as cash redemption. If redemption is
make in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their
securities and could incur transaction costs.
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. Any redemption beyond this amount will
also be in cash unless the Trustees determine that payments should be in
kind.
MASSACHUSETTS BUSINESS TRUST
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.
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:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o 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:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan 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 Fund's cumulative total return for the period from December 26, 1994
(date of initial public investment) to November 30, 1995, was 8.82%.
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 charge. The Fund's total return is representative of only
eleven months investment activity since the Fund's effective date.
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 applicable sales
charge, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
YIELD
The Fund's yield for the thirty-day period ended November 30, 1995, was
4.18%.
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 maximum offering price 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 Fund's tax-equivalent yield for the thirty-day period ended November
30, 1995 was 6.63%, assuming a 31% tax bracket.
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.
TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF GEORGIA
TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED
FEDERAL
AND STATE:21.00% 34.00% 37.00% 42.00% 45.60%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
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%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state
and local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator
of past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price (i.e. net asset value plus any sales charge) per
share fluctuate daily. Both net earnings and offering price per share are
factors in the computation of yield and total return.
From time to time, the Fund may advertise its performance 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:
O 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.
O 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.
O 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 charge.
FINANCIAL STATEMENTS
The financial statements for Biltmore Georgia Municipal Bond Fund for the
period from December 26, 1994 (date of initial public investment) to November
30, 1995, are incorporated herein by reference to the Annual Report to
Shareholders of Biltmore Georgia Municipal Bond Fund dated November 30, 1995
(File Nos. 33-37525 and 811-6201). A copy of the Annual Report may be
obtained without charge by contacting the Fund at the address located on the
back cover of the prospectus.
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.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
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:
o Leading market positions in well established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o 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:
o Leading market positions in well established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o 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.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a)Financial Statements: The Financial Statements for the fiscal
year ended November 30, 1995 are incorporated herein by
reference to each Fund's Annual Report dated November 30,
1995. (File Nos. 33-37525 and 811-6201)
(1) Conformed Copy of Declaration of Trust of the Registrant (1.);
(i) Conformed copies of Amendment Nos. 1 through 4 to the
Declaration of Trust dated August 15, 1990 (8.);
(ii) Conformed Copy of Amendment No. 6 to the Declaration of
Trust dated August 15, 1990 (9.);
(2) Copy of By-Laws of the Registrant (1.);
(3) Not applicable;
Cusip 090313206
G00481-06 (1/96 )
(4) Copy of Specimen Certificate for Shares of Beneficial Interest
of the Registrant (2.);
(5) (i) Conformed Copy of Investment Advisory Contract of the
Registrant and Exhibit A thereto (to file the executed
version of the Investment advisory Contract between the
Trust and Wachovia Bank of South Carolina, N.A. on behalf
of South Carolina Municipal Bond Fund) (8.);
(ii) Conformed copy of Investment Advisory Contract of the
Registrant between the Trust and Wachovia Bank of
Georgia, N.A. on behalf of Biltmore Georgia Municipal
Bond Fund (9.);
(iii) Conformed copy of Investment Advisory Contract
of the Registrant between the Trust and Wachovia Bank of
North Carolina, N.A. on behalf of Biltmore North Carolina
Municipal Bond Fund (9.);
(6) (i) Conformed Copy of Distributor's Contract of the
Registrant and Exhibit A thereto (8.);
(ii) Conformed Copy of Exhibit B to the Distributor's
Contract (9.);
(7) Not applicable;
(8) (i) ...............Conformed copy of new Custodian Agreement
of the
Registrant and Exhibits A-C thereto (8.);
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed October 29, 1990. (File Nos.
33-37525 and 811-6201)
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed November 30, 1990. (File Nos. 33-
37525 and 811-6201)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed October 6, 1994. (File Nos. 33-
37525 and 811-6201)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed January 27, 1995. (File Nos. 33-
37525 and 811-6201)
(9) Conformed copy of Transfer Agency and Service Agreement of the
Registrant (5);
(i) Conformed copy of new Portfolio Accounting and
Shareholder Recordkeeping Agreement of Registrant and
Schedule F thereto (8.);
(ii) Copy of Schedule G to new Portfolio Accounting and
Recordkeeping Agreement (8.);
(iii) Conformed Copy of Administrative Services Agreement(8.);
(10) Copy of Opinion and Consent of Counsel as to legality of
shares being registered (2.);
(11) (i) Conformed Copy of Consent of Independent Auditors;+
(ii) Copy of Opinion and Consent of Special Tax
Counsel for South Carolina Municipal Bond Fund (4.);
(12) Not Applicable;
(13) Conformed copy of Initial Capital Understanding (2.);
(14) Not Applicable;
(15) Not Applicable;
(16) (i) Schedule for Computation of Fund Performance Data,
Biltmore South Carolina Municipal Bond Fund (3.);
(ii) Schedule for Computation of Fund Performance Data,
Biltmore Georgia Municipal Bond Fund (10.);
(iii) Schedule for Computation of Fund Performance Data,
Biltmore North Carolina Municipal Bond Fund (10.);
(17) Copy of Financial Data Schedules; +
(18) Not Applicable;
(19) Conformed Copy of Power of Attorney (10.);
Item 25. Persons Controlled by or Under Common Control with Registrant
None
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed November 30, 1990. (File Nos. 33-
37525 and 811-6201)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed May 28, 1991. (File Nos. 33-37525
and 811-6201)
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed November 27, 1991. (File Nos. 33-
37525 and 811-6201)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed November 23, 1992. (File Nos. 33-
37525 and 811-6201)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed October 6, 1994. (File Nos. 33-
37525 and 811-6201)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed June 30, 1995. (File Nos. 33-37525
and 811-6201)
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of January 10, 1996
Shares of beneficial interest
no par value
Biltmore South Carolina Municipal Bond Fund 2,255
Biltmore North Carolina Municipal Bond Fund 401
Biltmore Georgia Municipal Bond Fund 309
Item 27. Indemnification: (1.)
Item 28. Business and Other Connections of Investment Adviser:
(a)For a description of the other business of the investment
advisers, see the section entitled "The Biltmore Municipal
Funds Information - Management of The Biltmore Municipal Funds"
in Part A for each of the Funds.
The Officers of Wachovia Bank of South Carolina, N.A. are: Will
B. Spence, President and Chief Executive Officer; Charles T.
Cole, Jr., Executive Vice President; David Q. Soutter,
Executive Vice President; David H. Parker, Regional Executive
Officer; and G. Joseph Prendergast, Chairman. The business
address of each of the Officers of Wachovia Bank of South
Carolina, N.A. is 1401 Main Street, Columbia, South Carolina,
29226.
The Officers of Wachovia Bank of North Carolina, N.A. are:
Chairman of the Board, L. M. Baker, Jr.; President and Chief
Executive Officer, J. Walter McDowell; Executive Vice
President, Robert S. McCoy, Jr.; Executive Vice President,
Robert L. Alphin; Executive Vice President, Robert G. Brookby;
Executive Vice President, Hugh M. Durden; Executive Vice
President, Mickey W. Dry; Executive Vice President, Walter E.
Leonard, Jr.; Executive Vice President, Richard B. Roberts; and
Executive Vice President, Robert G. Brookly. The business
address of each of the Officers of Wachovia Bank of North
Carolina, N.A. is 100 North Main Street, Winston-Salem, N.C.
27101.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed October 29, 1990. (File Nos.
33-37525 and 811-6201)
The Officers of Wachovia Bank of Georgia, N.A. are: Chairman,
G. Joseph Prendergast; President and Chief Executive Officer,
D. Gary Thompson; and Executive Vice Presidents: George W.P.
Atkins; Donald P. Carson; John M. Chalk; William T. Deyo, Jr.;
Thomas D. Hills; Eric L. Stone; and David C. Swann. The
business address of each of the Officers of Wachovia Bank of
Georgia, N.A. is 191 Peachtree Street, NE, Atlanta, Georgia,
30303.
The Directors of Wachovia Bank of South Carolina, N.A. are:
L.M. Baker, Jr, President and Chief Executive Officer, Wachovia
Corporation; Charles J. Bradshaw, President, Bradshaw
Investments, Inc.; Frank W. Brumley, President, The Brumley
Company; W.T. Cassels, Jr, Chairman, Southeastern Freight Lines
Inc.; Thomas C. Coxe, III, Executive Vice President, Sonoco
Products Company; Frederick B. Dent, Jr., President, Mayfair
Mills, Inc.; James G. Lindley, Chairman Emeritus, South
Carolina National Corporation; Joe A. Padgett; G. Joseph
Prendergast, Chairman, Wachovia Bank of South Carolina, N.A.;
W.M. Self, President and Chief Executive Officer, Greenwood
Mills, Inc.; Robert S. Small, Jr., President, AVTEX Commercial
Properties, Inc.; Will B. Spence, President and Chief Executive
Officer, Wachovia Bank of South Carolina, N.A.; J. Guy
Steenrod, President, Roche Carolina Inc.; William G. Taylor,
President, The Springs Company; and Beatrice R. Thompson,
Coordinator of Psychological Services, Anderson County School
District.
The Directors of Wachovia Bank of North Carolina, N.A. are:
L.M. Baker, Jr., Chairman of the Board, Wachovia Bank of NC,
N.A.; Thomas M. Belk, Jr., Senior Vice-President, Belk Stores
Services, Inc.; Howard C. Bissell, Chairman of the Board, The
Bissell Companies, Inc.; Felton J. Capel, Chairman and
President, Century Associates of North Carolina; William
Cavanaugh, III, President and Chief Operating Officer; Bert
Collins, President and Chief Executive Officer, N.C. Mutual
Life Insurance Company; Richard L. Daugherty, Retired Vice
President and Consultant, IBM Corporation; George W. Henderson,
President and Chief Executive Officer, Burlington Industries,
Inc.; Estell C. Lee, Chairman and President, The Lee Company;
J. Walter McDowell, III, President and Chief Executive Officer,
Wachovia Bank of NC, N.A.; G. Joseph Prendergast, Executive
Vice President, Wachovia Corporation; Andrew J. Schindler,
President and Chief Executive Officer, R.J. Reynolds Tobacco
Company; Robert L. Tillman, Chief Operating Officer, Lowe's
Companies, Inc.; John F. Ward, Senior Vice President, Sara Lee
Corporation; Anderson D. Warlick, President and Chief Operating
Officer, Parkdale Mills, Inc.; David J. Whihard, II, The Daily
Reflector; and John C. Whitaker, Jr., Chairman of the Board and
Chief Executive Officer, Inmar Enterprises, Inc.
The Directors of Wachovia Bank of Georgia, N.A. are:
F. Duane Ackerman, Vice Chairman and Chief Operating
Officer,BellSouth Corporation; L.M. Baker, Jr., President and
Chief Executive Officer, Wachovia Corporation; Carl E. Bolch,
Jr., Chairman and Chief Executive Officer, Race Track
Petroleum, Inc.; James E. Bostic, Jr., Senior Vice President,
Environmental, Government Affairs and Communiciaton, Georgia-
Pacific Corporation; Dan T. Cathy, President, Chick-Fil-A
International; Michael C. Carlos, Chairman and Chief Executive
Officer, National Distributing Co., Inc.; G. Stephen Felker,
Chairman and Chief Executive Officer, Avondale Mills, Inc.;
Bryan D. Langton, Chairman and Chief Executive Officer, Holiday
Inn Worldwide; Bernard Marcus, Chairman and Chief Executive
Officer, The Home Depot, Inc.; James F. McDonald, President
and Chief Executive Officer, Scientific-Atlanta, Inc.; Daniel
W. McGlaughlin, President and Chief Operating Officer, Equifax
Inc.; G. Joseph Prendergast, Chairman of the Board, Wachovia
Bank of Georgia, N.A.; D. Raymond Riddle, Chairman of the Board
and Chief Executive Officer, National Service Industries, Inc.;
S. Stephen Selig, III, Chairman of the Board and President,
Selig Enterprises, Inc.; Alana S. Shepherd, Secretary of the
Board, Shepherd Spinal Center; and D. Gary Thompson, President
and Chief Executive Officer, Wachovia Bank of Georgia, N.A..
Item 29. Principal Underwriters
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: American Leaders Fund,
Inc.; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; BayFunds; The Biltmore Funds;
Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash
Trust Series, Inc.; Cash Trust Series II; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Equity Funds; Federated GNMA Trust; Federated
Government Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated
U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 3-5 Years; Federated
U.S. Government Securities Fund: 5-10 Years; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate
U.S. Government Fund, Inc.; Fortress Municipal Income Fund,
Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.; High
Yield Cash Trust; Independence One Mutual Funds; Insurance
Management Series; Intermediate Municipal Trust; International
Series Inc.; Investment Series Funds, Inc.; Investment Series
Trust; Liberty Equity Income Fund, Inc.; Liberty High Income
Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Utility
Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; The Monitor Funds;
Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument
Funds; SouthTrust Vulcan Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Targeted Duration Trust; Tax-Free Instruments Trust; Tower
Mutual Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; The Virtus
Funds; Vision Group of Funds, Inc.; and World Investment
Series, Inc.
Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty Term
Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief Federated
Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice
Federated Investors Tower President, Federated,
Pittsburgh, PA 15222-3779 Securities Corp.
John W. McGonigle Director, Federated President
Federated Investors Tower Securities Corp. and Treasurer
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joeseph Kenedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Asstistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Assistant Secretary,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Item 30. Location of Accounts and Records:
The Biltmore Municipal Funds Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper")
Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
Wachovia Bank of North Carolina, N.A. 301 North Main Street
("Investment Adviser" to North Winston-Salem, NC 21750
Carolina Municipal Bond Fund)
Wachovia Bank of Georgia, N.A. 191 Peachtree Street, N.E.
("Investment Adviser" to Atlanta, Georgia 30303
Georgia Municipal Bond Fund)
Wachovia Bank of South Carolina, N.A. 1426 Main Street
("Investment Adviser" to South Columbia, South Carolina 29226
Carolina Municipal Bond Fund)
Wachovia Bank of North Carolina, N.A. Wachovia Trust Operations
("Custodian") 301 North Main Street
Winston-Salem, NC 21750
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of Section
16(c) of the l940 Act with respect to the removal of Trustees and the
calling of special shareholder meetings by shareholders on behalf of
each of its portfolios.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, THE BILTMORE MUNICIPAL FUNDS,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) of the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Pittsburgh and Commonwealth of Pennsylvania,
on the 26th day of January, 1996.
THE BILTMORE MUNICIPAL FUNDS
BY: /s/Gail Cagney
Gail Cagney, Secretary
Attorney in Fact for John W. McGonigle
January 26, 1996
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person
in the capacity and on the date indicated:
NAME TITLE DATE
By:/s/Gail Cagney Attorney In Fact January 26, 1996
Gail Cagney For the Persons
SECRETARY Listed Below
NAME TITLE
John W. McGonigle* President and Treasurer
(Chief Executive Officer
and Principal Financial and
Accounting Officer)
James A. Hanley* Trustee
Samuel E. Hudgins* Trustee
J. Berkley Ingram, Jr.* Trustee
D. Dean Kaylor* Trustee
Charles S. Way, Jr.* Trustee
* By Power of Attorney
Exhibit (11) under N-1A
Exhibit 23 under Item 601/Reg SK
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" in Post-Effective Amendment Number 10
to the Registration Statement (Form N-1A No. 33-37535) and the related
Prospectuses and to the incorporation therein of our reports dated January
15, 1996 with respect to the financial statements included in the Annual
Reports of The Biltmore Municipal Funds (Biltmore North Carolina Municipal
Bond Fund, Biltmore Georgia Municipal Bond Fund, and Biltmore South Carolina
Municipal Bond Fund).
/s/ Ernst & Young LLP
Ernst & Young LLP
Pittsburgh, Pennsylvania
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<PERIOD-END> Nov-30-1995
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<PER-SHARE-NII> 0.560
<PER-SHARE-GAIN-APPREC> 1.030
<PER-SHARE-DIVIDEND> 0.560
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<AVG-DEBT-PER-SHARE> 0.000
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<TABLE> <S> <C>
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<NAME> The Biltmore Municipal Funds
Biltmore North Carolina Municipal Bond Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1995
<PERIOD-END> Nov-30-1995
<INVESTMENTS-AT-COST> 17,512,744
<INVESTMENTS-AT-VALUE> 18,299,158
<RECEIVABLES> 425,048
<ASSETS-OTHER> 1,801
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,726,007
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<TABLE> <S> <C>
<S> <C>
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<NUMBER> 03
<NAME> Biltmore Municipal Funds
Biltmore Georgia Municipal Bond Fund
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