1933 Act File No. 33-37525
1940 Act File No. 811-6201
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ...........................
Post-Effective Amendment No. 17 ............................. X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 17 ............................................. X
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THE WACHOVIA MUNICIPAL FUNDS
(Formerly, 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)
_ on pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a) (i) on pursuant to paragraph
(a) (i). 75 days after filing pursuant to paragraph (a)(ii) on
_________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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
THE WACHOVIA FUNDS
<PAGE>
Wachovia Equity Fund
Class A Shares and Class B Shares
Wachovia Quantitative Equity Fund
Class A Shares and Class B Shares
Wachovia Growth & Income Fund
Class A Shares
Wachovia Equity Index Fund
Class A Shares
Wachovia Special Values Fund
Class A Shares and Class B Shares
Wachovia Emerging Markets Fund
Class A Shares
Wachovia Balanced Fund
Class A Shares and Class B Shares
Wachovia Fixed Income Fund
Class A Shares
Wachovia Intermediate Fixed Income Fund
Class A Shares
Wachovia Short-Term Fixed Income Fund
Class A Shares
<PAGE>
32
THE WACHOVIA MUNICIPAL FUNDS
Class A Shares
Wachovia Georgia Municipal Bond Fund
Wachovia North Carolina Municipal Bond Fund
Wachovia South Carolina Municipal Bond Fund
Wachovia Virginia Municipal Bond Fund
Prospectus
February __, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS [To be completed]
<PAGE>
FUND GOALS, STRATEGIES, PERFORMANCE AND RISK
Equity Funds
Wachovia Equity Fund
Goal: Seeks to produce growth of principal and income.
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of common stocks. Under normal market conditions, the Fund intends to
invest at least 65% of its assets in stocks. The Fund's investment adviser
selects securities based on a number of factors, incorporating both growth and
value measures. A combination of fundamental analysis, quantitative modeling,
strategic outlook, and relative price performance trends are used to select
stocks perceived to be undervalued with prospects for improving fundamentals.
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Wachovia Quantitative Equity Fund
Goal: Seeks to provide growth of principal and income.
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of common stocks. Under normal market conditions, the Fund intends to
invest at least 65% of its holdings in stocks. Stocks are selected using a
quantitative computer valuation model provided by the Fund's sub-adviser. The
model combines multiple factors believed to have predictive power in determining
future stock price performance.
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Wachovia Growth & Income Fund
Goal: Seeks to provide total return through growth of capital and current
income.
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of common stocks. Under normal market conditions, the Fund intends to
invest at least 65% of its holdings in stocks. The Fund's investment adviser
selects securities based on a number of factors, incorporating both growth and
value measures. A combination of fundamental analysis, quantitative modeling,
strategic outlook, and relative price performance trends are used to select
stocks perceived to be undervalued with prospects for improving fundamentals.
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Wachovia Equity Index Fund
Goal: Seeks to provide a total return that approximates that of the stock
market as measured by the S&P "500" Index.
Strategy: The Fund pursues its investment objective by investing in a broadly
diversified portfolio of common stocks that make up the S&P 500 Index. The Fund
normally aims to invest in all the stocks in the Index and closely match the
performance of the Index. The Fund is managed using a computer program that
identifies which stocks should be purchased or sold in order to approximate, as
much as possible, the investment return of the stocks in the S&P 500 Index.
Under normal circumstances, at least 95% of the value of the Fund's holdings
will be invested in stocks in the Index and S&P 500 Index futures contracts.
However, the Fund is not required to sell securities if the 95% investment level
changes due to increases or decreases in the market value of portfolio
securities.
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Wachovia Special Values Fund
Goal: Seeks to produce growth of principal.
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of stocks of small U.S. companies. The investment adviser looks for
significantly undervalued companies that it believes have the potential for
above-average growth commensurate with increased risk. Typical investments are
in stocks of companies that have low price-to-earnings ratios, are generally out
of favor in the marketplace, are selling significantly below their stated or
replacement book value or are undergoing a reorganization or other corporate
action that may create above-average price appreciation. Under normal market
conditions, the Fund intends to invest at least 65% of its assets in stocks of
companies that have a market value capitalization of $1 billion or less. The
Fund may invest up to 20% of total assets in foreign securities.
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<PAGE>
Wachovia Emerging Markets Fund
Goal: Seeks to produce long-term capital appreciation.
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of securities of issuers located in countries that are generally
considered to be developing or emerging countries by the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation, as well as countries that are classified by
the United Nations or otherwise regarded by their authorities as developing. The
investment adviser uses a value-oriented approach and selects companies in
countries where political and economic factors, including currency movements,
are likely to produce above average capital appreciation. Under normal market
conditions, the Fund intends to invest at least 65% of its holdings in
securities of issuers located in emerging market countries. Although the Fund
will focus its investment on the common stocks of foreign companies located in
emerging market countries, the Fund may also invest in other types of
securities, including debt securities.
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Wachovia Balanced Fund
Goal: Seeks to produce long-term growth of principal and current income.
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of equity securities and debt securities. In selecting equity
securities, the investment adviser uses a combined growth and value approach,
seeking undervalued companies that it believes have improving prospects for
growth. In selecting debt securities, the investment adviser seeks to maximize
total return (which consists of capital gains and income) available from a
diversified portfolio of fixed income securities which provide relative
stability of principal and income as compared to other fixed income securities.
Under normal market circumstances, the Fund will invest at least 65% of its
holdings in equity securities and debt securities. As a matter of operating
policy, the asset mix of the Fund will normally range between 50-70% in common
stocks and convertible securities, 30-50% in preferred stocks and bonds, and
0-20% in money market instruments. The Fund will maintain at least 25% of its
holdings in fixed income senior securities, including convertible senior
securities.
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Income Funds
Wachovia Fixed Income Fund
Goal: Seeks a high level of total return.
Strategy: As a secondary investment objective, the Fund attempts to minimize
volatility of principal relative to the fixed income markets. Total return
consists of income and capital gains. The Fund pursues its investment objectives
by investing primarily in a diversified portfolio of fixed income securities
that, at the time of purchase, are rated in the top four investment categories
by a nationally recognized statistical rating organization (NRSRO) or, if
unrated, are of comparable quality to securities with such ratings. The Fund
invests in corporate bonds, asset- and mortgage-backed securities and U.S.
government securities. The investment adviser changes the Fund's weighting in
these types of investments as it thinks appropriate and use fundamental
macroeconomic, credit and market analysis to select portfolio securities.
Normally, the Fund will maintain an average dollar-weighted maturity of between
6 to 10 years. The Fund will invest, under normal circumstances, at least 65% of
the value of its holdings in fixed income securities.
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Wachovia Intermediate Fixed Income Fund
Goal: Seeks current income consistent with preservation of capital.
Strategy: The Fund pursues it investment objective by investing primarily in a
portfolio of fixed income securities, that, at the time of purchase, are rated
in the top four investment categories by an NRSRO or, if unrated, are of
comparable quality to securities with such ratings. The investment adviser
changes the Fund's weighting in these types of investments as it thinks
appropriate and uses fundamental macroeconomic, credit and market analysis to
select portfolio securities. Normally, the Fund will maintain an average
dollar-weighted maturity of between 3 to 10 years. The Fund will invest, under
normal circumstances, at least 65% of the value of its holdings in fixed income
securities with stated maturities or estimated average lives of 10 years or
less.
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<PAGE>
Wachovia Short-Term Fixed Income Fund
Goal: Seeks to produce a high level of current income.
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of short-term, high quality, fixed income securities. Under normal
market circumstances, the Fund will invest at least 65% of its holdings in such
securities. The investment adviser changes the Fund's weighting in these types
of investments as it thinks appropriate and use fundamental macroeconomic,
credit and market analysis to select portfolio securities. The Fund will
maintain an average dollar-weighted maturity of between one to three years.
[Add total return bar chart and table-TO COME]
Municipal Funds
Wachovia Georgia Municipal Bond Fund
Goal: seeks to provide current income which is exempt from federal regular
income tax and the income taxes imposed by the State of Georgia.
Strategy: The Fund normally invests at least 80% of its total assets in debt
obligations, the interest income from which is exempt from federal regular
income tax and the personal income taxes imposed by the State of Georgia. The
investment adviser selects investments after assessing factors such as trends in
interest rates, credit worthiness, the supply of appropriate municipal bonds,
and portfolio diversification.
[Add total return bar chart and table-TO COME]
Wachovia North Carolina Municipal Bond Fund
Goal: Seeks to provide current income which is exempt from federal regular
income tax and the income tax imposed by the State of North Carolina.
Strategy: The Fund normally invests at least 80% of its total assets in debt
obligations, the interest income from which is exempt from federal regular
income tax and the income tax imposed by the State of North Carolina. The
investment adviser selects investments after assessing factors such as trends in
interest rates, credit worthiness, the supply of appropriate municipal bonds,
and portfolio diversification.
[Add total return bar chart and table-TO COME]
Wachovia South Carolina Municipal Bond Fund
Goal: Seeks to provide current income which is exempt from federal regular
income tax and the South Carolina state income taxes.
Strategy: The Fund normally invests its assets so that at least 80% of its
interest income is exempt from federal regular income tax and South Carolina
state income taxes or that at least 80% of its total assets are invested in debt
obligations, the interest income from which is exempt from federal regular
income tax and South Carolina state income taxes. The investment adviser selects
investments after assessing factors such as trends in interest rates, credit
worthiness, the supply of appropriate municipal bonds, and portfolio
diversification.
[Add bar chart and total return table-TO COME]
Wachovia Virginia Municipal Bond Fund
Goal: Seeks to provide a high level of current income that is exempt from
federal regular income tax and the income tax imposed by the Commonwealth of
Virginia as is consistent with the preservation of capital.
Strategy: The Fund normally invests at least 80% of its total assets in debt
obligations, the interest income from which is exempt from federal regular
income tax and the personal income taxed imposed by the Commonwealth of
Virginia. The investment adviser selects investments after assessing factors
such as trends in interest rates, credit worthiness, the supply of appropriate
municipal bonds, and portfolio diversification. At least 65% of the value of the
Fund's total assets will be invested in obligations issued by or on behalf of
the state of Virginia, its political subdivisions, or agencies.
[Add total return bar chart and table-TO COME]
Principal Investment Risks
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Funds.
An investment in a Fund is not a deposit of a bank and is not insured or
guaranteed by Wachovia Bank, N.A., the Federal Deposit Insurance Corporation or
any other government agency.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Equity Debt Emerging Municipal
Fund Market Risks Securities Securities Markets Securities Diversification
Risks Risks Risks Risks Risks
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Equity Fund x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Quantitative Equity Fund x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Growth & Income Fund x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Equity Index Fund x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Special Values Fund x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Emerging Markets Fund x x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Balanced Fund x x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Fixed Income Fund x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Intermediate Fixed Income Fund x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Short-Term Fixed Income Fund x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Georgia Municipal Bond Fund x x x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
North Carolina Municipal Bond Fund x x x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
South Carolina Municipal Bond Fund x x x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Virginia Municipal Bond Fund x x x x
- -------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
</TABLE>
WHAT ARE THE FUNDS' FEES AND EXPENSES?
These tables describe the fees and expenses that you may pay when you buy, hold,
and redeem shares of the Funds' Class A Shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Growth & Special Emerging
Shareholder Fees Equity Quantitative Income Fund Equity Index Values Fund Markets Fund Balanced Fund
Fees Paid Directly From Your Investment Fund Equity Fund Fund
Maximum Sales Charge (Load)
Imposed on Purchases 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None None None None None None None
(as a percentage of original purchase price or
redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends (and other Distributions) None None None None None None None
(as a percentage of offering price)
Redemption Fee (as a percentage of amount None None None None None None None
redeemed, if applicable)
Exchange Fee None None None None None None None
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee 0.63% 0.65% 0.70% 0.28% 0.79% 1.00% 0.54%
Distribution (12b-1) Fee None None None None None None None
Shareholder Services Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses % % % % % % %
Total Annual Class A Shares Operating Expenses % % % % % % %
<PAGE>
North South
Fixed Intermediate Short-Term Georgia Carolina Carolina Virginia
Shareholder Fees Income Fund Fixed Income Fixed Income Municipal Municipal Municipal Municipal
Fees Paid Directly From Your Investment Fund Fund Bond Fund Bond Fund Bond Fund Bond Fund
Maximum Sales Charge (Load)
Imposed on Purchases 4.50% 4.50% 2.50% 4.50% 4.50% 4.50% 4.50%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None None None None None None None
(as a percentage of original purchase price or
redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends (and other Distributions) None None None None None None None
(as a percentage of offering price)
Redemption Fee (as a percentage of amount None None None None None None None
redeemed, if applicable)
Exchange Fee None None None None None None None
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee 0.49% 0.48% 0.36% 0.00% 0.31% 0.27% 0.45%
Distribution (12b-1) Fee None None None None None None None
Shareholder Services Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses % % % % % % %
Total Annual Class A Shares Operating Expenses % % % % % % %
- ----------------------------------------------------------------------------------------------------------------------------------
Example
The following Example is intended to help you compare the cost of investing in
each Fund's Class A Shares with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in each Fund's Class A Shares for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that each Fund's Class A Shares operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
Special Emerging
Equity FundQuantitative Growth & Equity Values FundMarkets Fund Balanced
Expenses assuming no redemption Equity Fund Income Fund Index Fund Fund
1 Year $ $ $ $ $ $ $
3 Years $ $ $ $ $ $ $
5 Years $ $ $ $ $ $ $
10 Years $ $ $ $ $ $ $
Intermediate North South
Fixed Fixed Income Short-Term Georgia Carolina Carolina Virginia
Income Fund Fund Fixed Income Municipal Municipal Municipal Municipal
Expenses assuming no redemption Fund Bond Fund Bond Fund Bond Fund Bond Fund
1 Year $ $ $ $ $ $ $
3 Years $ $ $ $ $ $ $
5 Years $ $ $ $ $ $ $
10 Years $ $ $ $ $ $ $
</TABLE>
<PAGE>
These tables describe the fees and expenses that you may pay when you buy, hold,
and redeem shares of the Funds' Class B Shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fixed Income
Shareholder Fees Equity Quantitative Balanced Fund
Fees Paid Directly From Your Investment Fund Equity Fund Fund
Maximum Sales Charge (Load)
Imposed on Purchases None None None None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 5.00% 5.00% 5.00% 5.00%
(as a percentage of original purchase price
or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends (and other None None None None
Distributions) (as a percentage of offering
price)
Redemption Fee (as a percentage of amount None None None None
redeemed, if applicable)
Exchange Fee None None None None
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee 0.64% 0.63% 0.54% 0.49%
Distribution (12b-1) Fee 0.75% 0.75% 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25% 0.25%
Other Expenses % % % %
Total Annual Class A Shares Operating % % % %
Expenses
</TABLE>
Example
The following Example is intended to help you compare the cost of investing in
the Funds' Class B Shares with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in the Funds' Class B Shares for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that each Fund's Class B Shares operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
Fixed
Equity Fund Quantitative Balanced Fund Income Fund
Expenses assuming no redemption Equity Fund
1 Year $ $ $ $
3 Years $ $ $ $
5 Years $ $ $ $
10 Years $ $ $ $
<PAGE>
WHAT ARE THE FUNDS' MAIN INVESTMENTS AND INVESTMENT TECHNIQUES?
Equity Securities are the fundamental unit of ownership in a company. They
represent a share of the issuer's earnings and assets, after the issuer pays its
liabilities. Generally, issuers have discretion as to the payment of any
dividends or distributions. As a result, investors cannot predict the income
they will receive from equity securities. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. the
following describes the types of equity securities in which a Fund invests.
Common Stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and
assets after the issuer pays its creditors and any preferred
stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks have the right to receive specified dividends or
distributions before the payment of dividends or distributions on
common stock. Some preferred stocks also participate in dividends and
distributions paid on common stock. Preferred stocks may provide for
the issuer to redeem the stock on a specified date. A Fund may treat
such redeemable preferred stock as a fixed income security.
Warrants give a Fund the option to buy the issuer's stock or other
equity securities at a specified price. A Fund may buy the designated
shares by paying the exercise price before the warrant expires.
Warrants may become worthless if the price of the stock does not rise
above the exercise price by the expiration date. Rights are similar to
warrants, but are typically issued to existing stockholders.
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time. Fixed
income securities provide more regular income than equity securities. However,
the returns on fixed income securities are limited and normally do not increase
with the issuer's earnings. This limits the potential appreciation of fixed
income securities as compared to equity securities.
Municipal securities are fixed income securities issued by states, counties,
cities and other political subdivisions and authorities. Although most municipal
securities are exempt from federal income tax, municipalities may also issue
taxable securities. The Municipal Funds may invest in such taxable municipal
securities.
Tax exempt securities are fixed income securities that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax exempt securities. Tax exempt
securities are generally differentiated by their source of repayment.
Portfolio Turnover. Instead of a buy-and-hold strategy, the Funds (except Equity
Index Fund) actively trade their portfolio securities in an attempt to achieve
each Fund's investment objective. This means each Fund will have a higher
portfolio turnover rate, and is likely to generate shorter-term gains or losses
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases a Fund's trading costs
and may impact the Fund's performance.
Credit Quality and Investment Ratings. When a Fund invests in debt securities or
convertible securities most will be rated BBB or better by Standard & Poor's or
Baa or better by Moody's Investors Services, Inc. at the time of purchase.
Unrated securities will be determined by the investment adviser to be of like
quality and may have greater risk but a higher yield than comparable rated
securities.
Securities rated BBB by Standard and Poor's or Baa by Moody's Investors
Services, Inc. have speculative characteristics.
Temporary Defensive Investments. The Funds may temporarily depart from their
principal investment strategies by investing assets in cash, cash items, and
shorter-term, higher quality debt securities. The Funds may do this to minimize
potential losses and maintain liquidity to meet shareholder redemptions during
adverse market conditions. This may cause a Fund to forego greater investment
returns for the safety of principal.
S&P 500 Index. The S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. S&P designates the stocks to be
included in the Index on a statistical basis. A particular stock's weighting in
the Index is based on its relative total market value; that is, its market price
per share times the number of shares outstanding. From time to time, S&P may add
or delete stocks from the Index. The Index represents approximately 70% of the
total market value of all common stocks. In addition, it is familiar to
investors, and is recognized as a barometer of common stock investment returns.
Inclusion of a particular security in the Index in no way implies an opinion by
S&P as to the stock's appropriateness as an investment. The Funds are not
sponsored, endorsed, sold or promoted by or affiliated with S&P.
<PAGE>
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUNDS?
Market Risk. The market value of securities fluctuate daily.
Equity Securities Risks. Each Fund is subject to fluctuations in the stock
market which has periods of increasing and decreasing values. These fluctuations
can be caused by many events, including changes to domestic or international
economic conditions. Stocks have greater volatility than debt securities. While
greater volatility increases risk, it offers the potential for greater reward.
Equity risk is also related to the size of the company issuing stock. Companies
may be categorized as having a small, medium, or large capitalization (market
value). The potential risks are higher with small capitalization companies and
lower with large capitalization companies. Therefore, you should expect that
investments in the Special Values Fund will be more volatile than broad stock
market indices such as the S&P 500 or than funds that invest in
large-capitalization companies, such as Quantitative Equity Fund or Equity Fund.
Debt Securities Risks. Prices of fixed-rate debt securities generally move in
the opposite direction of the interest rates. The interest payments on
fixed-rate debt securities do not change when interest rates change. Therefore,
the price of these securities can be expected to decrease when interest rates
increase and any of the Income Fund's or Municipal Fund's net asset value may go
down. While the investment adviser attempts to anticipate interest rate
movements, there is no guarantee that it will be able to correctly predict them.
In addition, debt securities with longer maturities or durations will experience
greater price volatility than those with shorter maturities or durations, and
the Fund's net asset value can be expected to fluctuate accordingly.
The credit quality of a debt security is based upon the ability of the issuer to
repay the security. If the credit quality of securities held by a Fund declines,
the Fund's net asset value could go down.
Principal and interest payments on a security may not be paid when due. If
interest rates are declining, an issuer may repay a debt security held in the
portfolio prior to its maturity. If this occurs, the investment adviser may have
to reinvest the proceeds in debt securities paying lower interest rates
resulting in lower yields to the Income Funds and Municipal Funds.
Emerging Markets Risks. Investing in the Emerging Markets Fund entails a
substantial degree of risk. Because of the special risks associated with
investing in emerging markets, an investment in the Emerging Markets Fund should
be considered speculative. Investors are strongly advised to carefully consider
the special risks involved in emerging markets, which are in addition to the
usual risks of investing in domestic markets and in developed markets around the
world. By itself, an investment in the Emerging Markets Fund does not constitute
a balanced investment plan. Investors should be willing to assume a higher
degree of risk and accept a higher level of volatility than is generally
associated with investment in more developed markets.
Municipal Securities Risks. Local political and economic factors may adversely
affect the value and liquidity of municipal securities held by each of the
Municipal Funds. The value of municipal securities can be affected more by
supply and demand factors or the creditworthiness of the issuer than market
interest rates. Repayment of municipal securities depends on the ability of the
issuer or project backing such securities to generate taxes or revenues. Because
the Funds invest primarily in Georgia, North Carolina, South Carolina and
Virginia, respectively, they may be adversely affected by the factors or events
particular to that state.
Issuer Diversification. The Municipal Funds are not diversified. Compared to
diversified mutual funds, they may invest a higher percentage of each Funds
assets among fewer issuers of portfolio securities. This increases each Fund's
risk by magnifying the impact (positively or negatively) that any one issuer has
on a Fund's share price and performance.
Prepayment Risk. Principal on a fixed income security may be repaid before its
scheduled maturity. This may reduce the security's value and require the Fund to
reinvest the prepayment at a lower yield. In addition, the Fund may buy a fixed
income security with an expectation of early prepayment. If the prepayment does
not occur, the security will decline in value. This is known as Extension Risk.
Tax Risk. Interest on a municipal security may be subject to regular federal
income tax. Any investment can be adversely affected by changes in tax laws. For
example, the value of stocks can be affected by changes in capital gains tax
rates.
Leveraging. Various investment strategies involve agreements to purchase or sell
securities or currencies in amounts that exceed the amount the Fund has invested
in the underlying securities or currencies. The excess exposure increases the
risks associated with the underlying securities or currencies on the Fund's
investment performance.
Foreign Securities Risks. Foreign securities pose additional risks over domestic
securities because foreign economic, governmental, and political systems may be
less favorable than those of the United States. Other risk factors related to
foreign securities include: rates of inflation, structure and regulation of
financial markets, liquidity and volatility of investments, taxation policies,
and accounting standards. In addition, a Fund may incur higher costs and
expenses when making foreign investments, which could impact the Fund's
performance. Exchange rates for currency fluctuate daily. The combination of
currency risk and market risks tends to make securities traded in foreign
markets more volatile than securities traded exclusively in the United States.
Emerging Market Securities Risks. Investments in developing or emerging markets
securities are subject to higher risks than those in developed market countries
because there is greater uncertainty in less established markets and economies.
These risks include the possibility of expropriation, nationalization or
confiscatory taxation, unstable political, social or economic systems, smaller
securities markets, lower trading volume, and substantial rates of inflation.
Asset-Backed/Mortgage-Backed Securities Risks. Asset-backed and mortgage-backed
securities are subject to risks of prepayment which generally occurs when
interest rates fall. Reinvesting these prepayments in a lower interest rate
environment reduces a Fund's income. Asset-backed securities may have a higher
level of default and recovery risk than mortgage-backed securities.
Futures and Options Risks. The successful use of futures, options, and other
derivative instruments is based on the investment adviser's ability to correctly
anticipate market movements. When the direction of the prices of a Fund's
securities does not correlate with the changes in the value of these
transactions, or when the trading market for derivatives becomes illiquid, the
Fund could lose money.
Securities Lending Risks. When a Fund lends its portfolio securities, it may not
be able to get them back from the borrower on a timely basis, thereby exposing
the Fund to a loss of investment opportunities.
Year 2000 Readiness. The "Year 2000" problem is the potential for computer
errors or failures because certain computer systems may be unable to interpret
dates after December 31, 1999. The Year 2000 problem may cause systems to
process information incorrectly and could disrupt businesses that rely on
computers, like the Funds.
While it is impossible to determine in advance all of the risks to the Funds,
the Funds could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications. The Funds' service providers are
making changes to their computer systems to attempt to fix any Year 2000
problems. In addition, they are working to gather information from third-party
providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Funds' investments. The
financial impact of these issues for the Funds is still being determined. There
can be no assurance that potential Year 2000 problems would not have a material
adverse effect on the Funds.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Class A Shares and Class B Shares (Shares)
any day Wachovia Bank, N.A. (Wachovia Bank), the New York Stock Exchange (NYSE)
and the Federal Reserve Wire System are open for business. When the Fund
receives your transaction request in proper form, it is processed at the next
determined net asset value (NAV) plus any applicable sales charge (the public
offering price).
NAV is determined at the end of regular trading (normally 4 p.m. Eastern time)
each day the NYSE is open. The value of Fund Shares is generally determined
based upon the market value of portfolio securities. However, the Funds' Board
may determine in good faith that another method of valuing investments is
necessary to appraise their fair market value.
The following table summarizes the minimum investment amount required for an
investment in a Fund. The maximum sales charge that you will pay on an
investment in Class A Shares of a Fund is 4.50% of average daily net assets,
except for Short-Term Fixed Income Fund, which has a maximum sales charge of
2.50%. The maximum contingent deferred sales charge that you will pay on an
investment in Class B Shares of a Fund is 5.00%. Keep in mind that investment
professionals may charge you fees for their services in connection with your
share transactions.
------------------------------------------------
Minimum Initial /Subsequent Investment Required
------------------------------------------------
The Wachovia Funds $250/$50
- --------------------------------------------------------------------------------
The Wachovia Municipal Funds $500/$100
- --------------------------------------------------------------------------------
Minimum initial investments may be waived from time to time for purchases by the
Trust Division of Wachovia Bank for its fiduciary or custodial accounts. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Funds.
<PAGE>
Sales Charge When You Purchase-Class A Shares
Class A Shares of all Funds except Short-Term Fixed Income Fund are sold at
their NAV next determined after an order is received, plus a sales charge as
follows:
Purchase Amount Sales Charge as a Sales Charge as a
Percentage of Public Percentage of NAV
Offering Price
- --------------------------------- ------------------------- --------------------
- --------------------------------- ------------------------- --------------------
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 greater 0.25% 0.25%
- --------------------------------- ------------------------- --------------------
Class A Shares of Short-Term Fixed Income Fund are sold at their NAV next
determined after an order is received, plus a sales charge as follows:
Purchase Amount Sales Charge as a Sales Charge as a
Percentage of Public Percentage of NAV
Offering Price
- -------------------------------- ------------------------- ---------------------
- -------------------------------- ------------------------- ---------------------
Less than $100,000 2.50% 2.56%
- -------------------------------- ------------------------- ---------------------
- -------------------------------- ------------------------- ---------------------
$100,000 but less than $250,000 1.75% 1.78%
- -------------------------------- ------------------------- ---------------------
- -------------------------------- ------------------------- ---------------------
$250,000 but less than $500,000 1.25% 1.27%
- -------------------------------- ------------------------- ---------------------
- -------------------------------- ------------------------- ---------------------
$500,000 but less than $750,000 0.75% 0.76%
- -------------------------------- ------------------------- ---------------------
- -------------------------------- ------------------------- ---------------------
$750,000 but less than $1 million 0.50% 0.50%
- -------------------------------- ------------------------- ---------------------
- -------------------------------- ------------------------- ---------------------
$1 million or greater 0.25% 0.25%
- -------------------------------- ------------------------- ---------------------
The sales charge at purchase may be reduced by:
o quantity purchases of Shares;
o combining concurrent purchases of Fund Shares made by you, your
spouse, or your children under age 21
o accumulating purchases (in calculating the sales charge on an
additional purchase, you may count the current value of previous Share
purchases still invested in the Fund); or
o signing a letter of intent to purchase at least $100,000 in Shares
within 13 months (call the
Fund for an application and more information).
The sales charge will be eliminated when you purchase Shares: o using
the reinvestment privilege; o by exchanging Shares from the same share
class of another Fund; or
o through wrap accounts or other investment programs where you pay an
investment professional a fee for services.
If your investment qualifies, you must notify the Funds' distributor at
the time of purchase to reduce or eliminate the sales charge. You will
receive the reduced sales charge only on the additional purchases, and
not retroactively on previous purchases.
Sales Charge When You Redeem-Class B Shares
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC). Class B Shares are only offered by
the Equity Fund, the Quantitative Equity Fund, Special Values Fund and the
Balanced Fund. As of ____, Fixed Income Fund no longer offers Class B Shares.
<TABLE>
<CAPTION>
<S> <C>
Shares Held Up To: CDSC
------------------------------------------------------------------- ---------------------
------------------------------------------------------------------- ---------------------
1 year 5.00%
------------------------------------------------------------------- ---------------------
------------------------------------------------------------------- ---------------------
2 years 4.00%
------------------------------------------------------------------- ---------------------
------------------------------------------------------------------- ---------------------
3 years 3.00%
------------------------------------------------------------------- ---------------------
------------------------------------------------------------------- ---------------------
4 years 3.00%
------------------------------------------------------------------- ---------------------
------------------------------------------------------------------- ---------------------
5 years 2.00%
------------------------------------------------------------------- ---------------------
------------------------------------------------------------------- ---------------------
6 years 1.00%
------------------------------------------------------------------- ---------------------
------------------------------------------------------------------- ---------------------
7 years or more 0.00%
------------------------------------------------------------------- ---------------------
--------------------------------------------------------------------------------- -------
Class B Shares will convert to Class A Shares at NAV approximately eight
years after purchase.
--------------------------------------------------------------------------------- -------
</TABLE>
<PAGE>
You will not be charged a CDSC when redeeming Shares:
o purchased with reinvested dividends or capital gains;
o purchased within 90 days of redeeming Shares of an equal or
lesser amount;
o representing the portion of redemption proceeds attributable to
increases in the value of your
account due to increases in the NAV;
o that you exchange into the same share class of another Fund (or into
Investment Shares of the
Wachovia U.S. Treasury Money Market Fund);
o representing up to 10% of the value of Shares subject to a systematic
withdrawal plan; o where the original shares were held for seven years
or more; or o if you have certain disabilities as defined by the IRS.
In addition, you will not be charged a CDSC:
o when the Fund redeems your Shares and closes your account for failing
to meet the minimum balance requirement;
o if your redemption is a required retirement plan distribution;
o upon the death of the shareholder(s) of the account or the
redemption of Shares by a designated
beneficiary.
If your redemption qualifies the Distributor must be notified at the
time of redemption to eliminate the CDSC.
To keep the sales charge as low as possible, the Funds will sell your
shares in the following order:
o Shares that are not subject to a CDSC;
o Shares held the longest; and
o then, the CDSC is calculated using the share price at the time of
purchase or redemption, whichever is lower.
HOW ARE THE FUNDS SOLD?
The Funds offer two share classes: Class A Shares and Class Y Shares, each
representing interests in a single portfolio of securities. The Equity Fund,
Quantitative Equity Fund, Special Values Fund and Balanced Fund also offer a
third class of shares, Class B Shares.
This prospectus relates only to Class A Shares and Class B Shares of the Funds.
Each share class has different sales charges and other expenses, which affect
their performance. Call 1-800-994-4414 or contact your investment professional
for more information concerning the other classes.
The Fund's Distributor, Federated Securities Corp., (Distributor) markets the
Shares described in this prospectus to institutions or individuals, directly or
through an investment professional that has an agreement with the Distributor
(Authorized Dealer). When the Distributor receives sales charges and marketing
fees, it may pay some or all of them to investment professionals. The
Distributor and its affiliates may pay out of their assets other amounts
(including items of material value) to investment professionals for marketing
and servicing Shares. The Distributor is a subsidiary of Federated Investors,
Inc. (Federated).
Rule 12b-1 Plan
The Equity Fund, Quantitative Equity Fund, Special Values Fund and Balanced Fund
have adopted a Rule 12b-1 Plan, which allows each Fund to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class B Shares at an annual rate of up to 0.75%
of the average daily NAV of the Fund's Class B Shares. Because you pay marketing
fees on an ongoing basis, your investment cost for Class B Shares may be higher
over time than for shares with different sales charges and marketing fees.
HOW TO PURCHASE SHARES
You may purchase Shares through an through the Trust Division of Wachovia Bank,
through Wachovia Investments, Inc., or through an Authorized Dealer.
Where the Fund offers more than one Share Class and you do not specify your
Class choice on your form of payment, you automatically will receive Class A
Shares.
Each Fund and the Distributor reserve the right to reject any request to
purchase Shares.
Through The Trust Division Of Wachovia Bank
Trust customers of Wachovia Bank may purchase Shares of a Fund in accordance
with the procedures set forth in your account agreement.
Orders must be received by 3:00 p.m. (Eastern time) in order to receive that
day's public offering price. Orders received after 3:00 p.m. (Eastern time) will
be purchased at the next determined public offering price.
<PAGE>
Through Wachovia Investments, Inc.
Customers of Wachovia Investments, Inc. or Wachovia Brokerage Service may
purchase shares by mail, by
telephone, or in person.
All purchase orders must be received by 3:30 p.m. (Eastern time) in order for
Shares to receive that day's public offering price. Orders received after 3:30
p.m. (Eastern time) will be purchased at the next determined public offering
price.
By Mail
To purchase Shares of a Fund by mail, send a check made payable to (Name of
Fund) to:
101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226
Orders by mail are considered received after payment by check is converted into
federal funds which is normally the next business day after Wachovia
Investments, Inc. receives the check.
By Telephone
You may purchase Shares by telephone by calling 1-800-994-4414.
Through An Authorized Dealer
Call your Authorized Dealer for specific instructions.
Purchase orders must be received before 3:30 p.m. (Eastern time) in order to
receive that day's public offering price. Orders received after 3:30 p.m. will
be purchased at the next determined public offering price.
Through An Exchange
You may purchase Shares through an exchange from the same Share class of another
Fund. You must meet the minimum initial investment requirement for purchasing
Shares.
Systematic Investment Program
Once you have opened a Fund account, you may add to your investment on a regular
basis in amounts of at least $25. Under this program, funds may be automatically
withdrawn from your checking account and invested in Fund shares at NAV next
determined after an order is received by a Fund. Investments in Class A Shares
will include the applicable sales charge. You may apply for participation in
this program through Wachovia Bank or through the Distributor.
HOW TO EXCHANGE SHARES
Exchange Privilege
You may exchange Shares of a Wachovia Fund into Shares of the same class of
another Wachovia Fund at NAV and without a sales charge. To do this, you must:
o meet any minimum initial investment requirements; and
o receive a prospectus for the Fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction. Signatures must be guaranteed if you request an exchange
into another Fund with a different shareholder registration.
The Fund may modify or terminate the exchange privilege at any time.
Shareholders will be notified of the modification or termination of the exchange
privilege. The Fund's management or investment adviser may determine from the
amount, frequency and pattern of exchanges that a shareholder is engaged in
excessive trading which is detrimental to the Fund and other shareholders. If
this occurs, the Fund may terminate the availability of exchanges to that
shareholder and may bar that shareholder from purchasing other Funds.
Shareholders contemplating exchanges into The Wachovia Municipal Funds should
consult their tax advisers since the tax advantages of each Fund may vary.
By Telephone
You may exchange Shares by telephone by calling 1-800-994-4414.
Telephone exchange instructions must be received by 3:30 p.m. (Eastern time) for
Shares to be exchanged that day.
Your telephone instructions may be recorded. If a Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Funds will notify you if it changes
telephone transaction privileges.
<PAGE>
If you are not able to make your exchange by telephone, an exchange request may
be made in writing and sent by overnight mail to:
101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226
HOW TO REDEEM SHARES
Each Fund redeems shares at its NAV next determined after the Fund receives the
redemption request in proper form plus any applicable sales charge. Shares may
be redeemed by telephone or by mail through the trust department of Wachovia
Bank, through Wachovia Investments, Inc., through an Authorized Dealer, or
directly from the Fund.
All redemption requests must be received before 3:30 p.m. (Eastern time) in
order for Shares to be redeemed at that day's NAV.
By Mail
You may redeem shares by sending a written request to Wachovia Bank or Wachovia
Investments, Inc., as appropriate.
Send your written redemption request including your name, the Fund's name, your
account number and the Share or dollar amount requested to:
101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226
By Telephone
You may redeem Shares of a Fund by calling the Funds at 1-800-994-4414.
Shareholders who are trust customers of Wachovia Bank may also contact their
trust officer.
Shareholders who have an Authorized Dealer should contact their Authorized
Dealer for specific instructions on how to redeem by telephone.
Your telephone instructions may be recorded. If a Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Funds will notify you if it changes
telephone transaction privileges.
Signature Guarantees Signatures must be guaranteed if:
o your redemption is to be sent to an address other than the address
of record;
o your redemption is to be sent to an address of record that was
changed within the last thirty
days; or
o a redemption is payable to someone other than the shareholder(s) of
record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or credit union) or a broker/dealer that is a domestic stock
exchange member, but not by a notary public.
Limitations On Redemption Proceeds
Redemption proceeds normally are mailed within one business day after receiving
a request in proper form. However, payment may be delayed up to seven days:
o to allow your purchase payment to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its
assets.
Redemption in Kind. Although the Funds intend to pay Share redemptions in cash,
they reserve the right to pay the redemption price in whole or in part by a
distribution of a Fund's portfolio securities.
Retirement Distributions
A minimum of 10% of the value of your retirement distribution (redemption) will
be withheld for taxes in the absence of your specific instructions.
Systematic Withdrawal Program
The Systematic Withdrawal Program allows you to automatically redeem Shares
monthly or quarterly at a minimum of $100. Your account value must be at least
$10,000 at the time the program is established. This program may reduce, and
eventually deplete, your account, and the payments should not be considered
yield or income. You may apply for participation in this program through your
financial institution.
Due to the Fact that Class A Shares are sold with an initial sales charge, it is
not advisable for you to purchase Class A Shares while participating in this
program. A CDSC may be imposed on systematic redemptions of Class B Shares.
Share Certificates
The Funds no longer issue Share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do not
endorse them.
ACCOUNT AND SHARE INFORMATION
Confirmations And Account Statements
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
Dividends And Capital Gains
- ------------------------------------------ -------------------------------------
Fund Dividends Declared and Paid
- ------------------------------------------ -------------------------------------
Equity Fund
- ------------------------------------------
- ------------------------------------------
Quantitative Equity Fund
- ------------------------------------------
- ------------------------------------------
Growth & Income Fund quarterly
- ------------------------------------------
- ------------------------------------------
Equity Index Fund
- ------------------------------------------
Balanced Fund
- ------------------------------------------ -------------------------------------
Fixed Income Fund
- ------------------------------------------
- ------------------------------------------
Intermediate Fixed Income Fund monthly
- ------------------------------------------
Short-Term Fixed Income Fund
- ------------------------------------------ -------------------------------------
Emerging Markets Fund annually
- ------------------------------------------
Special Values Fund
- ------------------------------------------ -------------------------------------
The Wachovia Municipal Funds Declared daily/Paid monthly
- ------------------------------------------ -------------------------------------
Dividends are declared and paid to shareholders invested in a Fund on the record
date.
In addition, each Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a distribution, whether or not you
reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
Accounts With Low Balances
Non-retirement accounts may be closed if redemptions or exchanges cause the
account balance to fall below the minimum initial investment amount. Before an
account is closed, the shareholder will be notified and allowed 30 days to
purchase additional Shares to meet the minimum.
The Wachovia Funds Tax Information
The Funds send you an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Capital gains distributions are taxable at different
rates depending upon the length of time a Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.
Please consult your tax adviser regarding your federal, state, and local tax
liability.
The Wachovia Municipal Funds Tax Information
The Funds send you a timely statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of each Fund's dividends may not be exempt. or
not dividends are exempt from federal income tax, they may be subject to state
and local taxes, although the each Fund's dividends will be exempt from their
respective state's personal income tax (i.e. Georgia, North Carolina, South
Carolina or Virginia) to the extent they are derived from interest on
obligations exempt from that state's personal income taxes. You may have to
include certain dividends as taxable income if the federal alternative minimum
tax applies to you. Capital gains and non-exempt dividends are taxable whether
paid in cash or reinvested in a Fund. Redemptions and exchanges are taxable
sales. Please consult your tax adviser regarding your federal, state and local
tax liability.
WHO MANAGES THE FUNDS?
The Board of Trustees governs the Funds. The Board selects and oversees the
investment adviser for the Funds, Wachovia Asset Management, a business unit of
Wachovia Bank. The investment adviser manages each Fund's assets, including
buying and selling portfolio securities. The investment adviser's address is 100
North Main Street, Winston-Salem, NC 27101.
Wachovia Bank has been managing trust assets for over 100 years, with over $__
billion in managed assets as of December 31, 1998.
The investment adviser is entitled to receive annual investment advisory fees
equal to a percentage of each Fund's average daily net assets. The investment
adviser may voluntarily choose to waive a portion of its fees or reimburse a
Fund for certain expenses.
- ------------------------------------------- -----------------------------
Fund Annual Investment Advisory
Fee paid to Investment
Adviser as a percentage of
average daily net assets
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
Equity Fund 0.70%
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
Quantitative Equity Fund 0.70%
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
Growth & Income Fund 0.70%
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
Equity Index Fund 0.30%
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
Special Values Fund 0.80%
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
Emerging Markets Fund 1.00%
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
Balanced Fund 0.70%
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
Fixed Income Fund 0.60%
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
Intermediate Fixed Income Fund 0.60%
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
Short-Term Fixed Income Fund 0.55%
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
Georgia Municipal Bond Fund 0.75%
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
North Carolina Municipal Bond Fund 0.75%
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
South Carolina Municipal Bond Fund 0.75%
- ------------------------------------------- -----------------------------
- ------------------------------------------- -----------------------------
Virginia Municipal Bond Fund 0.74%
- ------------------------------------------- -----------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Portfolio Managers
- ----------------------- ------------------------------ ---------------------------------------------------------------------
Portfolio Manager Funds Managed Biography
- ----------------------- ------------------------------ ---------------------------------------------------------------------
Jerry D. Burton Quantitative Equity Fund Mr. Burton is a Chartered Financial Analyst and Vice President and
Portfolio Manager for Personal Financial Services for the
investment adviser. In 1971, Mr. Burton joined South Carolina
National Bank, which was acquired by Wachovia Bank in 1991. Mr.
Burton received a bachelors degree from Clemson University and an
MBA from the College of William and Mary.
Daniel S. Earthman Balanced Fund Mr. Earthman is a Chartered Financial Analyst and a Senior Vice
Growth & Income Fund President of the investment adviser. Prior to joining Wachovia Bank
Equity Fund in 1988, Mr. Earthman was a Vice President and Investment Manager
with Richland Asset Management in Nashville, and an Assistant Vice
President and Portfolio Manager with North Carolina National Bank
in Charlotte. Mr. Earthman received a bachelors degree in business
from Southern Methodist University and a MBA from the University of
North Carolina at Chapel Hill.
<PAGE>
Samuel M. Gibbs, II Short-Term Income Fund Mr. Gibbs is a Senior Vice President and Manager of Fixed Income
Fixed Income Fund Investments for the investment adviser. Mr. Gibbs joined Wachovia
Intermediate Fixed Income Bank in 1969 as a portfolio manager. He became a bond trader and
Fund fixed income portfolio manager in 1975 and assumed his current
position in 1977. Mr. Gibbs is a graduate of Davidson College and
has an MBA from the University of South Carolina.
<PAGE>
Roger L. Glenski Special Values Fund Mr. Glenski is a Certified Public Accountant and Assistant Vice
President of the investment adviser. Mr. Glenski joined Wachovia
Bank in 1996, specializing in the valuation of closely-held
businesses and small companies. Previously, Mr. Glenski was
employed by the accounting firms of KPMG and Deloitte & Touche LLP
in Chicago. Mr. Glenski received a bachelors degree from the
University of Missouri-Kansas City and a MBA from the University of
Chicago.
John F. Hageman Equity Fund John F. Hageman is a Chartered Financial Analyst and a Senior Vice
Balanced Fund President and Institutional Portfolio Manager for the investment
Growth & Income Fund adviser. Mr. Hageman is responsible for managing employee benefit,
foundation and endowment portfolios. Prior to joining Wachovia Bank
in 1986, Mr. Hageman was Vice President and head of Institutional
Investment Management at Michigan National Investment Corporation
from 1977 to 1986, and an account executive with Merrill Lynch from
1975 to 1977. Mr. Hageman received his B.A. from Wabash College.
Paige C. Henderson Emerging Markets Fund Ms. Henderson is a Chartered Financial Analyst and a Vice President
of the investment adviser. Ms. Henderson joined Wachovia Bank in
1991 as an Equity Analyst. Ms. Henderson received a bachelors of
science in Business Administration and an MBA from the University
of North Carolina at Chapel Hill. Ms. Henderson is a Certified
Public Accountant.
Michael W. Holt Fixed Income Fund Mr. Holt is a Chartered Financial Analyst and Fixed Income
Intermediate Fixed Income Portfolio Manager of the investment adviser. Mr. Holt joined
Fund Wachovia Bank in 1991. He is a graduate of the University of
Tennessee where he
majored in economics and
received a MBA in
Finance.
<PAGE>
Russell L. Kimbro, Jr. Equity Fund Mr. Kimbro is a Chartered Financial Analyst and Senior Vice
Balanced Fund President and Portfolio Manager for Personal Financial Services for
Growth & Income Fund the investment adviser. Mr. Kimbro joined Wachovia Bank in 1985.
Mr. Kimbro is an
instructor of corporate
finance an the University
of North Carolina at
Greensboro. He received
his bachelors degree in
economics from Virginia
Polytechnical Institute
and State University and
a MBA from the University
of North Carolina at
Greensboro.
F. Stanley King Equity Fund Mr. King is a Chartered Financial Analyst and a Senior Vice
Balanced Fund President of the investment adviser. Mr. King serves as manager of
Growth & Income Fund institutional portfolio management for the investment adviser. Mr.
King joined Wachovia Bank
in 1985 as a securities
analyst and assumed his
current position in 1991.
He has both his bachelors
and masters of science
degrees from North
Carolina State
University.
George E. McCall Quantitative Equity Fund Mr. McCall is a Certified Financial Planner and Vice President of
the investment adviser. In 1981, Mr. McCall joined South Carolina
National Bank, which was acquired by Wachovia Bank in 1991. Mr.
McCall is a graduate of Presbyterian College and received an MBA
from the University of South Carolina.
Matthew J. McGuinness Equity Fund Mr. McGuinness is a Chartered Financial Analyst and Vice President
Balanced Fund and Portfolio Manager for Personal Financial Services for the
Growth & Income Fund investment adviser. Mr. McGuinness joined Wachovia Bank in 1991 in
the Estates/Closely-Held Unit. He received an MBA from the
University of North Carolina at Chapel Hill.
<PAGE>
Michael O. Mercer Equity Fund Mr. Mercer is a Senior Vice President of Wachovia and manages the
Balanced Fund Wachovia Equity Investment Fund and other large institutional
Growth & Income Fund accounts. Mr. Mercer joined Wachovia Bank in 1983 and is a
Chartered Financial Analyst. Mr. Mercer is a graduate of Catawba
College and received an MBA from Florida State University.
<PAGE>
Wayne F. Morgan Fixed Income Fund Mr. Morgan is a Chartered Financial Analyst and Senior Vice
Intermediate Fixed Income President of the investment adviser. Prior to joining Wachovia Bank
Fund in June, 1997 as a senior fixed income portfolio manager, Mr.
Morgan served as the
Director of Investments
at the University of
North Carolina at Chapel
Hill, where he oversaw
the management of the
University's endowment
fund. Mr. Morgan received
both a bachelors degree
and his MBA from the
University of North
Carolina at Chapel Hill.
J. Joseph Muster The Wachovia Municipal Funds Mr. Muster is a Vice President and Manager of Money Market and
Municipal Investments in the Fixed Income Section of the investment
adviser. Mr. Muster joined Wachovia Bank in 1992 as a credit
analyst. Mr. Muster is a graduate of the University of Georgia and
received his MBA from Duke University.
Harold (Rick) Nelson Fixed Income Fund Mr. Nelson III is a Senior Vice President and fixed income
III Intermediate Fixed Income portfolio manager of the investment adviser. Mr. Nelson joined
Fund Wachovia Bank in 1985 as
a fixed income portfolio
manager. He received his
bachelors of science
degree in management from
St. Francis College and
his MBA in Finance from
Mercer University.
B. Scott Sadler Emerging Markets Fund Mr. Sadler is a Chartered Financial Analyst and Vice President of
the investment adviser. Mr. Sadler joined Wachovia Bank in 1987.
Mr. Sadler is a graduate of the University of Virginia's McIntire
School of Commerce with a bachelors degree in commerce.
Michael G. Sebesta Fixed Income Fund Mr. Sebesta is a Vice President and Fixed Income Portfolio Manager
Intermediate Fixed Income for the investment adviser. Mr. Sebesta joined Wachovia Bank in
Fund 1989. Mr. Sebesta has a bachelors degree in economics from Wake
Forest University.
Michael J. Tierney Emerging Markets Fund Mr. Tierney is an Executive Vice President of Wachovia Bank and
Special Values Fund Chief Investment Officer with the investment adviser. Mr. Tierney
joined Wachovia Bank in 1981. Mr. Tierney is a graduate of the
University of Connecticut, and has more than 25 years of experience
managing equity and fixed income investments.
Joseph H. Waterfill Balanced Fund Mr. Waterfill is a Senior Vice President of the investment adviser.
Equity Fund Mr. Waterfill joined Wachovia Bank in 1976. Mr. Waterfill received
Quantitative Equity Fund his bachelors of science degree from the U.S. Naval Academy and his
Growth & Income Fund MBA from Vanderbilt University.
</TABLE>
FINANCIAL INFORMATION
Financial Highlights
The following financial highlights are intended to help you understand each
Fund's financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on a
per share basis. Total returns represent the rate an investor would have earned
(or lost) on an investment in a Fund, assuming reinvestment of all dividends and
distributions.
This information has been audited by Ernst & Young LLP whose report, along with
the Fund's audited financial statements, is included in the Annual Report.
TO COME
<PAGE>
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
Class A Shares and Class B Shares
The following documents contain further details about the Funds and are
available upon request and without charge:
Statement of Additional Information (SAI)--The SAI includes additional
information about the Funds. The SAI is incorporated by reference into this
prospectus, making it legally a part of this prospectus.
Shareholder Reports--The Funds publish annual and semi-annual reports to
shareholders which include information about the Funds' investments. The annual
report discusses market conditions and investment strategies that significantly
affected each Fund's performance during its last fiscal year.
To obtain the SAI, the annual and semi-annual reports and other information
without charge call your investment professional or the Fund at 1-800-994-4414.
You can obtain information about the Funds by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, DC
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
Product Code
Logo
SEC File Numbers:
811-6504
811-6201
THE WACHOVIA FUNDS
Class Y Shares
<PAGE>
Wachovia Equity Fund
Wachovia Quantitative Equity Fund
Wachovia Growth & Income Fund
Wachovia Equity Index Fund
Wachovia Special Values Fund
Wachovia Emerging Markets Fund
Wachovia Balanced Fund
Wachovia Fixed Income Fund
Wachovia Intermediate Fixed Income Fund
Wachovia Short-Term Fixed Income Fund
<PAGE>
2
THE WACHOVIA MUNICIPAL FUNDS
Class Y Shares
Wachovia Georgia Municipal Bond Fund
Wachovia North Carolina Municipal Bond Fund
Wachovia South Carolina Municipal Bond Fund
Wachovia Virginia Municipal Bond Fund
Prospectus
February __, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Contents [To be completed]
<PAGE>
FUND GOALS, STRATEGIES, PERFORMANCE AND RISK
Equity Funds
Wachovia Equity Fund
Goal: Seeks to produce growth of principal and income.
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of common stocks Under normal market conditions, the Fund intends to
invest at least 65% of its assets in stocks. The Fund's investment adviser
selects securities based on a number of factors, incorporating both growth and
value measures. A combination of fundamental analysis, quantitative modeling,
strategic outlook, and relative price performance trends are used to select
stocks perceived to be undervalued with prospects for improving fundamentals.
[Add total return bar chart and table-TO COME]
Wachovia Quantitative Equity Fund
Goal: Seeks to provide growth of principal and income
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of common stocks. Under normal market conditions, the Fund intends to
invest at least 65% of its holdings in stocks. Stocks are selected using a
quantitative computer valuation model provided by the Fund's sub-adviser. The
model combines multiple factors believed to have predictive power in determining
future stock price performance.
[Add total return bar chart and table-TO COME]
Wachovia Growth & Income Fund
Goal: Seeks to provide total return through growth of capital and current
income.
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of common stocks. Under normal market conditions, the Fund intends to
invest at least 65% of its holdings in stocks. The Fund's investment adviser
selects securities based on a number of factors, incorporating both growth and
value measures. A combination of fundamental analysis, quantitative modeling,
strategic outlook, and relative price performance trends are used to select
stocks perceived to be undervalued with prospects for improving fundamentals.
[Add total return bar chart and table-TO COME]
Wachovia Equity Index Fund
Goal: Seeks to provide a total return that approximates that of the stock
market as measured by the S&P "500" Index.
Strategy: The Fund pursues its investment objective by investing in a broadly
diversified portfolio of common stocks that make up the S&P 500 Index. The Fund
normally aims to invest in all the stocks in the Index and closely match the
performance of the Index. The Fund is managed using a computer program that
identifies which stocks should be purchased or sold in order to approximate, as
much as possible, the investment return of the stocks in the S&P 500 Index.
Under normal circumstances, at least 95% of the value of the Fund's holdings
will be invested in stocks in the Index and S&P 500 Index futures contracts.
However, the Fund is not required to sell securities if the 95% investment level
changes due to increases or decreases in the market value of portfolio
securities.
[Add total return bar chart and table-TO COME]
Wachovia Special Values Fund
Goal: Seeks to produce growth of principal.
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of stocks of small U.S. companies. The investment adviser looks for
significantly undervalued companies that it believes have the potential for
above-average growth commensurate with increased risk. Typical investments are
in stocks of companies that have low price-to-earnings ratios, are generally out
of favor in the marketplace, are selling significantly below their stated or
replacement book value or are undergoing a reorganization or other corporate
action that may create above-average price appreciation. Under normal market
conditions, the Fund intends to invest at least 65% of its assets in stocks of
companies that have a market value capitalization of up to $1 billion or less.
The Fund may invest up to 20% of total assets in foreign securities.
[Add total return bar chart and table-TO COME]
<PAGE>
Wachovia Emerging Markets Fund
Goal: Seeks to produce long-term capital appreciation.
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of securities of issuers located in countries that are generally
considered to be developing or emerging countries by the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation, as well as countries that are classified by
the United Nations or otherwise regarded by their authorities as developing. The
investment adviser uses a value-oriented approach and selects companies in
countries where political and economic factors, including currency movements,
are likely to produce above average capital appreciation. Under normal market
conditions, the Fund intends to invest at least 65% of its holdings in
securities of issuers located emerging market countries. Although the Fund will
focus its investment on the common stocks of foreign companies located in
emerging market countries, the Fund may also invest in other types of
securities, including debt securities.
[Add total return bar chart and table-TO COME]
Wachovia Balanced Fund
Goal: Seeks to produce long-term growth of principal and current income.
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of equity securities and debt securities. In selecting equity
securities, the investment adviser uses a combined growth and value approach,
seeking undervalued companies that it believes have improving prospects for
growth. In selecting, debt securities, the investment adviser seeks to maximize
total return (which consists of capital gains and income) available from a
diversified portfolio of fixed income securities which provide relative
stability of principal and income as compared to other fixed income securities.
Under normal market circumstances, the Fund will invest at least 65% of its
holdings in equity securities and debt securities. As a matter of operating
policy, the asset mix of the Fund will normally range between 50-70% in common
stocks and convertible securities, 30-50% in preferred stocks and bonds, and
0-20% in money market instruments. The Fund will maintain at least 25% of its
holdings in fixed income senior securities, including convertible senior
securities.
[Add total return bar chart and table-TO COME]
Income Funds
Wachovia Fixed Income Fund
Goal: Seeks a high level of total return.
Strategy: As a secondary investment objective, the Fund attempts to minimize
volatility of principal relative to the fixed income markets. Total return
consists of income and capital gains. The Fund pursues its investment objectives
by investing primarily in a diversified portfolio of fixed income securities
that, at the time of purchase, are rated in the top four investment categories
by a nationally recognized statistical rating organization (NRSRO) or, if
unrated, are of comparable quality to securities with such ratings. The Fund
invests in corporate bonds, asset- and mortgage-backed securities and U.S.
government securities. The investment adviser changes the Fund's weighting in
these types of investments as it thinks appropriate and use fundamental
macroeconomic, credit and market analysis to select portfolio securities.
Normally, the Fund will maintain an average dollar-weighted maturity of between
6 to 10 years. The Fund will invest, under normal circumstances, at least 65% of
the value of its holdings in fixed income securities.
[Add total return bar chart and table-TO COME]
Wachovia Intermediate Fixed Income Fund
Goal: Seeks current income consistent with preservation of capital.
Strategy: The Fund pursues it investment objective by investing primarily in a
portfolio of fixed income securities, that, at the time of purchase, are rated
in the top four investment categories by an NRSRO or, if unrated, are of
comparable quality to securities with such ratings. The investment adviser
changes the Fund's weighting in these types of investments as it thinks
appropriate and uses fundamental macroeconomic, credit and market analysis to
select portfolio securities. Normally, the Fund will maintain an average
dollar-weighted maturity of between 3 to 10 years. The Fund will invest, under
normal circumstances, at least 65% of the value of its holdings in fixed income
securities with stated maturities or estimated average lives of 10 years or
less.
[Add total return bar chart and table-TO COME]
<PAGE>
Wachovia Short-Term Fixed Income Fund
Goal: Seeks to produce a high level of current income.
Strategy: The Fund pursues its investment objective by investing primarily in a
portfolio of short-term, high quality, fixed income securities. Under normal
market circumstances, the Fund will invest at least 65% of its holdings in such
securities. The investment adviser changes the Fund's weighting in these types
of investments as it thinks appropriate and use fundamental macroeconomic,
credit and market analysis to select portfolio securities. The Fund will
maintain an average dollar-weighted maturity of between one to three years.
[Add total return bar chart and table-TO COME]
Municipal Funds
Wachovia Georgia Municipal Bond Fund
Goal: seeks to provide current income which is exempt from federal regular
income tax and the income taxes imposed by the State of Georgia.
Strategy: The Fund normally invests at least 80% of its total assets in debt
obligations, the interest income from which is exempt from federal regular
income tax and the personal income taxes imposed by the State of Georgia. The
investment adviser selects investments after assessing factors such as trends in
interest rates, credit worthiness, the supply of appropriate municipal bonds,
and portfolio diversification.
[Add total return bar chart and table-TO COME]
Wachovia North Carolina Municipal Bond Fund
Goal: Seeks to provide current income which is exempt from federal regular
income tax and the income tax imposed by the State of North Carolina.
Strategy: The Fund normally invests at least 80% of its total assets in debt
obligations, the interest income from which is exempt from federal regular
income tax and the income tax imposed by the State of North Carolina. The
investment adviser selects investments after assessing factors such as trends in
interest rates, credit worthiness, the supply of appropriate municipal bonds,
and portfolio diversification.
[Add total return bar chart and table-TO COME]
Wachovia South Carolina Municipal Bond Fund
Goal: Seeks to provide current income which is exempt from federal regular
income tax and the South Carolina state income taxes.
Strategy: The Fund normally invests its assets so that at least 80% of its
interest income is exempt from federal regular income tax and South Carolina
state income taxes or that at least 80% of its total assets are invested in debt
obligations, the interest income from which is exempt from federal regular
income tax and South Carolina state income taxes. The investment adviser selects
investments after assessing factors such as trends in interest rates, credit
worthiness, the supply of appropriate municipal bonds, and portfolio
diversification.
[Add bar chart and total return table-TO COME]
Wachovia Virginia Municipal Bond Fund
Goal: Seeks to provide a high level of current income that is exempt from
federal regular income tax and the income tax imposed by the Commonwealth of
Virginia as is consistent with the preservation of capital.
Strategy: The Fund normally invests at least 80% of its total assets in debt
obligations, the interest income from which is exempt from federal regular
income tax and the personal income taxed imposed by the Commonwealth of
Virginia. The investment adviser selects investments after assessing factors
such as trends in interest rates, credit worthiness, the supply of appropriate
municipal bonds, and portfolio diversification. At least 65% of the value of the
Fund's total assets will be invested in obligations issued by or on behalf of
the state of Virginia, its political subdivisions, or agencies.
[Add total return bar chart and table-TO COME]
Principal Investment Risks
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Funds.
An investment in a Fund is not a deposit of a bank and is not insured or
guaranteed by Wachovia Bank, N.A., the Federal Deposit Insurance Corporation or
any other government agency.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Equity Debt Emerging Municipal
Fund Market Risks Securities Securities Markets Securities Diversification
Risks Risks Risks Risks Risks
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Equity Fund x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Quantitative Equity Fund x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Growth & Income Fund x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Equity Index Fund x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Special Values Fund x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Emerging Markets Fund x x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Balanced Fund x x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Fixed Income Fund x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Intermediate Fixed Income Fund x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Short-Term Fixed Income Fund x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Georgia Municipal Bond Fund x x x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
North Carolina Municipal Bond Fund x x x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
South Carolina Municipal Bond Fund x x x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
Virginia Municipal Bond Fund x x x x
- ----------------------------------------- ------------- ------------- ------------- ------------- -------------- ------------------
</TABLE>
WHAT ARE THE FUNDS' FEES AND EXPENSES?
These tables describe the fees and expenses that you may pay when you buy, hold,
and redeem shares of the Funds' Class Y Shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth & Special Emerging
Shareholder Fees Equity Quantitative Income Fund Equity Index Values Fund Markets Fund Balanced Fund
Fees Paid Directly From Your Investment Fund Equity Fund Fund
Maximum Sales Charge (Load)
Imposed on Purchases None None None None None None None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None None None None None None None
(as a percentage of original purchase price or
redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends (and other Distributions) None None None None None None None
(as a percentage of offering price)
Redemption Fee (as a percentage of amount None None None None None None None
redeemed, if applicable)
Exchange Fee None None None None None None None
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee 0.63%% 0.63% 0.70% 0.28% 0.79% 1.00% 0.54%
Distribution (12b-1) Fee None None None None None None None
Shareholder Services Fee None None None None None None None
Other Expenses % % % % % % %
Total Annual Class A Shares Operating Expenses % % % % % % %
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
North South
Fixed Intermediate Short-Term Georgia Carolina Carolina Virginia
Shareholder Fees Income Fund Fixed Income Fixed Income Municipal Municipal Municipal Municipal
Fees Paid Directly From Your Investment Fund Fund Bond Fund Bond Fund Bond Fund Bond Fund
Maximum Sales Charge (Load)
Imposed on Purchases None None None None None None None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None None None None None None None
(as a percentage of original purchase price or
redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends (and other Distributions) None None None None None None None
(as a percentage of offering price)
Redemption Fee (as a percentage of amount None None None None None None None
redeemed, if applicable)
Exchange Fee None None None None None None None
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee 0.49% 0.48% 0.36% 0.00% 0..31% 0.27% 0.45%
Distribution (12b-1) Fee None None None None None None None
Shareholder Services Fee None None None None None None None
Other Expenses % % % % % % %
Total Annual Class A Shares Operating Expenses % % % % % % %
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Example
The following Example is intended to help you compare the cost of investing in
each Fund's Class Y Shares with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in each Fund's Class Y Shares for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that each Fund's Class Y Shares operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Special Emerging
Equity FundQuantitative Growth & Equity Values Fund Markets Fund Balanced
Expenses assuming no redemption Equity Fund Income Fund Index Fund Fund
1 Year $ $ $ $ $ $ $
3 Years $ $ $ $ $ $ $
5 Years $ $ $ $ $ $ $
10 Years $ $ $ $ $ $ $
Intermediate North South
Fixed Fixed Income Short-Term Georgia Carolina Carolina Virginia
Income Fund Fund Fixed Income Municipal Municipal Municipal Municipal
Expenses assuming no redemption Fund Bond Fund Bond Fund Bond Fund Bond Fund
1 Year $ $ $ $ $ $ $
3 Years $ $ $ $ $ $ $
5 Years $ $ $ $ $ $ $
10 Years $ $ $ $ $ $ $
</TABLE>
<PAGE>
WHAT ARE THE FUNDS' MAIN INVESTMENTS AND INVESTMENT TECHNIQUES?
Equity Securities are the fundamental unit of ownership in a company. They
represent a share of the issuer's earnings and assets, after the issuer pays its
liabilities. Generally, issuers have discretion as to the payment of any
dividends or distributions. As a result, investors cannot predict the income
they will receive from equity securities. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. the
following describes the types of equity securities in which a Fund invests.
Common Stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and
assets after the issuer pays its creditors and any preferred
stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks have the right to receive specified dividends or
distributions before the payment of dividends or distributions on
common stock. Some preferred stocks also participate in dividends and
distributions paid on common stock. Preferred stocks may provide for
the issuer to redeem the stock on a specified date. A Fund may treat
such redeemable preferred stock as a fixed income security.
Warrants give a Fund the option to buy the issuer's stock or other
equity securities at a specified price. A Fund may buy the designated
shares by paying the exercise price before the warrant expires.
Warrants may become worthless if the price of the stock does not rise
above the exercise price by the expiration date. Rights are the similar
to warrants, but are typically issued to existing stockholders.
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time. Fixed
income securities provide more regular income than equity securities. However,
the returns on fixed income securities are limited and normally do not increase
with the issuer's earnings. This limits the potential appreciation of fixed
income securities as compared to equity securities.
Municipal securities are fixed income securities issued by states, counties,
cities and other political subdivisions and authorities. Although most municipal
securities are exempt from federal income tax, municipalities may also issue
taxable securities. The Municipal Funds may invest in such taxable municipal
securities.
Tax exempt securities are fixed income securities that pay interest exempt from
regular federal income taxes. States, counties, cities and other political
subdivisions and authorities typically issue tax exempt securities. Tax exempt
securities are generally differentiated by their source of repayment.
Portfolio Turnover. Instead of a buy-and-hold strategy, the Funds (except Equity
Index Fund) actively trade their portfolio securities in an attempt to achieve
each Fund's investment objective. This means each Fund will have a higher
portfolio turnover rate, and is likely to generate shorter-term gains or losses
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases a Fund's trading costs
and may impact the Fund's performance.
Credit Quality and Investment Ratings. When a Fund invests in debt securities or
convertible securities some most will be rated BBB or better by Standard &
Poor's or Baa or better by Moody's Investors Services, Inc. at the time of
purchase. Unrated securities will be determined by the investment adviser to be
of like quality and may have greater risk but a higher yield than comparable
rated securities.
Securities rated BBB by Standard and Poor's or Baa by Moody's Investors
Services, Inc. have speculative characteristics.
Temporary Defensive Investments. The Funds may temporarily depart from their
principal investment strategies by investing assets in cash, cash items, and
shorter-term, higher quality debt securities. The Funds may do this to minimize
potential losses and maintain liquidity to meet shareholder redemptions during
adverse market conditions. This may cause a Fund to forego greater investment
returns for the safety of principal.
S&P 500 Index. The S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. S&P designates the stocks to be
included in the Index on a statistical basis. A particular stock's weighting in
the Index is based on its relative total market value; that is, its market price
per share times the number of shares outstanding. From time to time, S&P may add
or delete stocks from the Index. The Index represents approximately 70% of the
total market value of all common stocks. In addition, it is familiar to
investors, and is recognized as a barometer of common stock investment returns.
Inclusion of a particular security in the Index in no way implies an opinion by
S&P as to the stock's appropriateness as an investment. The Funds are not
sponsored, endorsed, sold or promoted by or affiliated with S&P.
<PAGE>
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUNDS?
Market Risk. The market value of securities fluctuate daily.
Equity Securities Risks. Each Fund is subject to fluctuations in the stock
market which has periods of increasing and decreasing values. These fluctuations
can be caused by many events, including changes to domestic or international
economic conditions. Stocks have greater volatility than debt securities. While
greater volatility increases risk, it offers the potential for greater reward.
Equity risk is also related to the size of the company issuing stock. Companies
may be categorized as having a small, medium, or large capitalization (market
value). The potential risks are higher with small capitalization companies and
lower with large capitalization companies. Therefore, you should expect that
investments in the Special Values Fund will be more volatile than broad stock
market indices such as the S&P 500 or than funds that invest in
large-capitalization companies such as Quantitative Equity Fund or Equity Fund.
Debt Securities Risks. Prices of fixed-rate debt securities generally move in
the opposite direction of the interest rates. The interest payments on
fixed-rate debt securities do not change when interest rates change. Therefore,
the price of these securities can be expected to decrease when interest rates
increase and any of the Income Fund's or Municipal Fund's net asset value may go
down. While the investment adviser attempts to anticipate interest rate
movements, there is no guarantee that it will be able to correctly predict them.
In addition, debt securities with longer maturities or durations will experience
greater price volatility than those with shorter maturities or durations, and
the Fund's net asset value can be expected to fluctuate accordingly.
The credit quality of a debt security is based upon the ability of the issuer to
repay the security. If the credit quality of securities declines, the net asset
value could go down.
Principal and interest payments on a security may not be paid when due. If
interest rates are declining, an issuer may repay a debt security held in the
portfolio prior to its maturity. If this occurs, the investment adviser may have
to reinvest the proceeds in debt securities paying lower interest rates
resulting in lower yields to the Income Funds and Municipal Funds.
Emerging Markets Risk. Investing in the Emerging Markets Fund entails a
substantial degree of risk. Because of the special risks associated with
investing in emerging markets, an investment in the Emerging Markets Fund should
be considered speculative. Investors are strongly advised to carefully consider
the special risks involved in emerging markets, which are in addition to the
usual risks of investing in domestic markets and in developed markets around the
world. By itself, an investment in the Emerging Markets Fund does not constitute
a balanced investment plan. Investors should be willing to assume a higher
degree of risk and accept a higher level of volatility than is generally
associated with investment in more developed markets.
Municipal Securities Risks. Local political and economic factors may adversely
affect the value and liquidity of municipal securities held by each of the
Municipal Funds. The value of municipal securities can be affected more by
supply and demand factors or the creditworthiness of the issuer than market
interest rates. Repayment of municipal securities depends on the ability of the
issuer or project backing such securities to generate taxes or revenues. Because
the Funds invest primarily in Georgia, North Carolina, South Carolina and
Virginia, respectively, they may be adversely affected by the factors or events
particular to that state.
Issuer Diversification. The Municipal Funds are not diversified. Compared to
diversified mutual funds, they may invest a higher percentage of each Funds
assets among fewer issuers of portfolio securities. This increases each Fund's
risk by magnifying the impact (positively or negatively) that any one issuer has
on a Fund's share price and performance.
Prepayment Risk. Principal on a fixed income security may be repaid before its
scheduled maturity. This may reduce the security's value and require the Fund to
reinvest the prepayment at a lower yield. In addition, the Fund may buy a fixed
income security with an expectation of early prepayment. If the prepayment does
not occur, the security will decline in value. This is known as Extension Risk.
Tax Risk. Interest on a municipal security may be subject to regular
federal income tax. Any investment can be adversely affected by changes in tax
laws. For example, the value of stocks can by affected by changes in capital
gains tax rates.
Leveraging. Various investment strategies involve agreements to purchase or sell
securities or currencies in amounts that exceed the amount the Fund has invested
in the underlying securities or currencies. The excess exposure increases the
risks associated with the underlying securities or currencies on the Fund's
investment performance.
Foreign Securities Risks. Foreign securities pose additional risks over domestic
securities because foreign economic, governmental, and political systems may be
less favorable than those of the United States. Other risk factors related to
foreign securities include: rates of inflation, structure and regulation of
financial markets, liquidity and volatility of investments, taxation policies,
and accounting standards. In addition, a Fund may incur higher costs and
expenses when making foreign investments, which could impact the Fund's
performance. Exchange rates for currency fluctuate daily. The combination of
currency risk and market risks tends to make securities traded in foreign
markets more volatile than securities traded exclusively in the United States.
Emerging Market Securities Risks. Investments in developing or emerging markets
securities are subject to higher risks than those in developed market countries
because there is greater uncertainty in less established markets and economies.
These risks include the possibility of expropriation, nationalization or
confiscatory taxation, unstable political, social or economic systems, smaller
securities markets, lower trading volume, and substantial rates of inflation.
Asset-Backed/Mortgage-Backed Securities Risks. Asset-backed and mortgage-backed
securities are subject to risks of prepayment which generally occurs when
interest rates fall. Reinvesting these prepayments in a lower interest rate
environment reduces a Fund's income. Asset-backed securities may have a higher
level of default and recovery risk than mortgage-backed securities.
Futures and Options Risks. The successful use of futures, options, and other
derivative instruments is based on the investment adviser's ability to correctly
anticipate market movements. When the direction of the prices of a Fund's
securities does not correlate with the changes in the value of these
transactions, or when the trading market for derivatives becomes illiquid, the
Fund could lose money.
Securities Lending Risks. When a Fund lends its portfolio securities, it may not
be able to get them back from the borrower on a timely basis, thereby exposing
the Fund to a loss of investment opportunities.
Year 2000 Readiness. The "Year 2000" problem is the potential for computer
errors or failures because certain computer systems may be unable to interpret
dates after December 31, 1999. The Year 2000 problem may cause systems to
process information incorrectly and could disrupt businesses that rely on
computers, like the Funds.
While it is impossible to determine in advance all of the risks to the Funds,
the Funds could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Funds' service providers are making changes to their computer systems to
attempt to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Funds' investments. The
financial impact of these issues for the Funds is still being determined. There
can be no assurance that potential Year 2000 problems would not have a material
adverse effect on the Funds.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Class Y Shares (Shares) any day Wachovia
Bank, N.A. (Wachovia Bank), the New York Stock Exchange (NYSE) and the Federal
Reserve Wire System are open for business. When a Fund receives your transaction
request in proper form, it is processed at the next determined net asset value
(NAV).
NAV is determined at the end of regular trading (normally 4 p.m. Eastern time)
each day the NYSE is open. The value of Fund Shares is generally determined
based upon the market value of portfolio securities. However, the Funds' Board
may determine in good faith that another method of valuing investments is
necessary to appraise their fair market value.
The following table summarizes the minimum required investment amount required
for an investment in a Fund.
---------------------------------------
Minimum Initial /Subsequent Investment Required
---------------------------------------
The Wachovia Funds $250/$50
- ---------------------------------------- ---------------------------------------
The Wachovia Municipal Funds $500/$100
- ---------------------------------------- ---------------------------------------
Minimum initial investments may be waived from time to time for purchases by the
Trust Division of Wachovia Bank for its fiduciary or custodial accounts. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Funds.
HOW ARE THE FUNDS SOLD?
The Funds offer two share classes: Class A Shares and Class Y Shares, each
representing interests in a single portfolio of securities. The Equity Fund,
Quantitative Equity Fund, Special Values Fund and Balanced Fund also offer a
third class of shares, Class B Shares.
This prospectus relates only to Class Y Shares of the Funds. Each share class
has different sales charges and other expenses, which affect their performance.
Call 1-800-994-4414 or contact your investment professional for more information
concerning the other classes.
The Fund's distributor, Federated Securities Corp., (Distributor) markets the
Shares described in this prospectus to certain accounts held by Wachovia Bank
and its affiliates in a fiduciary, advisory, agency, custodial, or similar
capacity. In connection with the sale of Shares the distributor may from time to
time offer certain items of nominal value to any shareholder or investor. The
Distributor is a subsidiary of Federated Investors, Inc. (Federated).
HOW TO PURCHASE SHARES
You may purchase Shares through an through the Trust Division of Wachovia Bank
in accordance with the procedures set forth in your account agreement. Payment
may be made by check, by wire of federal funds, or by debiting a customer's
account with Wachovia Bank.
Purchase orders must be received by 3:00 p.m. (Eastern time) in order to receive
that day's public offering price. Orders received after 3:00 p.m. (Eastern time)
will be purchased at the next determined public offering price.
Each Fund and the Distributor reserve the right to reject any request to
purchase Shares.
Through An Exchange
You may purchase Shares through an exchange from the same Share class of another
Fund. You must meet the minimum initial investment requirement for purchasing
Shares.
Systematic Investment Program
Once you have opened a Fund account, you may add to your investment on a regular
basis in amounts of at least $25. Under this program, funds may be automatically
withdrawn from your checking account and invested in Fund shares at NAV next
determined after an order is received by a Fund. You may apply for participation
in this program through Wachovia Bank or through the Distributor.
HOW TO EXCHANGE SHARES
Exchange Privilege
You may exchange Shares of a Wachovia Fund into Shares of the same class of
another Wachovia Fund at NAV. To do this, you must:
o meet any minimum initial investment requirements; and
o receive a prospectus for the Fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction. Signatures must be guaranteed if you request an exchange
into another Fund with a different shareholder registration.
The Fund may modify or terminate the exchange privilege at any time.
Shareholders will be notified of the modification or termination of the exchange
privilege. The Fund's management or investment adviser may determine from the
amount, frequency and pattern of exchanges that a shareholder is engaged in
excessive trading which is detrimental to the Fund and other shareholders. If
this occurs, the Fund may terminate the availability of exchanges to that
shareholder and may bar that shareholder from purchasing other Funds.
Shareholders contemplating exchanges into The Wachovia Municipal Funds should
consult their tax advisers since the tax advantages of each Fund may vary.
By Telephone
You may exchange Shares by telephone by calling 1-800-994-4414.
Telephone exchange instructions must be received by 3:30 p.m.. (Eastern time)
for Shares to be exchanged that day.
Your telephone instructions may be recorded. If a Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Funds will notify you if it changes
telephone transaction privileges.
If you are not able to make your exchange by telephone, an exchange request may
be made in writing and sent by overnight mail to:
101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226
HOW TO REDEEM SHARES
Each Fund redeems shares at its NAV next determined after the Fund receives the
redemption request in proper form. Shares may be redeemed by telephone or by
mail through the trust department of Wachovia Bank or directly from the Fund.
All redemption requests must be received before 3:30 p.m. (Eastern time) in
order for Shares to be redeemed at that day's NAV.
Shareholders who are trust customers of Wachovia Bank may contact their trust
officer by telephone or mail for assistance with redemptions. You may redeem
Shares by calling the Wachovia Funds Service Center for assistance at
1-800-994-4414.
Your telephone instructions may be recorded. If a Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Signature Guarantees. Signatures must be guaranteed if:
o your redemption is to be sent to an address other than the address of record;
o your redemption is to be sent to an address of record that was changed within
the last thirty
days; or
o a redemption is payable to someone other than the shareholder(s) of
record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or credit union) or a broker/dealer that is a domestic stock
exchange member, but not by a notary public.
Limitations On Redemption Proceeds
Redemption proceeds normally are mailed within one business day after receiving
a request in proper form. However, payment may be delayed up to seven days:
o to allow your purchase payment to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its
assets.
Redemption in Kind. Although the Funds intend to pay Share redemptions in cash,
they reserve the right to pay the redemption price in whole or in part by a
distribution of a Fund's portfolio securities.
Systematic Withdrawal Program
The Systematic Withdrawal Program allows you to automatically redeem Shares
monthly or quarterly at a minimum of $100. Your account value must be at least
$10,000 at the time the program is established. This program may reduce, and
eventually deplete, your account, and the payments should not be considered
yield or income. You may apply for participation in this program through your
financial institution.
Share Certificates
The Funds no longer issue Share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption request. For your
protection, send your certificates by registered or certified mail, but do not
endorse them.
ACCOUNT AND SHARE INFORMATION
Confirmations And Account Statements
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
Dividends And Capital Gains
- ----------------------------------- -------------------------------------------
Fund Dividends Declared and Paid
- ----------------------------------- -------------------------------------------
Equity Fund
- ------------------------------------------
- ------------------------------------------
Quantitative Equity Fund
- ------------------------------------------
- ------------------------------------------
Growth & Income Fund quarterly
- ------------------------------------------
- ------------------------------------------
Equity Index Fund
- ------------------------------------------
Balanced Fund
- --------------------------------- -------------------------------------------
Fixed Income Fund
- ------------------------------------------
- ------------------------------------------
Intermediate Fixed Income Fund monthly
- ------------------------------------------
Short-Term Fixed Income Fund
- ----------------------------------- -------------------------------------------
Emerging Markets Fund annually
- ------------------------------------------
Special Values Fund
- ------------------------------------ -------------------------------------------
The Wachovia Municipal Funds Declared daily/ Paid monthly
- ------------------------------------ -------------------------------------------
Dividends are declared and paid to shareholders invested in a Fund on the record
date.
In addition, each Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a distribution, whether or not you
reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
Accounts With Low Balances
Non-retirement accounts may be closed if redemptions or exchanges cause the
account balance to fall below the minimum initial investment amount. Before an
account is closed, the shareholder will be notified and allowed 30 days to
purchase additional Shares to meet the minimum.
The Wachovia Funds Tax Information
The Funds send you an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Capital gains distributions are taxable at different
rates depending upon the length of time a Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.
Please consult your tax adviser regarding your federal, state, and local tax
liability.
The Wachovia Municipal Funds Tax Information
The Funds send you a timely statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of each Fund's dividends may not be exempt.
Whether or not dividends are exempt from federal income tax, they may be subject
to state and local taxes, although the each Fund's dividends will be exempt from
their respective state's personal income tax (i.e. Georgia, North Carolina,
South Carolina or Virginia) to the extent they are derived from interest on
obligations exempt from that state's personal income taxes. You may have to
include certain dividends as taxable income if the federal alternative minimum
tax applies to you. Capital gains and non-exempt dividends are taxable whether
paid in cash or reinvested in a Fund. Redemptions and exchanges are taxable
sales. Please consult your tax adviser regarding your federal, state and local
tax liability.
WHO MANAGES THE FUNDS?
The Board of Trustees governs the Funds. The Board selects and oversees the
investment adviser for the Funds, Wachovia Asset Management, a business unit of
Wachovia Bank. The investment adviser manages each Fund's assets, including
buying and selling portfolio securities. The investment adviser's address is 100
North Main Street, Winston-Salem, NC 27101.
Wachovia Bank has been managing trust assets for over 100 years, with over $__
billion in managed assets as of December 31, 1998.
The investment adviser is entitled to receive annual investment advisory fees
equal to a percentage of each Fund's average daily net assets. The investment
adviser may voluntarily choose to waive a portion of its fees or reimburse a
Fund for certain expenses.
- ---------------------------------- ---------------------------------------------
Annual Investment Advisory Fee paid to
Investment Adviser as a percentage of
Fund average daily net assets
- ---------------------------------- ---------------------------------------------
- --------------------------------- ---------------------------------------------
Equity Fund 0.70%
- ---------------------------------- ---------------------------------------------
- --------------------------------- ---------------------------------------------
Quantitative Equity Fund 0.70%
- ---------------------------------- ---------------------------------------------
- --------------------------------- ---------------------------------------------
Growth & Income Fund 0.70%
- --------------------------------- ---------------------------------------------
- --------------------------------- ---------------------------------------------
Equity Index Fund 0.30%
- -------------------------------- ---------------------------------------------
- -------------------------------- ---------------------------------------------
Special Values Fund 0.80%
- -------------------------------- ---------------------------------------------
- --------------------------------- ---------------------------------------------
Emerging Markets Fund 1.00%
- ---------------------------------- ---------------------------------------------
- ---------------------------------- ---------------------------------------------
Balanced Fund 0.70%
- ---------------------------------- ---------------------------------------------
- --------------------------------- ---------------------------------------------
Fixed Income Fund 0.60%
- -------------------------------- ---------------------------------------------
- --------------------------------- ---------------------------------------------
Intermediate Fixed Income Fund 0.60%
- ---------------------------------- ---------------------------------------------
- ------------------------------------------ -------------------------------------
Short-Term Fixed Income Fund 0.55%
- ------------------------------------------ -------------------------------------
- ------------------------------------------ -------------------------------------
Georgia Municipal Bond Fund 0.75%
- ------------------------------------------ -------------------------------------
- ------------------------------------------ ------------------------------------
North Carolina Municipal Bond Fund 0.75%
- ------------------------------------------ -------------------------------------
- ------------------------------------------ ------------------------------------
South Carolina Municipal Bond Fund 0.75%
- ------------------------------------------ -------------------------------------
- ------------------------------------------ -------------------------------------
Virginia Municipal Bond Fund 0.74%
- ------------------------------------------ -------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Portfolio Managers
- ------------------------ ----------------------------- -----------------------------------------------------------------------
Portfolio Manager Funds Managed Biography
- ------------------------ ----------------------------- -----------------------------------------------------------------------
Jerry D. Burton Quantitative Equity Fund Mr. Burton is a Chartered Financial Analyst and a Vice President and
Portfolio Manager for Personal Financial Services for the investment
adviser. In 1971, Mr. Burton joined South Carolina National Bank,
which was acquired by Wachovia Bank in 1991. Mr. Burton received a
bachelors degree from Clemson University and an MBA from the College
of William and Mary.
Daniel S. Earthman Balanced Fund Mr. Earthman is a Chartered Financial Analyst and a Senior Vice
Growth & Income Fund President of the investment adviser. Prior to joining Wachovia Bank
Equity Fund in 1988, Mr. Earthman was a Vice President and Investment Manager
with Richland Asset Management in Nashville, and an Assistant Vice
President and Portfolio Manager with North Carolina National Bank in
Charlotte. Mr. Earthman received a bachelors degree in business from
Southern Methodist University and a MBA from the University of North
Carolina at Chapel Hill.
<PAGE>
Samuel M. Gibbs, II Short-Term Income Fund Mr. Gibbs is a Senior Vice President and Manager of Fixed Income
Fixed Income Fund Investments for the investment adviser. Mr. Gibbs joined Wachovia
Intermediate Fixed Income Bank in 1969 as a portfolio manager. He became a bond trader and
Fund fixed income portfolio manager in 1975 and assumed his current
position in 1977. Mr. Gibbs is a graduate of Davidson College and has
an MBA from the University of South Carolina.
Roger L. Glenski Special Values Fund Mr. Glenski is a Certified Public Accountant and Assistant Vice
President of the investment adviser. Mr. Glenski joined Wachovia Bank
in 1996, specializing in the valuation of closely-held businesses and
small companies. Previously, Mr. Glenski was employed by the
accounting firms of KPMG and Deloitte & Touche LLP in Chicago. Mr.
Glenski received a bachelors degree from the University of
Missouri-Kansas City and a MBA from the University of Chicago.
John F. Hageman Equity Fund John F. Hageman is a Chartered Financial Analyst and a Senior Vice
Balanced Fund President and Institutional Portfolio Manager for the investment
Growth & Income Fund adviser. Mr. Hageman is responsible for managing employee benefit,
foundation and endowment portfolios. Prior to joining Wachovia Bank
in 1986, Mr. Hageman was Vice President and head of Institutional
Investment Management at Michigan National Investment Corporation
from 1977 to 1986, and an account executive with Merrill Lynch from
1975 to 1977. Mr. Hageman received his B.A. from Wabash College.
Paige C. Henderson Emerging Markets Fund Ms. Henderson is a Chartered Financial Analyst and a Vice President
of the investment adviser. Ms. Henderson joined Wachovia Bank in 1991
as an Equity Analyst. Ms. Henderson received a bachelors of science
in Business Administration and an MBA from the University of North
Carolina at Chapel Hill. Ms. Henderson is a Certified Public
Accountant.
Michael W. Holt Fixed Income Fund Mr. Holt is a Chartered Financial Analyst and Fixed Income Portfolio
Intermediate Fixed Income Manager of the investment adviser. Mr. Holt joined Wachovia Bank in
Fund 1991. He is a graduate of the University of Tennessee where he
majored in economics and received a MBA in Finance.
<PAGE>
Russell L. Kimbro, Jr. Equity Fund Mr. Kimbro is a Chartered Financial Analyst and Senior Vice
Balanced Fund President and Portfolio Manager for Personal Financial Services for
Growth & Income Fund the investment adviser. Mr. Kimbro joined Wachovia Bank in 1985. Mr.
Kimbro is an instructor
of corporate finance an
the University of North
Carolina at Greensboro.
He received his bachelors
degree in economics from
Virginia Polytechnical
Institute and State
University and a MBA from
the University of North
Carolina at Greensboro.
F. Stanley King Equity Fund Mr. King is a Chartered Financial Analyst and a Senior Vice President
Balanced Fund of the investment adviser. Mr. King serves as manager of
Growth & Income Fund institutional portfolio management for the investment adviser. Mr.
King joined Wachovia Bank
in 1985 as a securities
analyst and assumed his
current position in 1991.
He has both his bachelors
and masters of science
degrees from North
Carolina State
University.
George E. McCall Quantitative Equity Fund Mr. McCall is a Certified Financial Planner and Vice President of the
investment adviser. In 1981, Mr. McCall joined South Carolina
National Bank, which was acquired by Wachovia Bank in 1991. Mr.
McCall is a graduate of Presbyterian College and received an MBA from
the University of South Carolina.
Matthew J. McGuinness Equity Fund Mr. McGuinness is a Chartered Financial Analyst and Vice President
Balanced Fund and Portfolio Manager for Personal Financial Services for the
Growth & Income Fund investment adviser. Mr. McGuinness joined Wachovia Bank in 1991 in
the Estates/Closely-Held Unit. He received an MBA from the University
of North Carolina at Chapel Hill.
Michael O. Mercer Equity Fund Mr. Mercer is a Senior Vice President of Wachovia and manages the
Balanced Fund Wachovia Equity Investment Fund and other large institutional
Growth & Income Fund accounts. Mr. Mercer joined Wachovia Bank in 1983 and is a Chartered
Financial Analyst. Mr. Mercer is a graduate of Catawba College and
received an MBA from Florida State University.
Wayne F. Morgan Fixed Income Fund Mr. Morgan is a Chartered Financial Analyst and Senior Vice President
Intermediate Fixed Income of the investment adviser. Prior to joining Wachovia Bank in June,
Fund 1997 as a senior fixed income portfolio manager, Mr. Morgan served as
the Director of Investments at the University of North Carolina at
Chapel Hill, where he oversaw the management of the University's
endowment fund. Mr. Morgan received both a bachelors degree and his
MBA from the University of North Carolina at Chapel Hill.
J. Joseph Muster The Wachovia Municipal Funds Mr. Muster is a Vice President and Manager of Money Market and
Municipal Investments in the Fixed Income Section of the investment
adviser. Mr. Muster joined Wachovia Bank in 1992 as a credit analyst.
Mr. Muster is a graduate of the University of Georgia and received
his MBA from Duke University.
Harold (Rick) Nelson Fixed Income Fund Mr. Nelson III is a Senior Vice President and fixed income portfolio
III Intermediate Fixed Income manager of the investment adviser. Mr. Nelson joined Wachovia Bank in
Fund 1985 as a fixed income
portfolio manager. He
received his bachelors of
science degree in
management from St.
Francis College and his
MBA in Finance from
Mercer University.
B. Scott Sadler Emerging Markets Fund Mr. Sadler is a Chartered Financial Analyst and Vice President of the
investment adviser. Mr. Sadler joined Wachovia Bank in 1987. Mr.
Sadler is a graduate of the University of Virginia's McIntire School
of Commerce with a bachelors degree in commerce.
<PAGE>
Michael G. Sebesta Fixed Income Fund Mr. Sebesta is a Vice President and Fixed Income Portfolio Manager
Intermediate Fixed Income for the investment adviser. Mr. Sebesta joined Wachovia Bank in 1989.
Fund Mr. Sebesta has a bachelors degree in economics from Wake Forest
University.
Michael J. Tierney Emerging Markets Fund Mr. Tierney is an Executive Vice President of Wachovia Bank and Chief
Special Values Fund Investment Officer with the investment adviser. Mr. Tierney joined
Wachovia Bank in 1981. Mr. Tierney is a graduate of the University of
Connecticut, and has more than 25 years of experience managing equity
and fixed income investments.
Joseph H. Waterfill Balanced Fund Mr. Waterfill is a Senior Vice President of the investment adviser.
Equity Fund Mr. Waterfill joined Wachovia Bank in 1976. Mr. Waterfill received
Quantitative Equity Fund his bachelors of science degree from the U.S. Naval Academy and his
Growth & Income Fund MBA from Vanderbilt University.
</TABLE>
FINANCIAL INFORMATION
Financial Highlights
The following financial highlights are intended to help you understand each
Fund's financial performance for its past five fiscal years, or since inception,
if the life of the Fund is shorter. Some of the information is presented on a
per share basis. Total returns represent the rate an investor would have earned
(or lost) on an investment in a Fund, assuming reinvestment of all dividends and
distributions.
This information has been audited by Ernst & Young LLP whose report, along with
the Funds' audited financial statements, is included in the Annual Report.
TO COME
<PAGE>
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
Class Y Shares
The following documents contain further details about the Funds and are
available upon request and without charge:
Statement of Additional Information (SAI)--The SAI includes additional
information about the Funds. The SAI is incorporated by reference into this
prospectus, making it legally a part of this prospectus.
Shareholder Reports--The Funds publish annual and semi-annual reports to
shareholders which include information about the Funds' investments. The annual
report discusses market conditions and investment strategies that significantly
affected each Fund's performance during its last fiscal year.
To obtain the SAI, the annual and semi-annual reports and other information
without charge call your investment professional or the Fund at 1-800-994-4414.
You can obtain information about the Funds by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
Product Code
Logo
SEC File Numbers
811-6504
811-6201
THE WACHOVIA FUNDS
Class A Shares, Class B Shares, Class Y Shares
<PAGE>
Wachovia Equity Fund
Wachovia Quantitative Equity Fund
Wachovia Growth & Income Fund
Wachovia Equity Index Fund
Wachovia Special Values Fund
Wachovia Emerging Markets Fund
Wachovia Balanced Fund
Wachovia Fixed Income Fund
Wachovia Intermediate Fixed Income Fund
Wachovia Short-Term Fixed Income Fund
<PAGE>
THE WACHOVIA MUNICIPAL FUNDS
Class A Shares and Class Y Shares
Wachovia Georgia Municipal Bond Fund
Wachovia North Carolina Municipal Bond Fund
Wachovia South Carolina Municipal Bond Fund
Wachovia Virginia Municipal Bond Fund
Statement of Additional Information
February __, 1999
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectuses of The Wachovia Funds and
The Wachovia Municipal Funds, dated February __, 1999.
This SAI incorporates by reference the Funds' Annual Report. Obtain the
prospectus or the Annual Report without charge by calling 1-800-994-4414.
Contents
TO COME
Federated Securities Corp., Distributor,
subsidiary of Federated Investors
[Product Code (2/99)]
<PAGE>
56
HOW ARE THE FUNDS ORGANIZED?
The Wachovia Funds and The Wachovia Municipal Funds (each a Trust and together
the Trusts) are open-end, management investment companies that established under
the laws of the Commonwealth of Massachusetts on November 19, 1991 and August
15, 1990. The Trusts may offer separate series of shares representing interests
in separate portfolios of securities. The Trusts changed their name from The
Biltmore Funds and The Biltmore Municipal Funds, respectively on July 31, 1997.
Each Board of Trustees (together, the Board) has established three classes of
shares of the Funds, known as Class A Shares, Class B Shares and Class Y Shares
(Shares). This SAI relates to all three classes of Shares.
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------------------------------- -------------------------------------------------------------
The Wachovia Funds currently offer the Shares The Wachovia Municipal Funds currently offer Shares
following professionally managed, diversified the following professionally managed,
portfolios: non-diversified portfolios:
- ----------------------------------------------------------- -------------------------------------------------------------
Wachovia Equity Fund A,B,Y Wachovia Georgia Municipal Bond Fund A,Y
(Equity Fund) (Georgia Municipal Bond Fund)
- ----------------------------------------------------------- -------------------------------------------------------------
- ----------------------------------------------------------- -------------------------------------------------------------
Wachovia Quantitative Equity Fund A,B,Y Wachovia North Carolina Municipal Bond Fund A,Y
(Quantitative Equity Fund) (North Carolina Municipal Bond Fund)
- ----------------------------------------------------------- -------------------------------------------------------------
- ----------------------------------------------------------- -------------------------------------------------------------
Wachovia Growth & Income Fund A,Y Wachovia South Carolina Municipal Bond Fund A,Y
(Growth & Income Fund) (South Carolina Municipal Bond Fund)
- ----------------------------------------------------------- -------------------------------------------------------------
- ----------------------------------------------------------- -------------------------------------------------------------
Wachovia Equity Index Fund A,Y Wachovia Virginia Municipal Bond Fund A,Y
(Equity Index Fund) (Virginia Municipal Bond Fund)
- ----------------------------------------------------------- -------------------------------------------------------------
- -----------------------------------------------------------
Wachovia Special Values Fund A,B,Y
(Special Values Fund)
- -----------------------------------------------------------
- -----------------------------------------------------------
Wachovia Emerging Markets Fund A,Y
(Emerging Markets Fund)
- -----------------------------------------------------------
- -----------------------------------------------------------
Wachovia Balanced Fund A,B,Y
(Balanced Fund)
- -----------------------------------------------------------
- -----------------------------------------------------------
Wachovia Fixed Income Fund A,Y*
(Fixed Income Fund)
- -----------------------------------------------------------
- -----------------------------------------------------------
Wachovia Intermediate Fixed Income Fund A,Y
(Intermediate Fixed Income Fund
- -----------------------------------------------------------
- -----------------------------------------------------------
Wachovia Short-Term Income Fund A,Y
(Short-Term Income Fund)
- -----------------------------------------------------------
</TABLE>
*As of ____, Fixed Income Fund no longer offers Class B Shares.
SECURITIES IN WHICH THE FUNDS INVEST
Following tables indicate which types of securities are a:
o P = Principal investment of a Fund; (shaded in chart)
o A = Acceptable (but not principal) investment of a Fund; or
o N = Not an acceptable investment of a Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Municipal Funds
- -----------------------------------------------------------------------------------------------------------------------------
Securities Georgia Municipal North Carolina South Carolina Virginia Municipal
Bond Fund Municipal Bond Fund Municipal Bond Fund Bond Fund
- ---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Bank Instruments A A A A
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Commercial Paper7 A A A A
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Demand Mater Notes A A A A
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Lending of Portfolio Securities A A A A
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Money Market Instruments A A A A
- ---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Municipal Securities9 P P P P
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements A A A A
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Restricted and Illiquid Securities12 A A A A
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Securities of Other Investment Companies A A A A
--------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Government Obligations A A A A
--------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Variable Rate Demand Notes A A A A
- ---------------------------------------------
--------------------------------------------------------------------------------
When-Issued Transactions A A A A
- -----------------------------------------------------------------------------------------------------------------------------
Equity Funds
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Securities Equity Fund Quantitative Growth & Equity Special Emerging
Equity Fund Income Fund Index Fund Values Fund Markets
Fund8
- ---------------------------------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
American Depository Receipts1 A A A A A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Banking Instruments A A A A A A
- ---------------------------------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Commercial Paper7 A A A A A A
- --------------------------------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Common Stocks P P P P P A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- -------------
Convertible Securities A A A A A A
- --------------------------------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Corporate Debt Obligations6 A A A N A A
- --------------------------------------- ------------- ----------------- ------------ ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Emerging Market Securities N N N N N P
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ----------------- ------------ ------------- -------------
European Depository Receipts A A A N A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Foreign Currency Transactions4 N N N N N A
- --------------------------------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Foreign Securities1 A A A A A P
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Futures and Options Transactions A A A A A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ----------------- ------------ ------------- ------------- -------------
Global Depository Receipts A A A N A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
High-Yield Securities2 N N N N A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ----------------- ------------ ------------- ------------- -------------
Index Participation Contracts5 N N N A N N
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Lending of Portfolio Securities A A A A A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Master Limited Partnerships N N N N A N
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Money Market Instruments A A A A A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Mortgage-Backed Securities10 N N N N N A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Options on Financial Futures A A A N A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Over-the-Counter Options A A A N A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Preferred Stocks A A A A A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Repurchase Agreements A A A A A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Restricted and Illiquid Securities12 A A A A A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Reverse Repurchase Agreements A A A A A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Securities of Other Investment A A A A A A
Companies
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Stock Index Futures and Options3 A A A A A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Temporary Investments A A A A A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
U.S. Government Obligations A A A A A A
- --------------------------------------- ----------------- ------------ ------------- -------------
- --------------------------------------- ------------- ------------- -------------
Variable Rate Demand Notes A A A A A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
- --------------------------------------- ------------- -------------
Warrants A A A A A A
-------------
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
When-Issued Transactions A A A A A A
- --------------------------------------- ------------- ----------------- ------------ ------------- ------------- -------------
Income Funds
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Securities Balanced Fund Fixed Income Fund Intermediate Short-Term Fixed
Fixed Income Fund Income Fund
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
American Depository Receipts1 A N N N
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Asset-Backed Securities11 A A A A
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Bank Instruments A A A A
- ------------------------------------------------- ------------------ ------------------ -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Commercial Paper7 A A A A
- ------------------------------------------------- ------------------ ------------------ -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Common Stocks P N N N
- -------------------------------------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Convertible Securities A A A A
- -------------------------------------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Corporate Debt Obligations6 P P P P
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- -------------------------------------------------
Demand Master Notes A A A A
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- -------------------------------------------------
Foreign Securities1 A A A A
- -------------------------------------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Futures and Options Transactions A A A A
- -------------------------------------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Futures on Foreign Government Debt Obligations A A A A
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- -------------------------------------------------
Preferred Stocks A N N N
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Repurchase Agreements A A A A
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
<PAGE>
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Securities Balanced Fund Fixed Income Fund Intermediate Short-Term Fixed
Fixed Income Fund Income Fund
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Restricted and Illiquid Securities12 A A A A
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Reverse Repurchase Agreements A A A A
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Securities of Other Investment Companies A A A A
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Stock Index Futures and Options3 A N N N
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Stripped Mortgage-Backed Securities A A A A
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Temporary Investments A A A A
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
U.S. Government Obligations A A A A
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Variable Rate Demand Notes A A A A
- ------------------------------------------------- -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
Warrants A A A A
- ------------------------------------------------- -------------------
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
When-Issued Transactions A A A A
- ------------------------------------------------- ------------------ ------------------ ------------------ -------------------
</TABLE>
1. Each of the Equity Fund, Quantitative Equity Fund, Special Values Fund, and
Balanced Fund may not invest more than 20% of its assets in ADRs and not more
than 10% of its assets in other securities of foreign issuers (non-ADRs). 2.
Securities are rated Baa or lower by Moody's or BBB or lower by S&P. Each Fund
will not invest more than 35% of its total assets in such securities. 3. Not
more than 20% of each Funds assets will be invested. The Funds will not purchase
options to the extent that more than 5% of the value of a Fund's total assets
would be invested in premiums on open put option positions or margin deposits on
open positions as applicable. 4. No more than 30% of the Fund's assets will be
committed to forward contracts at any time. This restriction does not include
forward contracts entered into to settle securities transactions. 5. The value
of these contracts together with the value of the Fund's investment in stock
index futures contracts, options and options on futures contracts will not
exceed 20% of the Fund's total assets. 6. Rated A or better by Moody's or S&P or
of comparable quality as determined by the investment adviser. Each of the
Balanced Fund, Fixed Income Fund, Intermediate Fixed Income Fund and Short-Term
Index Fund may invest up to 5% of its assets in obligations rated Baa by Moody's
or BBB by S&P or of comparable quality as determined by the investment adviser.
7. Rated Prime-1 by Moody's or A-1 by S&P or of comparable quality as determined
by the investment adviser. 8. The fixed income and equity securities in which
the Fund invests will be rated B or better by Moody's or S&P at the time of
purchase. 9. State Municipal Securities are subject to one or more of the
following quality standards: rated A or better by Moody's or S&P; up to 5% of
total assets rated Baa by Moody's or BBB by S&P; insured by a municipal bond
insurance company rated AAA by S&P or Aaa by Moody's; secured by an irrevocable
escrow of direct obligations of the U.S. government; or of comparable quality as
determined by the investment adviser. 10. Collateralized Mortgage Obligations
must be rated AAA or better or of comparable quality as determined by the
investment adviser. Fixed Income Fund, Intermediate Fixed Income Fund and
Short-Term Income Fund each may invest up to 5% of its assets in CMOs rated Baa
or better by Moody's or Baa or better by S&P. 11. Rated A or better by Moody's
or S&P. Each Fund (except the Balanced Fund) may also invest up to 5% of its
assets in securities rated Baa or better by Moody's or BBB by S&P. 12. Each Fund
will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, over-the-counter options, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net assets.
Securities Descriptions and Techniques Equity Securities Equity securities
represent a share of an issuer's earnings and assets, after the issuer pays its
liabilities. The Funds cannot predict the income they will receive from equity
securities because issuers generally have discretion as to the payment of any
dividends or distributions. However, equity securities offer greater potential
for appreciation than many other types of securities, because their value
increases directly with the value of the issuer's business. The following
describes the types of equity securities in which a Fund may invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings
directly influence the value of its common stock.
<PAGE>
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the
stock. A Fund may also treat such redeemable preferred stock as a fixed
income security. Interests in Other Limited Liability Companies Entities
such as limited partnerships, limited liability companies, business trusts
and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Real Estate Investment Trusts (REITs)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax
if they limit their operations and distribute most of their income. Such
tax requirements limit a REIT's ability to respond to changes in the
commercial real estate market. Warrants Warrants give a Fund the option to
buy the issuer's equity securities at a specified price (the exercise
price) at a specified future date (the expiration date). The Fund may buy
the designated securities by paying the exercise price before the
expiration date. Warrants may become worthless if the price of the stock
does not rise above the exercise price by the expiration date. This
increases the market risks of warrants as compared to the underlying
security. Rights are the same as warrants, except companies typically issue
rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities. A security's yield measures the
annual income earned on a security as a percentage of its price. A security's
yield will increase or decrease depending upon whether it costs less (a
discount) or more (a premium) than the principal amount. If the issuer may
redeem the security before its scheduled maturity, the price and yield on a
discount or premium security may change based upon the probability of an early
redemption. Securities with higher risks generally have higher yields. The
following describes the types of fixed income securities in which a Fund may
invest.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
credit risks. Agency Securities Agency securities are issued or guaranteed
by a federal agency or other government sponsored entity acting under
federal authority (a GSE). The United States supports some GSEs with its
full, faith and credit. Other GSEs receive support through federal
subsidies, loans or other benefits. A few GSEs have no explicit financial
support, but are regarded as having implied support because the federal
government sponsors their activities. Investors regard agency securities as
having low credit risks, but not as low as treasury securities. The Fund
treats mortgage backed securities guaranteed by GSEs as agency securities.
Although a GSE guarantee protects against credit risks, it does not reduce
the market and prepayment risks of these mortgage backed securities.
Corporate Debt Securities Corporate debt securities are fixed income
securities issued by businesses. Notes, bonds, debentures and commercial
paper are the most prevalent types of corporate debt securities. A Fund may
also purchase interests in bank loans to companies. The credit risks of
corporate debt securities vary widely amount issuers. The credit risk of an
issuer's debt security may also vary based on its priority for repayment.
For example, higher ranking (senior) debt securities have a higher priority
than lower ranking (subordinated) securities. This means that the issuer
might not make payments on subordinated securities while continuing to make
payments on senior securities. In addition, in the event of bankruptcy,
holders of senior securities may receive amounts otherwise payable to the
holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to
defer payments under certain circumstances. For example, insurance
companies issue securities known as surplus notes that permit the insurance
company to defer any payment that would reduce its capital below regulatory
requirements.
Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for
current expenditures. Most issuers constantly reissue their commercial
paper and use the proceeds (or borrowings from bank loans) to repay
maturing paper. If the issuer cannot continue to obtain liquidity in
this fashion, its commercial paper may default. The short maturity of
commercial paper reduces both the market and credit risks as compared
to other debt securities of the same issuer. Demand Instruments Demand
instruments are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a
dealer or bank, to repurchase the security for its face value upon
demand. The Fund treats demand instruments as short-term securities,
even though their stated maturity may extend beyond one year.
Mortgage Backed Securities
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates,
maturities and other terms. Mortgages may have fixed or adjustable interest
rates. Interests in pools of adjustable rate mortgages are know as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer
deducts its fees and expenses and passes the balance of the payments onto
the certificate holders once a month. Holders of pass-through certificates
receive a pro rata share of all payments and pre-payments from the
underlying mortgages. As a result, the holders assume all the prepayment
risks of the underlying mortgages. Collateralized Mortgage Obligations
(CMOs) CMOs, including interests in real estate mortgage investment
conduits (REMICs), allocate payments and prepayments from an underlying
pass-through certificate among holders of different classes of mortgage
backed securities. This creates different prepayment and market risks for
each CMO class. For example, in a sequential pay CMO, one class of CMOs
receives all principal payments and prepayments. The next class of CMOs
receives all principal payments after the first class is paid off. This
process repeats for each sequential class of CMO. As a result, each class
of sequential pay CMOs reduces the prepayment risks of subsequent classes.
More sophisticated CMOs include planned amortization classes (PACs) and
targeted amortization classes (TACs). PACs and TACs are issued with
companion classes. PACs and TACs receive principal payments and prepayments
at a specified rate. The companion classes receive principal payments and
prepayments in excess of the specified rate. In addition, PACs will receive
the companion classes' share of principal payments, if necessary, to cover
a shortfall in the prepayment rate. This helps PACs and TACs to control
prepayment risks by increasing the risks to their companion classes. CMOs
may allocate interest payments to one class (Interest Only or IOs) and
principal payments to another class (Principal Only or POs). POs increase
in value when prepayment rates increase. In contrast, IOs decrease in value
when prepayments increase, because the underlying mortgages generate less
interest payments. However, IOs tend to increase in value when interest
rates rise (and prepayments decrease), making IOs a useful hedge against
market risks. Another variant allocates interest payments between two
classes of CMOs. One class (Floaters) receives a share of interest payments
based upon a market index such as LIBOR. The other class (Inverse Floaters)
receives any remaining interest payments from the underlying mortgages.
Floater classes receive more interest (and Inverse Floater classes receive
correspondingly less interest) as interest rates rise. This shifts
prepayment and market risks from the Floater to the Inverse Floater class,
reducing the price volatility of the Floater class and increasing the price
volatility of the Inverse Floater class. CMOs must allocate all payments
received from the underlying mortgages to some class. To capture any
unallocated payments, CMOs generally have an accrual (Z) class. Z classes
do not receive any payments from the underlying mortgages until all other
CMO classes have been paid off. Once this happens, holders of Z class CMOs
receive all payments and prepayments. Similarly, REMICs have residual
interests that receive any mortgage payments not allocated to another REMIC
class. The degree of increased or decreased prepayment risks depends upon
the structure of the CMOs. IOs, POs, and Inverse Floaters are among the
most volatile investment grade fixed income securities currently traded in
the United States. However, the actual returns on any type of mortgage
backed security depend upon the performance of the underlying pool of
mortgages, which no one can predict and will vary among pools. Asset Backed
Securities Asset backed securities are payable from pools of obligations
other than mortgages. Most asset backed securities involve consumer or
commercial debts with maturities of less than ten years. However, almost
any type of fixed income assets (including other fixed income securities)
may be used to create an asset backed security. Asset backed securities may
take the form of commercial paper, notes, or pass through certificates.
Asset backed securities may also resemble some types of CMOs, such as
Floaters, Inverse Floaters, IOs and POs. Historically, borrowers are more
likely to refinance their mortgage than any other type of consumer or
commercial debt. In addition, some asset backed securities use prepayment
to buy additional assets, rather than paying off the securities. Therefore,
while asset backed securities may have some prepayment risks, they
generally do not present the same degree of risk as mortgage backed
securities. Zero Coupon Securities Zero coupon securities do not pay
interest or principal until final maturity unlike debt securities that
provide periodic payments of interest (referred to as a coupon payment).
Investors buy zero coupon securities at a price below the amount payable at
maturity. The difference between the purchase price and the amount paid at
maturity represents interest on the zero coupon security. An investor must
wait until maturity to receive interest and principal, which increases the
market and credit risks of a zero coupon security. There are many forms of
zero coupon securities. Some are issued at a discount and are referred to
as zero coupon or capital appreciation bonds. Others are created from
interest bearing bonds by separating the right to receive the bond's coupon
payments from the right to receive the bond's principal due at maturity, a
process known as coupon stripping. Treasury STRIPs, IOs and POs are the
most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in
place of cash interest payments, thereby increasing the amount payable at
maturity. These are referred to as pay-in-kind or PIK securities. Bank
Instruments Bank instruments are unsecured interest bearing deposits with
banks. Bank instruments include bank accounts, time deposits, certificates
of deposit and banker's acceptances. Yankee instruments are denominated in
U.S. dollars and issued by U.S. branches of foreign banks. Eurodollar
instruments are denominated in U.S. dollars and issued by non-U.S. branches
of U.S. or foreign banks. Insurance Contracts Insurance contracts include
guaranteed investment contracts, funding agreements and annuities. A Fund
may treat these contracts as fixed income securities. Credit Enhancement
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security after the issuer defaults. In
some cases the company providing credit enhancement makes all payments
directly to the security holders and receives reimbursement from the
issuer. Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the investment adviser may
evaluate the credit risk of a fixed income security based solely upon its
credit enhancement. Common types of credit enhancement include guarantees,
letters of credit, bond insurance and surety bonds. Credit enhancement also
includes arrangements where securities or other liquid assets secure
payment of a fixed income security. Following a default, these assets may
be sold and the proceeds paid to security's holders. Either form of credit
enhancement reduces credit risks by providing another source of payment for
a fixed income security.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities. Convertible securities have lower yields
than comparable fixed income securities. In addition, at the time a convertible
security is issued the conversion price exceeds the market value of the
underlying equity securities. Thus, convertible securities may provide lower
returns than non-convertible fixed income securities or equity securities
depending upon changes in the price of the underlying equity securities.
However, convertible securities permit the Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing its
initial investment. A Fund may treat convertible securities as both fixed income
and equity securities for purposes of its investment policies and limitations,
because of their unique characteristics. Tax Exempt Securities Tax exempt
securities are fixed income securities that pay interest that is not subject to
regular federal income taxes. Typically, states, counties, cities and other
political subdivisions and authorities issue tax exempt securities. The market
categorizes tax exempt securities by their source of repayment.
General Obligation Bonds
General obligation bonds are supported by the issuer's power to exact
property or other taxes. The issuer must impose and collect taxes
sufficient to pay principal and interest on the bonds. However, the
issuer's authority to impose additional taxes may be limited by its charter
or state law. Special Revenue Bonds Special revenue bonds are payable
solely from specific revenues received by the issuer such as specific
taxes, assessments, tolls, or fees. Bondholders may not collect from the
municipality's general taxes or revenues. For example, a municipality may
issue bonds to build a toll road, and pledge the tolls to repay the bonds.
Therefore, any shortfall in the tolls normally would result in a default on
the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance
private entities. For example, a municipality may issue bonds to
finance a new factory to improve its local economy. The municipality
would lend the proceeds from its bonds to the company using the
factory, and the company would agree to make loan payments sufficient
to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the
municipality. Therefore, any default on the loan normally would result
in a default on the bonds. The interest on many types of private
activity bonds is subject to the federal alternative minimum tax (AMT).
Tax Increment Financing Bonds
Tax increment financing (TIF) bonds are payable from increases in taxes or
other revenues attributable to projects financed by the bonds. For example,
a municipality may issue TIF bonds to redevelop a commercial area. The TIF
bonds would be payable solely from any increase in sales taxes collected
from merchants in the area. The bonds could default if merchants' sales,
and related tax collections, failed to increase as anticipated. Municipal
Notes Municipal notes are short-term tax exempt securities. Many
municipalities issue such notes to fund their current operations before
collecting taxes or other municipal revenues. Municipalities may also issue
notes to fund capital projects prior to issuing long-term bonds. The
issuers typically repay the notes at the end of their fiscal year, either
with taxes, other revenues or proceeds from newly issued notes or bonds.
Variable Rate Demand Instruments Variable rate demand instruments are tax
exempt securities that require the issuer or a third party, such as a
dealer or bank, to repurchase the security for its face value upon demand.
The securities also pay interest at a variable rate intended to cause the
securities to trade at their face value. The Fund treats demand instruments
as short-term securities, because their variable interest rate adjusts in
response to changes in market rates, even though their stated maturity may
extend beyond thirteen months. Municipal Leases Municipalities frequently
enter into leases for equipment or facilities. In order to comply with
state public financing laws, these leases are typically subject to annual
appropriation. In other words, a municipality may end a lease, without
penalty, by failing to include the lease payments in its annual budget.
However, upon such an event, the lessor may repossess and resell the
equipment or facility. The Fund typically invests in securities supported
by pools of municipal leases. The most common type of lease backed
securities are certificates of participation (COPs). However, the Fund may
also invest directly in individual leases.
Foreign Securities
Foreign securities are securities of issuers based outside the United States. A
Fund considers an issuer to be based outside the United States if: o it is
organized under the laws of, or has a principal office located in, another
country; o the principal trading market for its securities is in another
country; or o it (or its subsidiaries) derived in its most current fiscal year
at least 50% of its total
assets, capitalization, gross revenue or profit from goods produced,
services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by
a foreign company. Depositary receipts are not traded in the same market as
the underlying security. The foreign securities underlying American
Depositary Receipts (ADRs) are traded in the United States. ADRs provide a
way to buy shares of foreign-based companies in the United States rather
than in overseas markets. ADRs are also traded in U.S. dollars, eliminating
the need for foreign exchange transactions. The foreign securities
underlying European Depositary Receipts (EDRs), Global Depositary Receipts
(GDRs), and International Depositary Receipts (IDRs), are traded globally
or outside the United States. Depositary Receipts involve many of the same
risks of investing directly in foreign securities, including currency risks
and risks of foreign investing. Foreign Exchange Contracts In order to
convert U.S. dollars into the currency needed to buy a foreign security, or
to convert foreign currency received from the sale of a foreign security
into U.S. dollars, the Fund may enter into spot currency trades. In a spot
trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate.
Use of these derivative contracts may increase or decrease the Fund's
exposure to currency risks. Foreign Government Securities Foreign
government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations
of supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European investment Bank and the Inter-American
Development Bank. Foreign government securities also include fixed income
securities of quasi-governmental agencies that are either issued by
entities owned by a national, state or equivalent government or are
obligations of a political unit that are not backed by the national
government's full faith and credit. Further, foreign government securities
include mortgage-related securities issued or guaranteed by national, state
or provincial governmental instrumentalities, including quasi-governmental
agencies.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty. Many
derivative contracts are traded on securities or commodities exchanges. In this
case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract. The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract. A Fund may trade in the following types
of derivative contracts.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset
is commonly referred to as buying a contract or holding a long position in
the asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures
contracts traded OTC are frequently referred to as forward contracts.
Options Options are rights to buy or sell an underlying asset for a
specified price (the exercise price) during, or at the end of, a specified
period. A call option gives the holder (buyer) the right to buy the
underlying asset from the seller (writer) of the option. A put option gives
the holder the right to sell the underlying asset to the writer of the
option. The writer of the option receives a payment, or premium, from the
buyer, which the writer keeps regardless of whether the buyer uses (or
exercises) the option. A Fund, except the Wachovia Municipal Funds may
engage in one or more of the following: Buy put options on their portfolio
securities in anticipation of a decrease in the value of the underlying
asset or buy put options on financial futures contracts to protect
portfolio securities . Write call options on securities either held in its
portfolio or which it has the right to obtain without payment of further
consideration or for which it has segregated cash in the amount of any
additional consideration in order to generate income from premiums, and in
anticipation of a decrease or only limited increase in the value of the
underlying asset. If a call written by the Fund is exercised, the Fund
foregoes any possible profit from an increase in the market price of the
underlying asset over the exercise price plus the premium received. When
the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts. Buy or write
options to close out existing options positions. Hybrid Instruments Hybrid
instruments combine elements of derivative contracts with those of another
security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by
reference to changes in the price of an underlying asset or by reference to
another benchmark (such as interest rates, currency exchange rates or
indices). Hybrid instruments also include convertible securities with
conversion terms related to an underlying asset or benchmark. The risks of
investing in hybrid instruments reflect a combination of the risks of
investing in securities, options, futures and currencies, and depend upon
the terms of the instrument. Thus, an investment in a hybrid instrument may
entail significant risks in addition to those associated with traditional
fixed income or convertible securities. Hybrid instruments are also
potentially more volatile and carry greater market risks than traditional
instruments. Moreover, depending on the structure of the particular hybrid,
it may expose the Fund to leverage risks or carry liquidity risks.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which a Fund buys a security from
a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price,
reflecting the Fund's return on the transaction. This return is unrelated
to the interest rate on the underlying security. The Fund will enter into
repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the
investment adviser. The Funds' custodian or subcustodian will take
possession of the securities subject to repurchase agreements. The
investment adviser or subcustodian will monitor the value of the underlying
security each day to ensure that the value of the security always equals or
exceeds the repurchase price. Repurchase agreements are subject to credit
risks. Reverse Repurchase Agreements Reverse repurchase agreements are
repurchase agreements in which the Fund is the seller (rather than the
buyer) of the securities, and agrees to repurchase them at an agreed upon
time and price. A reverse repurchase agreement may be viewed as a type of
borrowing by the Fund. Reverse repurchase agreements are subject to credit
risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
When Issued Transactions When issued transactions are arrangements in which
the Fund buys securities for a set price, with payment and delivery of the
securities scheduled for a future time. During the period between purchase
and settlement, no payment is made by the Fund to the issuer and no
interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the
price of its shares. Settlement dates may be a month or more after entering
into these transactions so that the market values of the securities bought
may vary from the purchase prices. Therefore, when issued transactions
create market risks for the Fund. When issued transactions also involve
credit risks in the event of a counterparty default.
To Be Announced Securities (TBAs)
As with other when issued transactions, a seller agrees to issue a TBA
security at a future date. However, the seller does not specify the
particular securities to be delivered. Instead, the Fund agrees to
accept any security that meets specified terms. For example, in a TBA
mortgage backed transaction, the Fund and the seller would agree upon
the issuer, interest rate and terms of the underlying mortgages.
However, the seller would not identify the specific underlying
mortgages until it issues the security. TBA mortgage backed securities
increase market risks because the underlying mortgages may be less
favorable than anticipated by the Fund.
Dollar Rolls
Dollar rolls are transactions where a Fund sells mortgage-backed securities
with a commitment to buy similar, but not identical, mortgage-backed
securities on a future date at a lower price. Normally, one or both
securities involved are TBA mortgage backed securities. Dollar rolls are
subject to market risks and credit risks. Securities Lending A Fund may
lend portfolio securities to borrowers that the investment adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from
the borrower as collateral. The borrower must furnish additional collateral
if the market value of the loaned securities increases. Also, the borrower
must pay the Fund the equivalent of any dividends or interest received on
the loaned securities. The Fund will reinvest cash collateral in securities
that qualify as an acceptable investment for the Fund. However, the Fund
must pay interest to the borrower for the use of cash collateral. Loans are
subject to termination at the option of the Fund or the borrower. The Fund
will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund
may pay administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker. Securities lending activities are
subject to market risks and credit risks.
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, a Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions. Investment Risks Stock Market Risks o The value of equity
securities in a Fund's portfolio will rise and fall. These fluctuations
could be a sustained trend or a drastic movement. A Fund's portfolio will
reflect changes in prices of individual portfolio stocks or general changes
in stock valuations. Consequently, the Fund's share price may decline and
you could lose money.
o The investment adviser attempts to manage market risk by limiting the
amount a Fund invests in each company's equity securities. However,
diversification will not protect the Fund against widespread or prolonged
declines in the stock market.
Sector Risks
o Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. As the
investment adviser allocates more of the Fund's portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that
sector.
o A substantial part of a Fund's portfolio may be comprised of securities
issued or credit enhanced by companies in similar businesses, by issuers
located in the same state, or with other similar characteristics. As a
result, the Fund will be more susceptible to any economic, business,
political, or other developments which generally affect these issuers.
Liquidity Risks
o Trading opportunities are more limited for equity securities that are not
widely held and for fixed income securities that have not received any
credit ratings, have received ratings below investment grade or are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, a Fund may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
o Liquidity risk also refers to the possibility that a Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.
o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts. Risks Related to Company Size o Generally, the
smaller the market capitalization of a company, the fewer the number of shares
traded daily, the less liquid its stock and the more volatile its price.
Market capitalization is determined by multiplying the number of its
outstanding shares by the current market price per share.
o Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than larger, well capitalized companies.
Currency Risks
o Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the U.S.
o The investment adviser attempts to manage currency risk by limiting the
amount the Fund invests in securities denominated in a particular currency.
However, diversification will not protect the Fund against a general
increase in the value of the U.S. dollar relative to other currencies.
Risks of Foreign Investing
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
o Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
Leverage Risks
o Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
Bond Market Risks
o Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity
of a fixed income security to changes in interest rates.
Credit Risks
o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, a
Fund will lose money.
o Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the investment
adviser's credit assessment.
o Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating
is lowered, or the security is perceived to have an increased credit risk.
An increase in the spread will cause the price of the security to decline.
o Credit risk includes the possibility that a party to a transaction
involving the Fund will fail to meet its obligations. This could cause the
Fund to lose the benefit of the transaction or prevent the Fund from
selling or buying other securities to implement its investment strategy.
Call Risks
o Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market
price. An increase in the likelihood of a call may reduce the security's
price.
o If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
Prepayment Risks
o Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate
mortgages when mortgage rates fall. This results in the prepayment of
mortgage backed securities with higher interest rates. Conversely,
prepayments due to refinancings decrease when mortgage rates increase. This
extends the life of mortgage backed securities with lower interest rates.
As a result, increases in prepayments of high interest rate mortgage backed
securities, or decreases in prepayments of lower interest rate mortgage
backed securities, may reduce their yield and price. This relationship
between interest rates and mortgage prepayments makes the price of mortgage
backed securities more volatile than most other types of fixed income
securities with comparable credit risks.
Risks Associated with Noninvestment Grade Securities
o Securities rated below investment grade, also known as junk bonds,
generally entail greater market, credit and liquidity risks than investment
grade securities. For example, their prices are more volatile, economic
downturns and financial setbacks may affect their prices more negatively,
and their trading market may be more limited.
Tax Risks
o In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest
received and distributed by the Fund to shareholders to be taxable.
o Changes or proposed changes in federal tax laws may cause the prices of
municipal securities to fall.
Investment Limitations
Selling Short and Buying On Margin
The Equity Fund, Quantitative Equity Fund, Growth & Income Fund, Equity
Index Fund, Special Values Fund, Emerging Markets Fund, and Balanced
Fund will not sell any securities short or purchase any securities on
margin, other than in connection with buying stock index futures
contracts, put options on stock index futures, put options on financial
futures and portfolio securities, and writing covered call options, but
may obtain such short-term credits as are necessary for the clearance
of purchases and sales of portfolio securities. The Short-Term Fixed
Income Fund will not sell any securities short or purchase any
securities on margin, other than in connection with put options on
financial futures, put options on portfolio securities, and writing
covered call options, but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of securities. The Fixed
Income Fund, Intermediate Fixed Income Fund, Georgia Municipal Bond
Fund, North Carolina Municipal Bond Fund, South Carolina Municipal Bond
Fund, and Virginia Municipal Bond 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. The deposit or payment by a Fund of initial or
variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a
security on margin. Issuing Senior Securities and Borrowing Money The
Funds will not issue senior securities, except that a Fund may borrow
money directly or through reverse repurchase agreements in amounts up
to one-third of the value of its net assets, including the amounts
borrowed and except, with respect to the Equity Index Fund, Balanced
Fund, Fixed Income Fund, Intermediate Fixed Income Fund and Short-Term
Fixed Income Fund, as permitted by its investment objective and
policies.. The Funds (except for the Growth & Income Fund, the
Intermediate Fixed Income Fund and the Virginia Municipal Bond Fund)
will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by enabling
a Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. A Fund will
not purchase any securities while borrowings in excess of 5% of the
value of its total assets are outstanding. Pledging Assets The Equity
Fund, Growth & Income Fund, Quantitative Equity Fund, and Special
Values Fund, Equity Index Fund, Balanced Fund, Fixed Income Fund,
Intermediate Fixed Income Fund and Short-term Fixed Income Fund will
not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, the Fund may mortgage, pledge, or
hypothecate assets to secure such borrowings having a market value not
exceeding the lesser of the dollar amounts borrowed or 15% of the value
of total assets at the time of the borrowing. For purposes of this
limitation, the following are not deemed to be pledges: margin deposits
for the purchase and sale of futures contracts and related options, and
segregation or collateral arrangements made in connection with options
activities or the purchase of securities on a when-issued basis. The
Emerging Markets Fund will not mortgage, pledge, or hypothecate any
assets except to secure permitted borrowings. For purposes of this
limitation, the following will not be deemed to be pledges of the
Fund's assets: (a) the deposit of assets in escrow in connection with
the writing of covered put or call options and the purchase of
securities on a when-issued basis; and (b) collateral arrangements with
respect to (i) the purchase and sale of stock options (and options on
stock indices) and (ii) initial or variation margin for futures
contracts. The Georgia Municipal Bond Fund, North Carolina Municipal
Bond Fund, South Carolina Municipal Bond Fund, and Virginia Municipal
Bond Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, South Carolina
Municipal Bond Fund 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. Investing in Real Estate The Funds (except the
Georgia Municipal Bond Fund, North Carolina Municipal Bond Fund, South
Carolina Municipal Bond Fund, and Virginia Municipal Bond Fund) will
not buy or sell real estate, including limited partnership interests,
although a Fund may invest in the securities of companies whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate. The
Georgia Municipal Bond Fund, North Carolina Municipal Bond Fund, South
Carolina Municipal Bond Fund, and Virginia Municipal Bond Fund will not
buy or sell real estate, although a Fund may invest in municipal bonds
secured by real estate or interests in real estate. Investing in
Commodities The Funds will not buy or sell commodities, commodity
contracts, or commodities futures contracts, except however, to the
extent that the Wachovia Funds may engage in transactions involving
futures contracts and related options. Underwriting The Funds will not
underwrite any issue of securities, except as each Fund may be deemed
to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities which the Fund may purchase pursuant to its
investment objective, policies, and limitations. Diversification of
Investments With respect to securities comprising 75% of the value of
its total assets, the Funds (except Georgia Municipal Bond Fund, North
Carolina Municipal Bond Fund, South Carolina Municipal Bond Fund, and
Virginia Municipal Bond Fund) will not purchase securities issued by
any one issuer (other than cash, cash items or securities issued or
guaranteed by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by such
securities) if, as a result, more than 5% of the value of each Fund's
total assets would be invested in the securities of that issuer. Also,
a Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. Concentration of Investments The Wachovia
Funds will not invest 25% or more of the value of their total assets in
any one industry, except that a Fund may invest 25% or more of the
value of its total assets in cash, cash items, or securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities,
and repurchase agreements collateralized by such securities. The
Wachovia Municipal Funds 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. A
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
agreements collateralized by such U.S. government securities. Lending
Cash or Securities The Equity Fund, Growth & Income Fund and Special
Values Fund, Balanced Fund, Fixed Income Fund, Intermediate Fixed
Income Fund and Short-Term Fixed Income Fund will not lend any of their
assets except portfolio securities, the market value of which do not
exceed one-third of the value of a Fund's total assets. The
Quantitative Equity Fund and Emerging Markets Fund will not lend any of
their assets except portfolio securities. This shall not prevent the
above Funds from purchasing or holding U.S. government obligations,
money market instruments, demand master notes, bonds, debentures,
notes, certificates of indebtedness, or other debt securities, entering
into repurchase agreements, or engaging in other transactions where
permitted by each Fund's investment objective, policies, and
limitations. The Equity Index Fund will not lend any of its assets
except portfolio securities, the market value of which does not exceed
one-third of the value of the Fund's total assets. This shall not
prevent the purchase or holding of corporate or government bonds,
debentures, notes, certificates of indebtedness or other debt
securities of an issuer, repurchase agreements, or engaging in other
transactions where permitted by the Fund's investment objective,
policies and limitations. The Georgia Municipal Bond Fund, North
Carolina Municipal Bond Fund, and Virginia Municipal Bond Fund will not
lend any assets except portfolio securities The South Carolina
Municipal Bond Fund may not lend any assets except portfolio securities
up to one-third of the value of its total assets. The Funds may,
however, acquire publicly or non-publicly issued municipal bonds or
temporary investments or enter into repurchase agreements in accordance
with each Fund's investment objective, policies, limitations and the
Trust's Declaration of Trust. Investing in Restricted Securities The
South Carolina Municipal Bond 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. Dealing in Puts and Calls The South
Carolina Municipal Bond Fund will not buy or sell puts, calls,
straddles, spreads, or any combination of these.
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 Securities of Other Investment Companies
The Funds will limit their investment in other investment companies to
not more than 3% of the total outstanding voting stock of any
investment company, will invest no more than 5% of their total assets
in any one investment company, and will invest no more than 10% of
their total assets in investment companies in general, unless, they are
permitted to exceed these limitations by action of the SEC. The Funds
will purchase securities of closed-end investment companies only in
open market transactions involving only customary brokers' commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, reorganization, or acquisition of
assets. It should be noted that investment companies incur certain
expenses such as custodian and transfer agency fees, and therefore, any
investment by a Fund in shares of another investment company would be
subject to such duplicate expenses. The Funds will invest in other
investment companies primarily for the purpose of investing their
short-term cash on a temporary basis.
<PAGE>
However, the Equity Index Fund may invest in Standard & Poor's Depository
Receipts (SPDRs), which represent interests in the portfolio of
securities held by a unit investment trust, a type of investment
company. SPDRs trade like shares of common stock on the American Stock
Exchange and are intended to provide investment results that generally
correspond to the price and yield performance of the S&P 500 Index. The
Fund's purchase of SPDRs are subject to the 3%, 5% and 10% limitations
described above and secondary market purchases and sales are subject to
ordinary brokerage commissions. Investing in Restricted Securities The
Funds will not invest more than 10% of their total assets in securities
subject to restrictions on resale under the Securities Act of 1933,
except for certain restricted securities which meet the criteria for
liquidity as established by the Trustees. Investing in Illiquid
Securities The Funds will not invest more than 15% of their net assets
in securities which are illiquid, including repurchase agreements
providing for settlement in more than seven days after notice,
over-the-counter options, non-negotiable time deposits with maturities
over seven days, and certain securities not determined under guidelines
established by the Trustees to be liquid. Investing in Put Options The
Funds (except Georgia Municipal Bond Fund, North Carolina Municipal
Bond Fund, South Carolina Municipal Bond Fund, and Virginia Municipal
Bond Fund) will not purchase put options on securities, other than put
options on stock indices, unless the securities are held in a Fund's
portfolio and not more than 5% of the value of the Fund's total assets
would be invested in premiums on open put option positions. The Georgia
Municipal Bond Fund, North Carolina Municipal Bond Fund, South Carolina
Municipal Bond Fund, and Virginia Municipal Bond Fund will not buy or
sell puts, calls, straddles, spreads, or any combination of these.
Writing Covered Call Options The Funds will not write call options on
securities unless the securities are held in a Fund's portfolio or
unless a Fund is entitled to them in deliverable form without further
payment or after segregating cash in the amount of any further payment.
Investing in Warrants The Funds will not invest more than 5% of their
net assets in warrants. No more than 2% of a Fund's net assets, to be
included within the overall 5% limit on investments in warrants, may be
warrants which are not listed on the New York Stock Exchange or the
American Stock Exchange. Purchasing Securities to Exercise Control The
Funds will not purchase securities of a company for purposes of
exercising control or management.
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 Funds consider
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 deposit, to be "cash items."
The Funds did not borrow money in excess of 5% of the value of their total
assets during the last fiscal year and has no present intent to do so in the
coming fiscal year. Determining Market Value Of Securities Market values of the
Funds' portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Funds value futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
Trading in Foreign Securities. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its net asset value (NAV), the Fund values foreign securities at the
latest closing price on the exchange on which they are traded immediately prior
to the closing of the NYSE. Certain foreign currency exchange rates may also be
determined at the latest rate prior to the closing of the NYSE. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
NYSE. If such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others. WHAT DO
SHARES COST?
Each Fund's NAV per Share fluctuates and is based on the market value of all
securities and other assets of the Fund. The NAV for each class of Shares may
differ due to the variance in daily net income realized by each class. Such
variance will reflect only accrued net income to which the shareholders of a
particular class are entitled.
Reducing or Eliminating the Front-End Sales Charge
You can reduce or eliminate the applicable front-end sales charge, as follows.
Quantity Discounts. Larger purchases of the same Share class reduce the sales
charge you pay. You can combine purchases of Shares made on the same day by you,
your spouse, and your children under age 21. In addition, purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.
Accumulated Purchases. If you make an additional purchase of Shares, you can
count previous Share purchases still invested in the Fund in calculating the
applicable sales charge on the additional purchase.
Concurrent Purchases. You can combine concurrent purchases of the corresponding
Share class of two Funds in calculating the applicable sales charge.
Letter of Intent. You can sign a letter of intent committing to purchase a
certain amount of the same or corresponding class of Shares within a 13 month
period in order to combine such purchases in calculating the applicable sales
charge. The Fund's custodian will hold Shares in escrow equal to the maximum
applicable sales charge. If you complete your commitment, the escrowed Shares
will be released to your account. If you do not complete your commitment within
13 months, the custodian will redeem an appropriate number of escrowed Shares to
pay for the applicable sales charge.
Reinvestment Privilege. You may reinvest, within 90 days, your Share redemption
proceeds at the next determined NAV, without any sales charge. This sales charge
elimination is offered because a sales charge was previously assessed.
Reducing or Eliminating the Contingent Deferred Sales Charge
These reductions or eliminations are offered because no sales commissions have
been advanced to the selling financial intermediary, the shareholder has already
paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts are
associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;
<PAGE>
representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70-1/2;
which are involuntary redemptions of shareholder accounts that
do not comply with the minimum
balance requirements;
representing up to 10% of the value of Class B Shares subject
to a Systematic Withdrawal
Program;
of Shares that represent a reinvestment within 90 days of a
previous redemption that was
assessed a CDSC;
of Shares held by the Trustees, employees, and sales representatives of
the Fund, the investment adviser, the Distributor and their affiliates;
employees of any financial intermediary that sells Shares pursuant to a
sales agreement with the Distributor; and the immediate family members of
the foregoing persons; and
of Shares originally purchased through a bank trust department, a
registered investment adviser or retirement plans where the third party
administrator has entered into certain arrangements with the Distributor or
its affiliates, or any other financial intermediary, to the extent that no
payments were advanced for purchases made through such entities.
HOW ARE THE FUNDS SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
Front-End Sales Charge Reallowances
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professional for sales and/or administrative services. Any payments
to investment professional in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to a financial intermediary.
Rule 12b-1 Plan
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professional such as banks,
broker/dealers, trust departments of bank, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professional) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Funds may compensate the Distributor more or less than its actual marketing
expenses. In no event will a Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
Federated Investors and its subsidiaries may benefit from arrangements where the
Rule 12b-1 Plan fees related to Class B Shares may be paid to third-parties who
have advanced commissions to investment professional.
HOW TO BUY SHARES
Purchases at Net Asset Value
Class A Shares of a Fund may be purchased at NAV, without an initial sales
charge, by investment advisers registered under the Investment Adviser's act of
1940, purchasing on behalf of their clients, by Wachovia Bank, or affiliates for
funds which are held in fiduciary, advisory, agency, custodial, or similar
capacity, and for which Wachovia Bank, or an affiliate or a third party will
provide shareholder services for a fee paid by one of the Funds, and by
trustees, officers, directors and retired directors, advisory board members,
employees and spouses and children under the age of 21 of such persons, and any
trusts, or individual retirement accounts operated for such persons.
Through A Retirement Program
Class A Shares may be purchased at NAV by participants in qualified retirement
plans for which Wachovia Bank, or an affiliate, had previously, but no longer,
serves as administrator. Purchases made by or through a Delaware/Wachovia
Qualified Retirement Plan (Retirement Plan) which have in excess of an aggregate
investment of $500,000 in certain Delaware Group Funds and any portfolios of The
Wachovia Funds that are available through the Retirement Plan and purchases made
by companies participating in the Retirement Plan that have at least 100
employees will be made at NAV, without the imposition of the sales charge
otherwise provided in the table above. Participants in any retirement plan that
is not administered by Wachovia and that has an aggregate investment of over
$500,000 in the Wachovia Funds may also purchase at NAV. Class Y Shares are also
offered to participants in qualified retirement plans that offer a Wachovia Fund
as an investment option through a program known as "Institutional Solutions"
marketed by Delaware Investment and Retirement Services, Inc. Exchanging
Securities For Shares You may contact the Distributor to request a purchase of
Shares in an exchange for securities you own. The Funds reserve the right to
determine whether to accept your securities and the minimum market value to
accept. Each Fund will value your securities in the same manner as it values its
assets. This exchange is treated as a sale of your securities for federal tax
purposes.
Subaccounting Services
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the financial intermediary with regard to the
services provided, the fees charged for those services, and any restrictions and
limitations imposed.
Conversion to Federal Funds
It is each 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. Wachovia Bank acts as the
shareholders' agent in depositing checks and converting them to federal funds.
HOW TO EXCHANGE SHARES
Qualified Retirement Plan Participants
Participants in a Delaware/Wachovia Qualified Retirement Plan are permitted to:
exchange all or part of their Class A Shares of other eligible Delaware
Funds, as well as Eligible Wachovia Funds at NAV; and
exchange all or part of their Eligible Wachovia Fund shares into Class
A Shares of the Eligible Delaware Funds, at NAV.
However, a participant in any Retirement Plan that has an aggregate investment
of $1 million or less in the Eligible Funds who exchanges into an Eligible Fund
from the Money Fund must pay the applicable front-end sales charge at the time
of the exchange (unless the Money Fund shares were acquired in an exchange from
an Eligible Fund subject to a front-end sales charge or by reinvestment of
dividends).
HOW TO REDEEM SHARES
Redemption In Kind
Although the Funds intend to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of a Fund's portfolio securities.
Because the Funds have elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Funds are obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Board determines that payment should be in kind. In such a case, a
Fund will pay all or a portion of the remainder of the redemption in portfolio
securities, valued in the same way as the Fund determines its NAV. The portfolio
securities will be selected in a manner that the Fund's Board deems fair and
equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
ACCOUNT AND SHARE 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 classes of each Fund in a
Trust have equal voting rights, except that in matters affecting only a
particular Fund or class, only Shares of that Fund or class are entitled to
vote.
<PAGE>
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of each Trust's outstanding
shares of all series entitled to vote.
As of [DATE], the following shareholders owned of record, beneficially, or both,
5% or more of outstanding Shares: [Name & Address of Shareholder, % and Name of
Share Class Owned.]-TO COME
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
Federal Income Tax
Each Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, the Funds will not receive special tax treatment and will pay federal
income tax.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trusts' other portfolios will be separate from those realized by the Fund.
Foreign Investments
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
The Wachovia Municipal Funds Tax Information
Shareholders of The Wachovia Municipal Funds are not required to pay federal
regular income tax on any dividends received from these Funds that represent net
interest on tax-exempt municipal bonds ("exempt-interest dividends"). However,
dividends representing net interest income earned on some municipal bonds may be
included in calculating the federal alternative minimum tax.
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.
Interest on certain "private activity" bonds issued after August 7, 1986, is 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. A Fund may purchase all types of municipal bonds, including
private activity bonds. If a Fund purchases any such bonds, a portion of its
dividends may be treated as a tax preference item.
In addition, in the case of a corporate shareholder, exempt-interest dividends
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 (including exempt-interest dividends), and preadjustment
alternative minimum taxable income does not include exempt-interest dividend 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 and, if so, the tax treatment of
dividends paid by a Fund.
Dividends of a Fund representing net interest income earned on some taxable
temporary investments and any realized net short-term gains are taxed as
ordinary income. Distributions representing net long-term capital gains realized
by a Fund, if any, will be taxable to its shareholders as long-term capital
gains regardless of the length of time the 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 other
distributions is provided annually.
Georgia And North Carolina Taxes
Under existing Georgia and North Carolina laws, shareholders of the Georgia
Municipal Bond Fund and North Carolina Municipal Bond Fund will not be subject
to Georgia or North Carolina income taxes, respectively, on Fund dividends to
the extent that such dividends represent exempt-interest dividends as defined in
the Code, which are directly attributable to (i) interest on obligations issued
by or on behalf of the States of Georgia or North Carolina, respectively, or
their respective 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 Fund dividends are attributable to other sources, such
dividends will be subject to the relevant state's income taxes.
South Carolina Taxes
Under current South Carolina law, shareholders of the South Carolina Municipal
Bond 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 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 be subject to South Carolina taxes.
Virginia Taxes
Distributions by the Virginia Municipal Bond Fund to a shareholder will not be
subject to the Virginia income tax to the extent that the distributions are
attributable to income received by the Fund as interest from Virginia Municipal
Securities. Additionally, distributions by the Virginia Municipal Bond Fund to a
shareholder will not be subject to the Virginia income tax to the extent that
the distributions are attributable to interest income from United States
obligations exempted from state taxation by the United States Constitution,
treaties, and statutes. These Virginia income tax exemptions will be available
only if the Fund complies with the requirement that at least 50% of the Fund's
assets consist of obligations the interest on which is exempt from federal
income tax at the close of each taxable quarter.
Other State And Local Taxes
Income from The Wachovia Municipal Funds is not necessarily free from state
income taxes in states other than Georgia, North Carolina, or South Carolina, or
the Commonwealth of Virginia, respectively, 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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUNDS?
Boards Of Trustees
The Boards are responsible for managing the Trusts' business affairs and for
exercising all the Trusts' powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trusts,
principal occupations for the past five years, total compensation received as a
Trustee from the Trusts for their most recent fiscal year. The Wachovia Funds
are comprised of fourteen Funds and The Wachovia Municipal Funds are comprised
of four funds, together they form the Fund Complex.
As of February 1, 1999, the Funds' Boards and Officers as a group owned less
than 1% of the Funds' outstanding Class A, B and Y Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Name Occupations for past 5 Years Aggregate
birthdate Compensation from
address Fund Complex
Position with Trusts
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
James A. Hanley Retired; Vice President and Treasurer, Abbott Laboratories (health $
August 13, 1931 care products) (until 1992).
4272 Sanctuary Way
Bonita Springs, FL
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Samuel E. Hudgins Hudgins Consulting, LLC (independent consultant); President, $
March 4, 1929 Percival Hudgins & Company, LLC (investment bankers/financial
715 Whitemere Court, N.W. consultants) (until September 1997); Director, Atlantic American
Atlanta, GA Corporation (insurance holding company).
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
J. Berkely Ingram, Jr. Real estate investor and partner; formerly, Vice Chairman, $
April 17, 1924 Massachusetts Mutual Life Insurance Company.
114-L Reynolda Village
Winston-Salem, NC
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
D. Dean Kaylor Retired; Executive Vice President and Chief Financial Officer, NBD $
June 29, 1930 Bank, N.A. and NBD Bancorp, Inc. (bank and bank holding company)
2835 Greenbriar (until 1990).
Harbor Springs, MI
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Alvin J. Schexnider, Ph.D. Chancellor, Winston-Salem State University $
May 26, 1945
5005 Marble Arch Road
Winston-Salem, NC 27104
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Charles S. Way, Jr.* President and CEO, The Beach Company and its various affiliated $
December 18, 1937 companies and partnerships.
211 King Street
Suite 300
Charleston, SC
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
John W. McGonigle President and Chief Executive Officer, Federated Investors $
October 26, 1938 Management Company; Executive Vice President, Secretary, General
Federated Investors Tower Counsel, and Trustee, Federated Investors; Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, Federated Research, and Federated
President and Treasurer Services Company; and Director, Federated Securities Corp.
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Charles L. Davis, Jr. Vice President, Federated Services Company. $
March 23, 1960
Federated Investors Tower
Pittsburgh, PA
Vice President and Assistant
Treasurer
- ---------------------------------- ---------------------------------------------------------------------- -------------------
<PAGE>
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Peter J. Germain Senior Vice President and Director of Proprietary Funds Services, $
September 3, 1959 Federated Services Company; formerly, Senior Corporate Counsel,
Federated Investors Tower Federated Services Company.
Pittsburgh, PA
Secretary
- ---------------------------------- ---------------------------------------------------------------------- -------------------
</TABLE>
Investment Adviser
The investment adviser conducts investment research and makes investment
decisions for the Funds. The investment adviser is a business unit of Wachovia
Bank, N.A.
The investment adviser shall not be liable to the Trusts, the Funds, or any Fund
shareholder for any losses that may be sustained in the purchase, holding, 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
Trusts.
Sub Adviser. The Quantitative Equity Fund is sub-advised by Twin Capital
Management, Inc., McMurray, Pennsylvania. Pursuant to the terms of an investment
sub-advisory agreement between the investment adviser and Twin Capital
Management, Inc. (Twin Capital or the Sub-Adviser), Twin Capital furnishes
certain investment advisory services to the investment adviser, including
investment research, quantitative analysis, statistical and other factual
information, and recommendations, based on Twin Capital's analysis, and assists
the investment adviser in identifying securities for potential purchase and/or
sale on behalf of the Fund's portfolio. For the services provided and the
expenses incurred by the Sub-Adviser, Twin Capital is entitled to receive an
annual fee of $55,000 payable by the investment adviser in quarterly
installments. Twin Capital may elect to waive some or all of its fee. In no
event shall the Fund be responsible for any fees due to the Sub-Adviser for its
services to the investment adviser. Twin Capital provides investment counsel to
both individuals and institutions, including banks, thrift institutions and
pension and profit-sharing plans. As of December 31, 1998, Twin Capital
furnished services, substantially similar to the services to the investment
adviser, to other accounts with assets in excess of $1 billion. The Sub-Adviser
is controlled by Geoffrey Gerber, its President.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the investment adviser looks for prompt execution of the order at a
favorable price. The investment 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 investment adviser may
select brokers and dealers based on whether they also offer research services
(as described below). In selecting among firms believed to meet these criteria,
the investment adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The investment adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the Fund's
Board.
Research Services. Research services 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. Research services may be used by the investment adviser or by
affiliates of Federated Investors in advising other accounts. To the extent that
receipt of these services may replace services for which the investment adviser
or its affiliates might otherwise have paid, it would tend to reduce their
expenses. The investment adviser and its affiliates exercise reasonable business
judgment in selecting those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the investment adviser. When the Fund and one or more of
those accounts invests in, or disposes of, the same security, available
investments or opportunities for sales will be allocated among the Fund and the
account(s) in a manner believed by the investment adviser to be equitable. While
the coordination and ability to participate in volume transactions may benefit
the Fund, it is possible that this procedure could adversely impact the price
paid or received and/or the position obtained or disposed of by the Fund.
For the fiscal year ended November 30, 1998, the Funds' adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $_____ for which the Fund
paid $_____ in brokerage commissions.
<PAGE>
Administrator
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at the following annual rate of the average aggregate daily net
assets of the Funds in the Trusts (excluding Wachovia Prime Cash Management
Fund) as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Funds
.10 of 1% on the first $3.5 billion
.06 of 1% on assets in excess of $3.5 billion
Custodian
Wachovia Bank, N.A., is custodian (the Custodian) for the securities and cash of
the Funds. Under the Custodian Agreement, the Custodian holds the Funds'
portfolio securities in safekeeping and keeps all necessary records and
documents relating to its duties. For the services to be provided to the Trusts
pursuant to the Custodian Agreement, the Trusts pay the Custodian an annual fee
based upon the average daily net assets of the Funds and which is payable
monthly. The Custodian will also charge transaction fees and out-of-pocket
expenses.
Transfer Agent And Dividend Disbursing Agent
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, also provides certain accounting and
recordkeeping services with respect to the Funds' portfolio investments.
Independent Public Accountants
Ernst & Young LLP is the independent public accountant for the Fund.
Shareholder Services
The Fund may pay Federated Administrative Services, a subsidiary of Federated,
for providing shareholder services and maintaining shareholder accounts.
Federated Administrative Services may select others to perform these services
for their customers and may pay them fees.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fees Paid By the Funds for Services
- ---------------------------------------- ------------------------------------------------------------
Funds For the fiscal year ended November 30, 1998
------------------------------------------------------------
-------------------- ---------------------------------------
12b-1 Fee Shareholder Services Fee
-------------------- ---------------------------------------
-------------------- ------------------- -------------------
Class B Shares Class A Shares Class B Shares
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
Equity Fund $ $ $
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
Quantitative Equity Fund $ $ $
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
Growth & Income Fund(a) N/A $ N/A
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
Equity Index Fund N/A $ N/A
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
Special Values Fund N/A $ N/A
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
Emerging Markets Fund N/A $ N/A
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
Balanced Fund $ $ $
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
Fixed Income Fund $ $ $
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
Intermediate Fixed Income Fund(a) N/A $ N/A
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
Short-Term Fixed Income Fund N/A $ N/A
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
Georgia Municipal Bond Fund N/A $ N/A
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
North Carolina Municipal Bond Fund N/A $ N/A
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
South Carolina Municipal Bond Fund N/A $ N/A
- ---------------------------------------- -------------------- ------------------- -------------------
- ---------------------------------------- -------------------- ------------------- -------------------
Virginia Municipal Bond Fund(a) N/A $ N/A
- ---------------------------------------- -------------------- ------------------- -------------------
</TABLE>
(a) Figures for the period from March 27, 1998 to November 30, 1998.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------- ------------------------------------- -------------------------------- --------------------------------
Fund Advisory Fee Paid/ Brokerage Commissions Paid Administrative Fee Paid
Advisory Fee Waived
-------------------------------- --------------------------------
------------------------------------- -------------------------------- --------------------------------
For the fiscal year ended For the fiscal year ended For the fiscal year ended
November 30, November 30, November 30,
------------------------------------- -------------------------------- --------------------------------
--------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- -------------------------
--------------------------------------------------------------------------------------------------------
Equity Fund $ $1,230,414 $1,003,098 $ $197,705 $252,493 $ $147,147 $124,288
$ $119,625 $107,888
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Quantitative Equity Fund $ $1,345,445 $984,868 $ $136,576 $165,434 $ $160,933 $121,949
$ $146,406 $100,131
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund(a) $ N/A N/A $ N/A N/A $ N/A N/A
$
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Equity Index Fund $ $808,170 $616,302 $ $12,595 $15,333 $ $225,519 $178,161
$ $61,816 $88,233
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Special Values Fund $ $766,650 $324,764 $ $206,032 $155,248 $ $80,170 $35,122
$ $15,052 $76,655
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund $ $1,604,745 $1,006,829 $ $846,113 $538,172 $ $134,379 $87,231
$ $0 $1,057
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $ $1,986,263 $1,588,214 $ $238,931 $269,729 $ $237,616 $196,750
$ $446,571 $352,189
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund $ $1,123,245 $1,047,666 $ $0 $0 $ $156,900 $151,450
$ $205,339 $177,507
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Intermediate Fixed $ N/A N/A $ N/A N/A $ N/A N/A
Income Fund(a) $
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Short-Term Fixed Income $ $632,994 $649,181 $ $0 $0 $ $96,093 $102,429
Fund $ $224,696 $211,508
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Georgia Municipal Bond $ $113,578 $84,212 $ $0 $0 $ $12,683 $9,732
Fund $ $113,578 $78,762
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
North Carolina $ $365,397 $210,288 $ $0 $0 $ $40,794 $24,266
Municipal Bond Fund $ $208,414 $176,041
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
South Carolina $ $767,628 $743,153 $ $0 $0 $ $85,740 $86,019
Municipal Bond Fund $ 489,271 $500,413
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Virginia Municipal Bond $ N/A N/A $ N/A N/A $ N/A N/A
Fund(a) $
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Figures for the period from March 27, 1998 to November 30, 1998.
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares. Class Y Shares do not incur 12b-1
fees or shareholder services fees. HOW DO THE FUNDS MEASURE PERFORMANCE?
The Funds may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
<PAGE>
Total Return
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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 annual reinvestment of all
dividends and distributions.
When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.
Yield
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number 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 12-month period and is reinvested every six months. The tax- equivalent
yield of Shares is calculated similarly to the yield, but is adjusted to reflect
the taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate. The yield and tax-equivalent yield do not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
Performance Information for Predecessor Mutual Funds
The Growth & Income Fund, Intermediate Fixed Income Fund and Virginia Municipal
Bond Fund (Successor Funds) are the successors to portfolios of the MarketWatch
Funds, which were previously managed by the investment adviser. On March 27,
1998, the assets and liabilities of the respective MarketWatch Funds were
transferred to the Successor Funds in exchange for each Fund's shares,
respectively. The investment adviser has represented that each Successor Fund's
investment objective, policies and limitations are in all material respects
equivalent to those of the respective MarketWatch Fund.
Quoted performance data for these Funds includes the performance of the
Successor Funds for periods after the past performance data shown below is not
necessarily indicative of the Successor Funds' future performance. The
MarketWatch Funds did not offer separate classes of shares and were subject to
different expenses, and therefore, performance may vary.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------- ------------------------------------------------------- ------------------------------------------------
Fund Average Annual Total Return Yield
for the following periods ended November 30, 1998 for the 30-day period ended November 30, 1998
------------------------------------------------------- ------------------------------------------------
------------------ ----------------- ------------------ --------------- ---------------- ---------------
Class A Shares Class B Shares Class Y Shares Class A Shares Class B Shares Class Y Shares
One Year One Year One Year
Five Year Five Year Five Years
Since Inception Since Inception Since Inception
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
Equity Fund % % % % % %
% N/A N/A
%(a) %(g) %(g)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
Quantitative Equity Fund % % % % % %
N/A N/A N/A
%(b) %(g) %(g)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
Growth & Income Fund % N/A N/A % N/A %
% N/A
%(c) %(h)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
Equity Index Fund % N/A % % N/A %
% N/A
%(a) %(g)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
Special Values Fund % N/A % % N/A %
% N/A
%(a) %(g)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
Emerging Markets Fund % N/A % % N/A %
N/A N/A
%(d) %(g)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
Balanced Fund % % % % % %
% N/A N/A
%(a) %(g) %(g)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
Fixed Income Fund % % % % % %
% % %
%(a) %(g) %(g)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
Intermediate Fixed Income % N/A N/A % N/A %
Fund % N/A
%(c) %(h)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
Short-Term Fixed Income % N/A % % N/A %
Fund % N/A
%(a) %(g)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
Georgia Municipal Bond % N/A % % N/A %
Fund N/A N/A
%(d) %(g)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
North Carolina Municipal % N/A % % N/A %
Bond Fund N/A N/A
%(d) %(g)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
South Carolina Municipal % N/A % % N/A %
Bond Fund N/A N/A
%(e) %(g)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
Virginia Municipal Bond % N/A N/A % N/A %
Fund % N/A
%(f) %(h)
- --------------------------- ------------------ ----------------- ------------------ --------------- ---------------- ---------------
</TABLE>
(a) May 10, 1993; (b) March 28, 1994; (c) January 29, 1993; (d) December 26,
1994; (e) January 11, 1991; (f) February 1, 1993; (g) July 22, 1996; (h) March
29, 1998
<PAGE>
- -------------------------- -----------------------------------------------------
Fund Tax-Equivalent Yield
for the 30-day period ended November 30, 1998
-----------------------------------------------------
-------------------------
Class A Shares Class Y Shares
- -------------------------- ------------------------- ---------------------------
-------------------------
Georgia Municipal Bond % %
Fund
- -------------------------- ------------------------- ---------------------------
- -------------------------- ------------------------- ---------------------------
North Carolina Municipal % %
Bond Fund
- -------------------------- ------------------------- ---------------------------
- -------------------------- ------------------------- ---------------------------
South Carolina Municipal % %
Bond Fund
- -------------------------- ------------------------- ---------------------------
- -------------------------- ------------------------- ---------------------------
Virginia Municipal Bond % %
Fund
- -------------------------- ------------------------- ---------------------------
Tax Equivalency Tables-The Wachovia Municipal Funds
Set forth below are sample tax-equivalency tables that may be used in
advertising and sales literature. The tables are for illustrative purposes only
and is not representative of past or future performance of a Fund. The interest
earned by the municipal securities owned by a Fund generally remains free from
federal regular income tax and is often free from state and local taxes as well.
However, some of a Fund's income may be subject to the federal alternative
minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF GEORGIA
- --------------------------------------------------------------------------------------------------------------------
TAX BRACKET:
FEDERAL COMBINED 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 RETURN $1- $40,101- $96,901- $147,701- OVER
40,100 96,900 147,700 263,750 $263,750
SINGLE RETURN $1- $24,001- $58,151- $121,301- OVER
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%
- -------------------------------- --------------- ----------------- -------------- ----------------- ----------------
<PAGE>
- --------------------------------------------------------------------------------------------------------------------
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF NORTH CAROLINA
- --------------------------------------------------------------------------------------------------------------------
TAX BRACKET:
FEDERAL COMBINED 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 RETURN $1- $40,101- $96,901- $147,701- OVER
40,100 96,900 147,700 263,750 $263,750
SINGLE RETURN $1- $24,001- $58,151- $121,301- OVER
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%
- --------------------------------- -------------- ----------------- -------------- ---------------- -----------------
<PAGE>
- --------------------------------------------------------------------------------------------------------------------
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF SOUTH CAROLINA
- --------------------------------------------------------------------------------------------------------------------
TAX BRACKET:
FEDERAL COMBINED 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE 22.00% 35.00% 38.00% 43.00% 46.60%
- --------------------------------- -------------- ----------------- -------------- ---------------- -----------------
JOINT RETURN $1- $40,101- $96,901- $147,701- OVER
40,100 96,900 147,700 263,750 $263,750
SINGLE RETURN $1- $24,001- $58,151- $121,301- OVER
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%
- --------------------------------- -------------- ----------------- -------------- ---------------- -----------------
<PAGE>
- --------------------------------------------------------------------------------------------------------------------
TAXABLE YIELD EQUIVALENT FOR 1998
COMMONWEALTH OF VIRGINIA
- --------------------------------------------------------------------------------------------------------------------
TAX BRACKET:
FEDERAL COMBINED 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE 22.00% 35.00% 38.00% 43.00% 46.60%
- --------------------------------- -------------- ----------------- -------------- ---------------- -----------------
JOINT RETURN $1- $40,101- $96,901- $147,701- OVER
40,100 96,900 147,700 263,750 $263,750
SINGLE RETURN $1- $24,001- $58,151- $121,301- OVER
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%
- --------------------------------- -------------- ----------------- -------------- ---------------- -----------------
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
Performance Comparisons Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to
certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
A Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
A Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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:
<PAGE>
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 maximum offering price over a specific period of
time. From time to time, a Fund will quote its Lipper ranking in advertising and
sales literature. Dow Jones Industrial Average ("DJIA") represents share prices
of selected blue-chip industrial corporations. The DJIA indicates daily changes
in the average price of stock of these corporations. Because it represents the
top corporations of America, the DJIA index is a leading economic indicator for
the stock market as a whole. Standard & Poor's Daily Stock Price Index of 500
Common Stocks (the "S&P Index"), is a composite index of common stocks in
industry, transportation, and financial and public utility companies. In
addition, the S&P Index assumes reinvestment of all dividends paid by stocks
listed on the S&P Index. Taxes due on any of these distributions are not
included, nor are brokerage or other fees calculated in the S&P Index figures.
Russell 2000 Index is a broadly diversified index consisting of approximately
2,000 small capitalization common stocks that can be used to compare the total
returns of funds whose portfolios are invested primarily in small capitalization
common stocks. Europe, Australia, and Far East ("EAFE") is a market
capitalization weighted foreign securities index, which is widely used to
measure the performance of European, Australian, New Zealand and Far Eastern
stock markets. The index covers approximately 1,020 companies drawn from 18
countries in the above regions. The index values its securities daily in both
U.S. dollars and local currency and calculates total returns monthly. EAFE U.S.
dollar total return is a net dividend figure less Luxembourg withholding tax.
The EAFE is monitored by Capital International, S.A., Geneva, Switzerland.
International Finance Corporation ("IFC") Emerging Market Indices are market
capitalization-weighted foreign securities indices, which are used to measure
the performance of emerging markets (as defined by the World Bank) in Europe,
Asia, Latin America and the Middle East/Africa. The IFC calculates both a
"Global" and an "Investable" version of its index. The "Global" version includes
companies and countries with regard to their access to foreign investors. The
"Investable" Index adjusts company and market weights to reflect their
accessibility to foreign investors. The IFC Global Index currently covers
approximately 1,200 securities in 25 markets; the IFC Investable Index currently
covers approximately 900 securities in 24 markets. Both indices are presently
calculated in local currency and in US dollars, without dividends and with gross
dividends reinvested (e.g., before withholding taxes). The IFC is a subsidiary
of the World Bank, and has been collecting data on emerging markets since 1975.
Morgan Stanley Capital International ("MSCI") Emerging Markets Indices are
market capitalization-weighted foreign securities indices, which are used to
measure the performance of emerging markets (as defined by the World Bank) in
Europe, Asia, Latin America and the Middle East/Africa. MSCI calculates a
"Global" and a "Free" version of its index. The "Global" version includes
companies and countries without regard to their access to foreign investors. The
"Free" Index adjusts company and market weights to reflect their accessibility
to foreign investors. The MSCI Global Index currently covers approximately 630
securities in 20 markets; the MSCI Free Index currently covers approximately 560
securities in 19 markets. Both indices are presently calculated in local
currency and in US dollars, without dividends and with gross dividends
reinvested (e.g., before withholding taxes). Merrill Lynch Composite 1-3 Year
Treasury Index is an unmanaged index tracking short-term U.S. government
securities with maturities between 1 and 2.99 years. The index is produced by
Merrill Lynch, Pierce, Fenner & Smith. Merrill Lynch Composite 1-5 Year Treasury
Index is comprised of approximately 66 issues of U.S. Treasury securities
maturing between 1 and 4.99 years, with coupon rates of 4.25% or more. These
total return figures are calculated for one, three, six, and twelve month
periods and year-to-date and include the value of the bond plus income and any
price appreciation or depreciation. Salomon Brothers 3-5 Year Government Index
quotes total returns for U.S. Treasury issues (excluding flower bonds) which
have maturities of three to five years. These total returns are year-to-date
figures which are calculated each month following January 1. Merrill Lynch 3-5
Year Treasury Index is comprised of approximately 24 issues of intermediate-term
U.S. government and U.S. Treasury securities with maturities between 3 and 4.99
years and coupon rates above 4.25%. Index returns are calculated as total
returns for periods of one, three, six and twelve months as well as
year-to-date.
<PAGE>
Merrill Lynch 3-Year Treasury Yield Curve Index is an unmanaged index comprised
of the most recently issued 3-year U.S. Treasury notes. Index returns are
calculated as total returns for periods of one, three, six, and twelve months as
well as year-to-date. Lehman Brothers Government Index is an unmanaged index
comprised of all publicly issued, non-convertible domestic debt of the U.S.
government, or any agency thereof, or any quasi-federal corporation and of
corporate debt guaranteed by the U.S. government. Only notes and bonds with a
minimum outstanding principal of $1 million and a minimum maturity of one year
are included. Lehman Brothers Aggregate Bond Index is a total return index
measuring both the capital price changes and income provided by the underlying
universe of securities, weighted by market value outstanding. The Aggregate Bond
Index is comprised of the Lehman Brothers Government Bond Index, Corporate Bond
Index, Mortgage-Backed Securities Index and the Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Farm Credit System, including the National
Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Farmers
Home Administration; Federal Home Loan Banks; Federal Home Loan Mortgage
Corporation; Fannie Mae; Government National Mortgage Association and Student
Loan Marketing Association; foreign obligations; and U.S. investment-grade
corporate debt and mortgage-backed obligations. All corporate debt included in
the Aggregate Bond Index has a minimum S&P rating of BBB or a minimum Moody's
rating of Baa. Merrill Lynch Corporate and Government Index includes issues
which must be in the form of publicly placed, nonconvertible, coupon-bearing
domestic debt and must carry a term of maturity of at least one year. Par
amounts outstanding must be no less than $10 million at the start and at the
close of the performance measurement period. Corporate instruments must be rated
by S&P or by Moody's as investment grade issues (i.e., BBB/Baa or better).
Merrill Lynch Domestic Master Index includes issues which must be in the form of
publicly placed, nonconvertible, coupon-bearing domestic debt and must carry a
term to maturity of at least one year. Par amounts outstanding must be no less
than $10 million at the start and at the close of the performance measurement
period. The Domestic Master Index is a broader index than the Merrill Lynch
Corporate and Government Index and includes, for example, mortgage-related
securities. The mortgage market is divided by agency, type of mortgage and
coupon and the amount outstanding in each agency/type/coupon subdivision must be
no less than $200 million at the start and at the close of the performance
measurement period. Corporate instruments must be rated by S&P or by Moody's as
investment-grade issues (i.e. BBB/Baa or better). S&P 500/Lehman Brothers
Government/Corporate (Weighted Index) and the S&P 500/Lehman Brothers Government
(Weighted Index) combine the components of a stock-oriented index and a
bond-oriented index to obtain results which can be compared to the performance
of a managed fund. The indices' total returns will be assigned various weights
depending upon a Fund's current asset allocation. Salomon Brothers AAA-AA
Corporate index calculates total returns of approximately 775 issues which
include long-term, high grade domestic corporate taxable bonds, rated AAA-AA
with maturities of twelve years or more and companies in industry, public
utilities, and finance. Lehman Brothers Intermediate Government/Corporate Bond
Index is an unmanaged index comprised of all the bonds issued by the Lehman
Brothers Government/Corporate Bond Index with maturities between 1 and 9.99
years. Total return is based on price appreciation/depreciation and income as a
percentage of the original investment. Indices are rebalanced monthly by market
capitalization. SEI Balanced Universe is composed of 916 portfolios managed by
390 managers representing $86 billion in assets. To be included in the universe,
a portfolio must contain a 5% minimum commitment in both equity and fixed-income
securities. Consulting universes may be composed of pension, profit-sharing,
commingled, endowment/foundation and mutual funds. Lehman Brothers
Government/Corporate (Total) index is comprised of approximately 5,000 issues
which include: non-convertible bonds publicly issued by the U.S. government or
its agencies; corporate bonds guaranteed by the U.S. government and
quasi-federal corporations; and publicly issued, fixed rate, non-convertible
domestic bonds of companies in industry, public utilities, and finance. The
average maturity of these bonds approximates nine years. Tracked by Lehman
Brothers, the index calculates total returns for one-month, three-month,
twelve-month, and ten-year periods and year-to-date. Merrill Lynch Corporate
Master is an unmanaged index comprised of approximately 4,356 corporate debt
obligations rated BBB or better. These quality parameters are based in
composites of ratings assigned by S&P and Moody's. Only bonds with a minimum
maturity of one year are included. 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 inception of the index, December 31, 1979. Lehman
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
inception of the index, December 31, 1979. Lehman 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. 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. FINANCIAL INFORMATION
The Financial Statements for the Fund for the fiscal year ended November 30,1998
are incorporated herein by reference to the Annual Report to Shareholders of the
Funds dated November 30, 1998.
<PAGE>
INVESTMENT RATINGS
Standard & Poor's Corporate Bond Ratings
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 effects 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
are outweighed by large uncertainties of major risk exposure to adverse
conditions.
C -- The rating "C" is reserved 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.
NR--NR indicates that no
public rating has been requested, that there is insufficient information on
which to base a rating, or that S&P does not rate a particular type of
obligation as a matter of policy. S&P may apply a plus (+) sign or minus (-)
sign to the above rating classifications to show relative standing within the
classifications.
Moody's Investors Service, Inc. Corporate Bond Rating
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 a 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 or ever attaining any real investment standing.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from "Aa" through "B" in its corporate 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.
Standard & Poor's Commercial Paper Ratings
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. 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 many of 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 earnings coverage of fixed financial
charges and high internal cash generation;
or
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. Standard & Poor's Municipal Bond Ratings
AAA--Debt rated "AAA" has
the highest rating assigned by S&P. Capacity to pay interest and repay principal
is extremely strong. AA--Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the higher rated issues only in
small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effect of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
BB, B, CCC, CC--Debt
rated "BB," "B," "CCC" and "CC" is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these outweighed by
large uncertainties of major risk exposure to adverse conditions.
C--The rating
"C" is reversed for income bonds on which no interest is being paid.
D--Debt
rated "D" is in default, and payment of interest and/or repayment of principal
is in arrears.
Standard & Poor's Municipal Note Ratings
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. Moody's Investors
Service, Inc.
Municipal Bond Ratings
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 Ratings
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.
Short Term Loan Ratings
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.
<PAGE>
ADDRESSES
The Wachovia Funds
The Wachovia Municipal Funds
Class A Shares, Class B Shares, Class Y Shares 101 Greystone Boulevard
SC-9215
Columbia, SC 29226
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Wachovia Asset Management 100 North Main Street
Winston-Salem, NC 27101
Custodian
Wachovia Bank, N.A. 100 North Main Street
Winston-Salem, NC 27101
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, PA 15219
Item 23. Financial Statements and Exhibits:
(a) 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);
(b) Copy of By-Laws of the Registrant (1);
(i) Copy of Amendment 1 to the By-Laws of the Registrant;(14)
(c) Copy of Specimen Certificate for Shares of Beneficial Interest of
the Registrant (2);
(i) Wachovia Georgia Municipal Bond Fund;(12)
(ii) Wachovia North Carolina Municipal Bond Fund;(12)
(iii) Wachovia South Carolina Municipal Bond;(12)
(d) (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
Wachovia 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 Wachovia North
Carolina Municipal Bond Fund (9.);
(iv) Conformed copy Exhibit A to Investment Advisory Contract;(13)
(e) (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.); (iii)Conformed copy of Exhibits E & F to
the Distributors Contract;(13)
(f) Not applicable;
(g) (i) Conformed copy of new Custodian Agreement of the
Registrant and Exhibits A-C thereto (8);
(ii) Amendment to Exhibit A to Custody Agreement;(13)
..........................
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement 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 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 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 filed January 27, 1995. (File Nos. 33-37525 and
811-6201)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No.14 filed December 22,
1997. (File Nos. 33-37525 and 811-6201)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No.15 filed February 4, 1998. (File Nos. 33-37525 and 811-6201).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 filed March 12, 1998. (File Nos. 33-37525 and
811-6201).
<PAGE>
(h) 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);
(iv) Conformed copy of Amendment No. 1 to the
Administrative Services Agreemtnt(11);
(v) Conformed copy of Portfolio Accounting and
Shareholder Recordkeeping Agreement
Amendment No. 1 to Schedule B;(12)
(vi) Amendment to Shareholder Services;(13)
(vii) Conformed copy of Shareholder Services Plan;(12)
(viii) Amendment to Exhibit A of the Shareholder
Services Agreement; (14) (i) Conformed copy of Opinion and
Consent of Counsel as to legality of shares being
registered (2);
(j) (i) Conformed Copy of Consent of Independent Auditors; +
(ii) Conformed copy of Opinion and Consent of Special Tax
Counsel for South Carolina Municipal Bond Fund (4);
(k) Not Applicable;
(l) Conformed copy of Initial Capital Understanding (2);
(m) Not Applicable;
(n) Copy of Financial Data Schedules; (12)
(o) Copy of The Wachovia Municipal Funds Multiple Class Plan;(12);
(i) Amendment to Exhibit A to Multiple Class Plan;(13)
(p) Conformed Copy of Power of Attorney;(11)
+ 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)
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)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No.11 filed June 21,
1996. (File Nos. 33-37525 and 811-6201)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No.14 filed December 22, 1997. (File Nos. 33-37525 and
811-6201)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No.15 filed February 4, 1998. (File Nos. 33-37525 and
811-6201)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 filed March 12, 1998. (File Nos. 33-37525 and
811-6201).
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
None
Item 25. Indemnification: (1)
Item 26. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the
investment advisers, see the section entitled "Who
Manages and Provides Services to the Funds?" in Part A.
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.
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.
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)
<PAGE>
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 27. Principal Underwriters:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following open-end
investment companies, including the Registrant:
Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; 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: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; ; Hibernia
Funds; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Obligations Trust II; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Regions Funds; RIGGS Funds; SouthTrust Funds;
Tax-Free Instruments Trust; The Planters Funds; The Wachovia Funds; The Wachovia
Municipal FundsTrust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; World Investment Series, Inc.; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; High Yield Cash Trust; Investment Series Trust; Star Funds;
Targeted Duration Trust; The Virtus Funds; Trust for Financial Institutions;
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
<S> <C> <C>
Richard B. Fisher Director, Chairman, Chief
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice
Federated Investors Tower President,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
</TABLE>
Item 38. Location of Accounts and Records:
The Wachovia 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 Services Company 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 29. Management Services: Not applicable.
Item 30. 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, THE WACHOVIA MUNICIPAL FUNDS,
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 24th day of December, 1998.
THE WACHOVIA MUNICIPAL FUNDS
BY: /s/ Gail Cagney
Gail Cagney, Assistant Secretary
Attorney in Fact for John W. McGonigle
December 24, 1998
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
Gail Cagney Attorney In Fact December 24, 1998
ASSISTANT SECRETARY For the Persons
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
