BILTMORE BALANCED FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
PROSPECTUS
The shares of Biltmore Balanced Fund (the "Fund") offered by this prospectus
represent interests in a diversified portfolio of securities, which is one of a
series of portfolios in The Biltmore Funds (the "Trust"), an open-end management
investment company (a mutual fund).
The investment objective of the Fund is long-term growth of principal and
current income. The Fund pursues this investment objective by investing in a
professionally-managed, diversified portfolio of equity securities and debt
securities.
THE INVESTMENT COMPANY SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, WACHOVIA BANK OF NORTH CAROLINA, N.A. OR ITS AFFILIATES OR
SUBSIDIARIES, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC"), THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT
IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated January 31,
1994 with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. To request a copy of the Statement of Additional Information free of
charge, obtain other information, or make inquiries about the Fund, Trust
customers of the Wachovia Banks (as defined herein) may write the Fund or call
their Wachovia Bank Officer. Customers of Wachovia Brokerage Service may write
the Fund or call 1-800-462-7538.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated January 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Risk 5
Securities of Foreign Issuers 5
Corporate Debt Obligations 6
Fixed Rate Corporate Debt Obligations 6
Floating Rate Corporate Debt
Obligations 6
U.S. Government Securities 6
Mortgage-Backed Securities 7
Adjustable Rate Mortgage Securities 7
Collateralized Mortgage Obligations 7
Real Estate Mortgage Investment
Conduits 7
Asset-Backed Securities 8
Convertible Securities 8
Restricted and Illiquid Securities 9
Demand Master Notes 10
Demand Features 10
Lending of Portfolio Securities 10
When-Issued and Delayed Delivery
Transactions 10
Repurchase Agreements 11
Other Investment Techniques 11
Equity Investment Considerations 11
Debt Considerations 11
Investment Limitations 12
THE BILTMORE FUNDS INFORMATION 12
- ------------------------------------------------------
Management of the Trust 12
Board of Trustees 12
Investment Adviser 12
Advisory Fees 12
Adviser's Background 12
Distribution of Shares 13
Administrative Arrangements 14
Shareholder Servicing Arrangements 14
Administration of the Fund 14
Administrative Services 14
Custodian 14
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 15
Legal Services 15
Independent Auditors 15
Brokerage Transactions 15
Expenses of the Fund 15
NET ASSET VALUE 16
- ------------------------------------------------------
INVESTING IN THE FUND 16
- ------------------------------------------------------
Share Purchases 16
Through Wachovia Brokerage Service 16
By Mail 16
By Wire 16
Through the Trust Divisions of the
Wachovia Banks 17
Minimum Investment Required 17
What Shares Cost 17
Purchases at Net Asset Value 17
Sales Charge Reallowance 18
Reducing the Sales Charge 18
Quantity Discounts and Accumulated
Purchases 18
Letter of Intent 18
Reinvestment Privilege 19
Concurrent Purchases 19
Systematic Investment Program 19
Exchanging Securities for Fund Shares 19
Certificates and Confirmations 20
Dividends 20
Capital Gains 20
Exchange Privilege 20
Exchange by Telephone 21
REDEEMING SHARES 21
- ------------------------------------------------------
By Telephone 21
By Mail 22
Signatures 22
Systematic Withdrawal Program 22
Accounts with Low Balances 23
SHAREHOLDER INFORMATION 23
- ------------------------------------------------------
Voting Rights 23
Massachusetts Business Trusts 23
EFFECT OF BANKING LAWS 24
- ------------------------------------------------------
TAX INFORMATION 25
- ------------------------------------------------------
PERFORMANCE INFORMATION 25
- ------------------------------------------------------
FINANCIAL STATEMENTS 26
- ------------------------------------------------------
REPORT OF ERNST & YOUNG,
INDEPENDENT AUDITORS 42
- ------------------------------------------------------
ADDRESSES 43
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......................................................... 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).......................................................... None
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds,
as applicable)............................................................................... None
Redemption Fees (as a percentage of amount redeemed, if applicable)............................ None
Exchange Fee................................................................................... None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1).............................................................. 0.55%
12b-1 Fees..................................................................................... None
Other Expenses................................................................................. 0.22%
Shareholder Servicing Agent Fee (2).......................................................... 0.00%
Total Fund Operating Expenses (after waiver) (3)...................................... 0.77%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 0.70%.
(2) As of the date of this propsectus, the Fund is not paying or accruing
shareholder servicing agent fees. The Fund will not pay or accrue
shareholder servicing agent fees until a separate class of shares has been
created for certain trust and institutional investors, including qualified
employee benefit plans. At that point, the Fund will be able to pay up to
0.25 of 1% of the Fund's average daily net assets for shareholder servicing
agent fees. See "The Biltmore Funds Information."
(3) Total Fund Operating Expenses were 0.75% for the fiscal year ended November
30, 1993. Total Fund Operating Expenses in the table above are based on
expenses expected during the fiscal year ending November 30, 1994. Total
Fund Operating Expenses are expected to be 0.92% absent the voluntary waiver
described above in
Note 1.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "THE BILTMORE FUNDS INFORMATION" AND "INVESTING IN THE FUND."
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above,
the Fund charges no redemption fees............................................................ $53 $69
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
BILTMORE BALANCED FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
42.
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
<S> <C>
1993*
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.19
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.29
- ----------------------------------------------------------------------------------------------- -----------------
Total from investment operations 0.48
- -----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.15)
- ----------------------------------------------------------------------------------------------- -----------------
NET ASSET VALUE, END OF PERIOD $ 10.33
- ----------------------------------------------------------------------------------------------- -----------------
TOTAL RETURN** 4.89%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses 0.75%(b)
- -----------------------------------------------------------------------------------------------
Net investment income 3.30%(b)
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.19%(b)
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$166,271
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 60 %
- -----------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 10, 1993 (date of initial public
investment) to
November 30, 1993.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) This expense decrease is reflected in both the expenses and net investment
income ratios shown above (Note 5).
(b) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended November 30, 1993, which can be obtained
free of charge.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Biltmore Funds was established as a Massachusetts business trust under a
Declaration of Trust dated November 19, 1991. The Declaration of Trust permits
the Trust to offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. This prospectus relates only to
one portfolio, Biltmore Balanced Fund. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") has not established classes of shares of the Fund.
The Fund is designed for institutions, pension plans and individuals as a
convenient means of accumulating an interest in a professionally-managed,
diversified portfolio of common and preferred stocks and other equity
securities, bonds, notes and short-term obligations. A minimum initial
investment of $250 is required. This amount may be waived from time to time. For
further information, Trust customers of the Wachovia Banks may telephone their
account officer and customers of Wachovia Brokerage Service may telephone a
broker at 1-800-462-7538.
Except as otherwise noted in this prospectus, shares are currently sold at net
asset value plus an applicable sales charge and are redeemed at net asset value.
The other portfolios in the Trust are Biltmore Equity Fund, Biltmore Equity
Index Fund, Biltmore Fixed Income Fund, Biltmore Money Market Fund
(Institutional Shares and Investment Shares), Biltmore Prime Cash Management
Fund (Institutional Shares), Biltmore Quantitative Equity Fund, Biltmore
Short-Term Fixed Income Fund, Biltmore Special Values Fund, Biltmore Tax-Free
Money Market Fund (Institutional Shares and Investment Shares), and Biltmore
U.S. Treasury Money Market Fund (Institutional Shares and Investment Shares)
(collectively, hereinafter referred to as the "Funds").
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term growth of principal and
current income. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus. The investment objective cannot be changed without
the approval of shareholders. Unless indicated otherwise, the investment
policies described below may be changed by the Trustees without the approval of
shareholders. Shareholders will be notified before any material change in these
policies becomes effective.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
primarily in a professionally-managed, diversified portfolio of equity
securities and debt securities.
In pursuing its investment objective, the Fund's investment approach, as related
to equity securities, is to produce long-term growth of principal and income by
investing in a diversified portfolio of common stocks. The Fund's investment
adviser will seek undervalued stocks with improving prospects by integrating two
disciplines to capture both growth and value opportunities. With regard to debt
securities, the Fund's investment approach will be to maximize total return
(which consists of capital appreciation and income) available from a diversified
portfolio of fixed income securities while providing relative stability of
principal and income as compared to other fixed income securities. The
investment adviser employs a multi-disciplined management approach that combines
judgments about interest rates with other value-added management techniques
(including judgments about the future shape of the yield curve, sector rotation,
and securities swapping and substitution). As such, the Fund's investment
adviser will not rely on a single management technique in selecting the Fund's
portfolio of investments.
Under normal market circumstances, the Fund will invest at least 65% of its
assets in equity securities and debt securities. As a matter of operating
policy, the asset mix of the Fund will normally range between 40-60% 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
assets in fixed income senior securities (including the value of convertible
senior securities attributable to their fixed income characteristics). The
permitted investments include but are not limited to:
common or preferred stocks of U.S. companies which are either listed on
the New York or American Stock Exchange or traded in the over-the-counter
markets and are considered by the adviser to have an established market;
convertible securities;
investments in American Depositary Receipts ("ADRs") of foreign companies
traded on the New York Stock Exchange or in the over-the-counter market.
The Fund may not invest more than 20% of its assets in ADRs. In addition,
the Fund may invest up to 10% of its assets in other securities of
foreign issuers ("Non-ADRs"). (See "Securities of Foreign Issuers");
domestic issues of corporate debt obligations (including convertible
bonds) rated, at the time of purchase, A or better by Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's) or Fitch
Investors Service, Inc. ("Fitch") or, if not rated, are determined by the
Fund's investment adviser to be of comparable quality. If a security's
rating is reduced below the required minimum after the Fund has purchased
it, the Fund is not required to sell the security, but will consider
doing so. (A description of the rating categories is contained in the
Appendix to the Statement of Additional Informaton);
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds;
notes, bonds, and discount notes of U.S. government agencies or
instrumentalities including: Federal Home Loan Banks, Federal National
Mortgage Association, Government National Mortgage Association, Banks for
Cooperatives, Farm Credit Banks, Tennessee Valley Authority,
Export-Import Bank of the United States, Commodity Credit Corporation,
Federal Financing Bank, Student Loan Marketing Association, Federal Home
Loan Mortgage Corporation, or National Credit Union Administration;
asset-backed securities;
commercial paper rated not less than A-1 by S&P, Prime-1 by Moody's or
F-1 by Fitch, and unrated commercial paper that is deemed by the Fund's
investment adviser to be of comparable quality;
time and savings deposits (including certificates of deposit) in
commercial or savings banks;
bankers' acceptances;
demand master notes; and
repurchase agreements collateralized by high quality, liquid investments.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities, securities of other investment companies,
and warrants, and may engage in when-issued and delayed delivery transactions.
The Fund may also engage in put and call options, futures contracts, and options
on futures contracts for hedging purposes.
The Fund's investment adviser does not select securities purely to maximize the
current yield of the Fund. The Fund's investment adviser attempts to manage the
Fund's total performance, which includes both changes in principal value of the
Fund's portfolio and interest income earned, to anticipate the opportunities and
risks of changes in market interest rates. When the Fund's investment adviser
expects that market interest rates may decline, which would cause prices of
outstanding debt obligations to rise, it generally extends the average maturity
of the Fund's portfolio. When, in the investment adviser's judgment, market
interest rates may rise, which would cause market prices of outstanding debt
obligations to decline, it generally shortens the average maturity of the Fund's
portfolio. Further, the Fund's investment adviser attempts to improve the Fund's
total return by weighing the relative value of other fixed income securities
having similar maturities in selecting portfolio securities. By actively
managing the Fund's portfolio in this manner, the Fund's investment adviser
seeks to provide capital appreciation during periods of falling interest rates
and protection against capital depreciation during periods of rising rates.
RISK. The market value of debt obligations, and therefore the Fund's net
asset value, will fluctuate due to changes in economic conditions and other
market factors such as interest rates which are beyond the control of the
Fund's investment adviser. The Fund's investment adviser could be incorrect
in its expectations about the direction or extent of these market factors.
Although debt obligations with longer maturities offer potentially greater
returns, they have greater exposure to market price fluctuation.
Consequently, to the extent the Fund is significantly invested in debt
obligations with longer maturities, there is a greater possibility of
fluctuation in the Fund's net asset value.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest in the securities of foreign
issuers. There may be certain risks associated with investing in foreign
securities. These include risks of adverse political and economic developments
(including possible governmental seizure or nationalization of assets), the
possible imposition of exchange controls or other governmental restrictions,
less uniformity in accounting and reporting requirements, and the possibility
that there will be less information on such securities and their issuers
available to the public. In addition, there are restrictions on foreign
investments in other jurisdicitions and there tends to be difficulty in
obtaining judgments from abroad and affecting repatriation of capital invested
abroad. Delays could occur in settlement of foreign transactions, which could
adversely affect shareholder equity. Foreign securities may be subject to
foreign taxes, which reduce yield, and may be less marketable than comparable
United States securities. As a matter of practice, the Fund will not invest in
the securities of a foreign issuer if any risk identified above appears to the
Fund's investment adviser to be substantial.
CORPORATE DEBT OBLIGATIONS. The Fund invests in corporate debt obligations,
including corporate bonds, notes, and debentures, which may have floating or
fixed rates of interest. These obligations will be rated A or better at the time
of purchase by S&P, Moody's or Fitch, or, if unrated, will be of comparable
quality as determined by the Fund's investment adviser.
FIXED RATE CORPORATE DEBT OBLIGATIONS. The Fund will invest in fixed rate
securities, including fixed rate securities with short-term
characteristics. Fixed rate securities with short-term characteristics are
long-term debt obligations but are treated in the market as having short
maturities because call features of the securities may make them callable
within a short period of time. A fixed rate security with short-term
characteristics would include a fixed income security priced close to call
or redemption price or fixed income security approaching maturity, where
the expectation of call or redemption is high.
Fixed rate securities tend to exhibit more price volatility during times of
rising or falling interest rates than securities with floating rates of
interest. This is because floating rate securities, as described below,
behave like short-term instruments in that the rate of interest they pay is
subject to periodic adjustments based on a designated interest rate index.
Fixed rate securities pay a fixed rate of interest and are more sensitive
to fluctuating interest rates. In periods of rising interest rates the
value of a fixed rate security is likely to fall. Fixed rate securities
with short-term characteristics are not subject to the same price
volatility as fixed rate securities without such characteristics.
Therefore, they behave more like floating rate securities with respect to
price volatility.
FLOATING RATE CORPORATE DEBT OBLIGATIONS. The Fund expects to invest in
floating rate corporate debt obligations, including increasing rate
securities. Floating rate securities are generally offered at an initial
interest rate which is at or above prevailing market rates. The interest
rate paid on these securities is then reset periodically (commonly every 90
days) to an increment over some predetermined interest rate index. Commonly
utilized indices include the three-month Treasury bill rate, the 180-day
Treasury bill rate, the one-month or three-month London Interbank Offered
Rate (LIBOR), the prime rate of a bank, the commercial paper rates, or the
longer-term rates on U.S. Treasury securities. An example of floating and
fixed rate corporate debt obligations in which the Fund can invest include
Yankee bonds, which are U.S. dollar-denominated bonds issued in the United
States by foreign banks or corporations.
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which the Fund
invests are either issued or guaranteed by the U.S. government, its agencies or
instrumentalities. These securities include, but are not limited to:
direct obligations of the U.S. Treasury such as U.S. Treasury bills,
notes and bonds; and
notes, bonds and discount notes of U.S. government agencies or
instrumentalities such as Federal Home Loan Banks, Federal National
Mortgage Association, Federal Farm Credit System, Student Loan Marketing
Association, and Federal Home Loan Mortgage Corporation.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury.
Others for which no assurances can be given that the U.S. government will
provide financial support to the agencies or instrumentalities, since it is not
obligated to do so, are supported by:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
discretionary authority of the U.S. Treasury to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. There are currently three basic
types of mortgage-backed securities: (i) those issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as the Government
National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac"); (ii) those issued by private issuers that represent an interest
in or are collateralized by mortgage-backed securities issued or guaranteed by
the U.S. government or one of its agencies or instrumentalities; and (iii) those
issued by private issuers that represent an interest in or are collateralized by
whole loans or mortgage-backed securities without a government guarantee but
usually having some form of private credit enhancement.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are pass through mortgage
securities representing interests in adjustable rather than fixed interest rate
mortgages. The ARMS in which the Fund invests are issued by Ginnie Mae, Fannie
Mae or Freddie Mac, and are actively traded. The underlying mortgages which
collateralize ARMS issued by Ginnie Mae are fully guaranteed by the Federal
Housing Administration or Veterans Administration, while those collateralizing
ARMS issued by Fannie Mae or Freddie Mac are typically conventional residential
mortgages conforming to strict underwriting size and maturity constraints.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by Ginnie Mae,
Fannie Mae or Freddie Mac Certificates, but may be collateralized by whole loans
or private pass-through securities.
The Fund will only invest in CMOs which are rated AAA by a nationally recognized
rating agency or are of comparable quality as determined by the Fund's
investment adviser, and which may be: (a) collateralized by pools of mortgages
in which each mortgage is guaranteed as to payment of principal and interest by
an agency or instrumentality of the U.S. government; (b) collateralized by pools
of mortgages in which payment of principal and interest is guaranteed by the
issuer and such guarantee is collateralized by U.S. government securities; or
(c) collateralized by pools of mortgages without a government guarantee as to
payment of principal and interest, but which have some form of credit
enhancement.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are offerings of
multiple class real estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue Code. Issuers of
REMICs may take several forms, such as trusts, partnerships, corporations,
associations, or segregated pools of mortgages. Once REMIC status is elected and
obtained, the entity is not subject to federal income taxation. Instead, income
is passed through the
entity and is taxed to the person or persons who hold interests in the REMIC. A
REMIC interest must consist of one or more classes of "regular interests." To
qualify as a REMIC, substantially all the assets of the entity must be in assets
directly or indirectly secured principally by real property.
ASSET-BACKED SECURITIES. Asset-backed securities have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. The Fund may invest
in asset-backed securities rated A or higher at the time of purchase by a
nationally recognized rating agency including, but not limited to, interests in
pools of receivables, such as motor vehicle installment purchase obligations and
credit card receivables. These securities may be in the form of pass-through
instruments or asset-backed bonds. The securities are issued by non-governmental
entities and carry no direct or indirect government guarantee.
Mortgage-backed and asset-backed securities generally pay back principal and
interest over the life of the security. At the time the Fund reinvests the
payments and any unscheduled prepayments of principal received, the Fund may
receive a rate of interest which is actually lower than the rate of interest
paid on these securities ("prepayment risks"). Mortgage-backed and asset-backed
securities are subject to higher prepayment risks than most other types of debt
instruments with prepayment risks because the underlying mortgage loans or the
collateral supporting asset-backed securities may be prepaid without penalty or
premium. Prepayment risks on mortgage-backed securities tend to increase during
periods of declining mortgage interest rates because many borrowers refinance
their mortgages to take advantage of the more favorable rates. Prepayments on
mortgage-backed securities are also affected by other factors, such as the
frequency with which people sell their homes or elect to make unscheduled
payments on their mortgages. Although asset-backed securities generally are less
likely to experience substantial prepayments than are mortgage-backed
securities, certain of the factors that affect the rate of prepayments on
mortgage-backed securities also affect the rate of prepayments on asset-backed
securities.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
motor vehicle installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the servicer
sells these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Further, if a vehicle is registered in one state and is
then reregistered because the owner and obligor moves to another state, such
reregistration could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of vehicles involved in
a typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities
which may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the
holder during a specified time period. Convertible securities may take the form
of convertible bonds, convertible preferred stock or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. The investment characteristics of each convertible
security vary widely, which allows convertible securities to be employed for
different investment objectives.
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which entitle the holder to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bonds' maturity. Convertible securities are senior to equity securities, and
therefore have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stocks when, in the Fund's investment adviser's
opinion, the investment characteristics of the underlying common shares will
assist the Fund in achieving its investment objective. Otherwise, the Fund will
hold or trade the convertible securities. In selecting convertible securities
for the Fund, the Fund's adviser evaluates the investment characteristics of the
convertible security as a fixed income instrument, and the investment potential
of the underlying equity security for capital appreciation. In evaluating these
matters with respect to a particular convertible security, the Fund's investment
adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. The restriction is not applicable to commercial paper issued under
Section 4(2) of the Securities Act of 1933. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restriction on resale under
federal securities law. However, the 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.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law, and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in Section 4(2)
commercial paper, thus providing liquidity. The Fund believes that Section 4(2)
commercial paper and possibly certain other restricted securities which meet the
criteria for liquidity established by the Trustees are quite liquid. The Fund
intends, therefore, to treat the restricted securities which meet the criteria
for liquidity established by the Trustees, including Section 4(2) commercial
paper, as determined by the Fund's investment adviser, as liquid and not subject
to the investment limitations applicable to illiquid securities. In addition,
because Section 4(2) commercial paper is liquid, the Fund intends to not subject
such paper to the limitation applicable to restricted securities.
DEMAND MASTER NOTES. The Fund may invest in variable amount demand master
notes. Demand notes are short-term borrowing arrangements between a corporation
or government agency and an institutional lender (such as the Fund) payable upon
demand by either party. The notice period for demand typically ranges from one
to seven days, and the party may demand full or partial payment. Many master
notes give the Fund the option of increasing or decreasing the principal amount
of the master note on a daily or weekly basis within certain limits. Demand
master notes usually provide for floating or variable rates of interest.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or long-term basis, or both,
to broker/dealers, banks or other institutional borrowers of securities. The
Fund will only enter into loan arrangements with broker/dealers, banks or other
institutions which the Fund's investment adviser has determined are creditworthy
under guidelines established by the Trust's Board of Trustees and will receive
collateral equal to at least 102% of the value of the securities loaned.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The Fund engages in when-issued and delayed delivery transactions
only for the purpose of acquiring portfolio securities consistent with the
Fund's investment objective and policies and not for investment leverage. In
when-issued and delayed delivery transactions, the Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous.
REPURCHASE AGREEMENTS. The U.S. government securities in which the Fund invests
may be purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers and other recognized financial
institutions sell U.S. government securities or other securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon time and
price. To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any sale
of such securities.
OTHER INVESTMENT TECHNIQUES
The Fund may purchase put options on its portfolio securities. These options
will be used as a hedge to attempt to protect securities which the Fund holds
against decreases in value. The Fund may also write covered call options on all
or any portion of its portfolio to generate income for the Fund. The Fund will
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 or U.S. government securities in the amount of any additional
consideration.
The effective use of futures and options as hedging tecniques depends on the
correlation between their prices and the behavior of the Fund's portfolio
securities as well as the investment adviser's ability to accurately predict the
direction of stock prices, interest rates and other relevant economic factors.
In addition, daily limits on the fluctuation of futures and options prices could
cause the Fund to be unable to timely liquidate its futures or options position
and cause it to suffer greater losses than would otherwise be the case. In this
regard, the Fund may be unable to anticipate the extent of its losses from
futures transactions.
EQUITY INVESTMENT CONSIDERATIONS
As with other mutual funds that invest substantially in equity securities, the
Fund is subject to market risks. That is, the possibility exists that common
stocks will decline over short or even extended periods of time, and the United
States equity market tends to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.
DEBT CONSIDERATIONS
In the debt market, prices generally move inversely to interest rates. A decline
in market interest rates results in a rise in the market prices of outstanding
debt obligations. Conversely, an increase in market interest rates results in a
decline in market prices. In either case, the amount of change in market prices
of debt obligations in response to changes in market interest rates generally
depends on the maturity of the debt obligations: the debt obligations with the
longest maturities will generally experience the greatest market price changes.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge,
mortgage, or hypothecate up to 15% of the value of those assets to secure
such borrowings; nor
with respect to 75% of the value of its total assets, invest more than 5%
of the value of its total assets in securities of 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), or acquire more
than 10% of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
THE BILTMORE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trustees are responsible for managing the Trust's
business affairs and for exercising all the Trust's powers except those reserved
for the shareholders.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust
on behalf of the Fund, investment decisions for the Fund are made by Wachovia
Investment Management Group (the "Adviser"), a business unit of Wachovia Bank of
North Carolina, N.A., subject to direction by the Trustees. The Adviser
continually conducts investment research and supervision of investments for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.70 of 1% of the Fund's average daily net assets. The investment
advisory contract provides that such fee shall be accrued and paid daily.
The Adviser has undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse the Fund for
certain other expenses of the Fund but reserves the right to terminate such
waiver or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Wachovia Bank of North Carolina, N.A. is a direct,
wholly-owned subsidiary of Wachovia Corporation, a registered bank holding
company headquartered in Winston-Salem, North Carolina and Atlanta,
Georgia. Through offices in eight states, Wachovia Corporation and its
subsidiaries provide a broad range of financial services to individuals and
businesses.
Wachovia Bank of North Carolina, N.A., a national banking association,
offers financial services that include, but are not limited to, commercial
and consumer loans, corporate, institutional, and
personal trust services, demand and time deposit accounts, letters of
credit and international financial services.
The Adviser employs an experienced staff of professional investment
analysts, portfolio managers and traders. The Adviser uses fundamental
analysis and other investment management disciplines to identify investment
opportunities. Wachovia Bank of North Carolina, N.A., Wachovia Bank of
Georgia, N.A., The South Carolina National Bank, and their affiliates
(collectively the "Wachovia Banks") have been managing trust assets for
over 100 years, with approximately
$18 billion in managed assets as of September 30, 1993. Wachovia Investment
Management Group has served as investment adviser to The Biltmore Funds
since March 9, 1992.
The Fund's portfolio managers are R. Emery Pike, Alfred R. Guenthner, John F.
Hageman, and Daniel S. Earthman. The portfolio managers have co-managed the Fund
since its inception.
Mr. Pike is a Chartered Financial Analyst, and has been a Vice President of
Wachovia Bank of North Carolina, N.A. since 1990. Mr. Pike has served as a fixed
income investment manager since 1989. Prior to that date, he was employed as a
retail fixed income salesman in the bond department of Wachovia Bank of North
Carolina, N.A.
M. Alfred R. Guenthner, Ph.D. A.B.D., is Senior Vice President and Manager of
Research for Wachovia Group. Mr. Guenthner joined Wachovia Bank of North
Carolina, N.A. in 1972 as an economist and was elected vice president and senior
economist in 1978. From 1978 to 1982, he was the fixed income strategist for the
Wachovia Investment Management Group. Mr. Guenthner is a graduate of Concord
College and is completing the dissertation for a doctorate degree in economics
from the University of Georgia. He is a member of the North Carolina Society of
Financial Analysts and the United Shareholders Association. Mr. Guenthner is a
former president of the North Carolina Association of Business Economists.
Mr. John F. Hageman is a Chartered Financial Analyst and is Vice President and
Institutional Portfolio Manager. Mr. Hageman is responsible for managing the
employee benefit, foundation and endowment portfolios. Prior to joining Wachovia
Bank of North Carolina, N.A. 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 is a graduate of Wabash College with a bachelor's degree in
political science.
Daniel S. Earthman is a Chartered Financial Analyst and is Vice President and
Institutional Portfolio Manager. Mr. Earthman joined Wachovia Bank of North
Carolina, N.A. in 1988 as an Assistant Vice President in Institutional Portfolio
Management. Prior to joining the Wachovia Bank of North Carolina, N.A., he was a
vice president and investment manager with Richland Asset Management in
Nashville, and an assistant vice president and portfolio manager with NCNB in
Charlotte. Mr. Earthman received a bachelor's degree in business from Southern
Methodist University and an MBA from the University of North Carolina at Chapel
Hill.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the distributor (the "Distributor") for shares of
the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS
The Distributor may pay financial institutions and other financial service
providers such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers a fee based upon the average net asset value of
shares of their customers for providing administrative services. This fee, if
paid, will be reimbursed by the Adviser and not the Fund.
SHAREHOLDER SERVICING ARRANGEMENTS
Federated Administrative Services, a subsidiary of Federated Investors, is the
Fund's shareholder servicing agent (the "Shareholder Servicing Agent"). The Fund
may pay the Shareholder Servicing Agent a fee based on the average daily net
asset value of shares for which it provides shareholder services. These
shareholder services include, but are not limited to, distributing prospectuses
and other information, providing shareholder assistance and communicating or
facilitating purchases and redemptions of shares. This fee will be computed at
an annual rate equal to 0.25 of 1% of the Fund's average daily net assets for
which the Shareholder Servicing Agent provides services; however, the
Shareholder Servicing Agent may choose voluntarily to waive all or a portion of
its fee at any time or pay all or some of its fees to financial institutions or
other financial service providers.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund. Such services include the preparation of
filings with the Securities and Exchange Commission and other regulatory
authorities, assistance with respect to meetings of the Trustees, shareholder
servicing and accounting services, and other administrative services. Federated
Administrative Services provides these at an annual rate as specified below,
reduced by certain of the fees paid by the Trust to Federated Services Company
for portfolio accounting services:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<C> <S>
0.145 of 1% of the first $400 million
0.120 of 1% of the next $300 million
0.095 of 1% of the next $300 million
0.070 of 1% in excess of $1 billion
</TABLE>
The administrative fee received during any fiscal year shall aggregate at least
$75,000 for each of the Funds in the Trust.
Federated Administrative Services may choose voluntarily to waive or reimburse a
portion of its fee at any time.
CUSTODIAN. Wachovia Bank of North Carolina, N.A., Winston-Salem, North
Carolina, is custodian (the "Custodian") for the securities and cash of the
Fund. Under the Custodian Agreement, the Custodian holds the Fund's portfolio
securities in safekeeping and keeps all necessary records and documents relating
to its duties. For the services to be provided to the Trust pursuant to the
Custodian Agreement, the Trust pays the Custodian an annual fee calculated based
upon the average daily net assets of each Fund and payable monthly as follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
CUSTODIAN FEE NET ASSETS OF THE FUND
<C> <S>
0.02 of 1% $0 to $250 million
0.015 of 1% $250 million to $500 million
0.01 of 1% over $500 million
</TABLE>
The Custodian will also charge transaction fees and out-of-pocket expenses.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company is transfer agent (the "Transfer Agent") for the
shares of the Fund, and dividend disbursing agent for the Fund. Federated
Services Company also provides certain accounting and recordkeeping services
with respect to the Fund's portfolio investments.
LEGAL SERVICES. Legal services for the Fund are provided by Kirkpatrick &
Lockhart, Washington, D.C. Piper & Marbury, Washington, D.C., serves as counsel
to the independent Trustees.
INDEPENDENT AUDITORS. The independent auditors are Ernst & Young, Pittsburgh,
Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of Trust expenses.
These expenses include, but are not limited to, the costs of: organizing the
Trust and continuing its existence; Trustees' fees; investment advisory and
administrative services; printing prospectuses and other Fund documents for
shareholders; registering the Trust, the Fund and shares of the Fund; taxes and
commissions; issuing, purchasing, repurchasing, and redeeming shares; fees for
custodian, transfer agent, dividend disbursing agent, shareholder servicing
agents, and registrars; printing, mailing, auditing, accounting, and legal
expenses; reports to shareholders and government agencies; meetings of Trustees
and shareholders and proxy solicitations therefor; insurance premiums;
association membership dues; and such nonrecurring and extraordinary items as
may arise.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Wire System are open for business. Shares may be purchased through the
Trust Division of the Wachovia Banks or Wachovia Brokerage Service and
authorized broker/dealers. Purchase orders must be received by the Fund by 4:00
p.m. (Eastern time) in order for shares to be purchased at that day's public
offering price. 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 Fund and the Distributor reserve the right to reject any purchase
request.
Texas residents must purchase, exchange, and redeem shares through Federated
Securities Corp. at
1-800-618-8573.
THROUGH WACHOVIA BROKERAGE SERVICE. Customers of Wachovia Brokerage Service may
place an order to purchase shares by telephoning (1-800-462-7538), sending
written instructions, or placing an order in person. Payment may be made by
check, by wire of federal funds (the customer's bank sends money to the Fund's
bank through the Federal Reserve Wire System) or by debiting a customer's
account at Wachovia Brokerage Service. Purchase orders must be received by
Wachovia Brokerage Service before 4:00 p.m. (Eastern time). Wachovia Brokerage
Service is a division of Wachovia Securities, Inc., a registered broker/dealer
and member of the National Association of Securities Dealers, Inc. Wachovia
Securities, Inc. is a wholly-owned subsidiary of Wachovia Corporation.
BY MAIL. To purchase shares of the Fund by mail, send a check made payable
to Biltmore Balanced Fund to Wachovia Securities, Inc., P.O. Box 110, MC
32022, Winston-Salem, N.C. 27102. Orders by mail are considered received
after payment by check is converted by Wachovia Brokerage Service into
federal funds. This is normally the next business day after Wachovia
Brokerage Service receives the check.
BY WIRE. To purchase shares of the Fund by wire, wire funds as follows:
Wachovia Securities, Inc.
ABA Number 0531-00494
Credit: 8735-001342
Further credit to: Biltmore Balanced Fund
Re: (Customer name and brokerage account number)
Shares of the Fund cannot be purchased by wire on any day on which Wachovia
Bank of North Carolina, N.A., the New York Stock Exchange and the Federal
Reserve Wire System are not open for business.
THROUGH THE TRUST DIVISIONS OF THE WACHOVIA BANKS. Trust customers of the
Wachovia Banks may place an order to purchase shares of the Fund by telephoning,
sending written instructions, or placing the order in person with their account
officer in accordance with the procedures established by the Wachovia Banks and
as set forth in the relevant account agreement.
Payment may be made to the Wachovia Banks by check, by wire of federal funds, or
by debiting a customer's account with the Wachovia Banks. Orders are considered
received after payment by check is converted into federal funds and received by
the Wachovia Banks, which is normally the next business day. When payment is
made with federal funds, the order is considered received when federal funds are
received by the Wachovia Banks or available in the customer's account. Purchase
orders must be received by the Wachovia Banks by 4:00 p.m. (Eastern time).
Shares of the Fund cannot be purchased by wire on any day on which Wachovia Bank
of North Carolina, N.A., the New York Stock Exchange and the Federal Reserve
Wire System are not open for business.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares of the Fund is $250. This amount may be
waived from time to time.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million or more 0.25% 0.25%
</TABLE>
The net asset value is determined at or after the close of the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; or (iii)
the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day and Christmas Day.
PURCHASES AT NET ASSET VALUE. _Shares of the Fund may be purchased at net asset
value, without a sales charge, by investment advisers registered under the
Investment Advisers Act of 1940 purchasing on behalf of their clients, and by
the Trust Divisions of the Wachovia Banks for funds which are held in a
fiduciary, agency, custodial, or similar capacity. Trustees, officers, directors
and retired directors, advisory board members, employees and retired employees
of the Fund and the Wachovia Banks, the spouses and children under the age of 21
of such persons, and any trust, pension profit-sharing plans
and individual retirement accounts operated for such persons, may purchase
shares of the Fund at net asset value. In addition, trustees, officers,
directors and employees of the Distributor and its affiliates, and any bank or
investment dealer who has a sales agreement with the Distributor relating to the
Fund, may also purchase shares at their net asset value.
SALES CHARGE REALLOWANCE. For sales of shares of the Fund, a dealer will
normally receive up to 90% of the applicable sales charge. Any portion of the
sales charge which is not paid to a dealer will be retained by the Distributor.
However, the Distributor, at its sole discretion, may uniformly offer to pay to
all dealers selling shares of the Fund, all or a portion of the sales charge it
normally retains. If accepted by the dealer, such additional payments will be
predicated upon the amount of Fund shares sold. In addition, the Distributor may
pay from its assets promotional incentives in the form of cash or other
compensation to the dealers that sell shares of the Fund.
The sales charge for shares sold other than through Wachovia Brokerage Service
or registered broker/dealers will be retained by the Distributor. The
Distributor may pay fees to banks out of the sales charge in exchange for sales
and/or administrative services performed on behalf of Wachovia Brokerage
Service's customers in connection with the initiation of customer accounts and
purchases of shares of the Fund.
REDUCING THE SALES CHARGE. The sales charge can be reduced on the purchase of
shares of the Fund through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on the
prior page, larger purchases reduce the sales charge paid. The Fund will combine
purchases made on the same day by the investor, the investor's spouse, and the
investor's children under age 21 when it calculates the sales charge.
If an additional purchase of shares of the Fund is made, the Fund will consider
the previous purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$70,000 and then purchases $40,000 more at the current public offering price,
the sales charge of the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.
To receive the sales charge reduction, Wachovia Brokerage Service or the
Distributor must be notified by the shareholder at the time the purchase is made
that Fund shares are already owned or that purchases are being combined. The
Fund will reduce the sales charge after it confirms the purchase.
LETTER OF INTENT. If a shareholder intends to purchase shares of the Fund equal
in value to at least $100,000 over the next 13 months, the sales charge may be
reduced by signing a letter of intent to that effect. This letter of intent
includes a provision for a sales charge adjustment depending on the amount
actually purchased within the 13-month period and a provision for the Custodian
to hold 4.50% of the
total amount intended to be purchased in escrow (in shares of that Fund) until
such purchase is completed.
The 4.50% held in escrow will be applied to the shareholder's account at the end
of the 13-month period, unless the amount specified in the letter of intent is
not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 90 days, to reinvest the redemption
proceeds in that Fund at the next-determined net asset value without any sales
charge. Wachovia Brokerage Service or the Distributor must be notified by the
shareholder in writing or by his financial institution of the reinvestment in
order to eliminate a sales charge. If the shareholder redeems his shares in the
Fund, there may be tax consequences.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of two or more
of the Funds, the purchase price of which includes a sales charge. For example,
if a shareholder concurrently invested $70,000 in one of the other Funds with a
sales charge, and $40,000 in another fund of the Trust with a sales charge, the
sales charge would be reduced.
To receive this sales charge reduction, Wachovia Brokerage Service or the
Distributor must be notified by the agent placing the order at the time the
concurrent purchases are made. The sales charge will be reduced after the
purchase is confirmed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $50. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received by the Fund, plus the applicable sales charge. A shareholder may apply
for participation in this program through Wachovia Brokerage Service or through
the Distributor.
EXCHANGING SECURITIES FOR FUND SHARES
The Fund may accept securities in exchange for Fund shares. The Fund will allow
such exchanges only upon the prior approval of the Fund and a determination by
the Fund and the Adviser that the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value, must be liquid and must
not be subject to restrictions on resale. The market value of any securities
exchanged in an initial investment, plus any cash, must be at least equal to the
minimum investment in the Fund.
Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Fund shares on the day the securities are valued. One share of the Fund
will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other rights
attached to the securities become the property of the Fund, along with the
securities.
If an exchange is permitted, it will be treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged for Fund
shares, a gain or loss may be realized by the investor.
CERTIFICATES AND CONFIRMATIONS
As the transfer agent, Federated Services Company maintains a share account for
each shareholder of record. Share certificates are not issued.
Detailed confirmations of each purchase or redemption are sent to each
shareholder of record. Quarterly statements are sent to report dividends paid
during the quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Unless shareholders request cash payments by writing to
the Fund, dividends are automatically reinvested in additional shares of the
Fund on the payment dates at the ex-dividend date net asset value without a
sales charge.
CAPITAL GAINS
Capital gains, when realized by the Fund, will be distributed at least once
every 12 months.
EXCHANGE PRIVILEGE
All shareholders of the Fund are shareholders of the Trust. The Trust currently
consists of the Funds, as previously defined in the "General Information"
section in this prospectus. The Funds are advised by Wachovia Investment
Management Group and distributed by Federated Securities Corp.
Shareholders of the Fund have easy access to the other Funds comprising the
Trust, to a portfolio of The Biltmore Municipal Funds, and to the International
Equity Fund (a mutual fund advised by Fiduciary International, Inc.)
(hereinafter collectively referred to as, the "Participating Funds") through a
telephone exchange program. Shares of the Participating Funds may be exchanged
for shares of the Fund at net asset value without a sales charge (if a sales
charge was previously paid). The exchange privilege is available to shareholders
residing in any state in which the shares being acquired may be legally sold.
Prior to any exchange, the shareholder should review a copy of the current
prospectus of the Participating Fund into which an exchange is to be effected.
Shareholders using this privilege must exchange shares having a net asset value
of at least equal to the minimum investment of the Participating Fund into which
they are exchanging. Shareholders who desire to automatically exchange shares of
a predetermined amount on a monthly, quarterly, or annual basis may take
advantage of a systematic exchange privilege. A shareholder may obtain further
information on these exchange privileges by calling the shareholder's Wachovia
bank Officer or Wachovia Brokerage Service, as appropriate.
Shares of the Participating Funds with a sales charge may be exchanged at net
asset value for shares of other funds with an equal sales charge or no sales
charge. Exchanges are made at net asset value, plus the difference between the
sales charge already paid on the Fund's shares and any sales charge of the
Participating Fund into which the shares are to be exchanged, if higher. Shares
of Participating Funds with no sales charge acquired by direct purchase or
reinvestment of dividends on such shares may be exchanged for shares of
Participating Funds with a sales charge at net asset value plus the applicable
sales charge.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange will be redeemed at the next-determined net asset
value. Written exchange instructions may require a signature guarantee. Exercise
of this privilege is treated as a sale for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the exchange
privilege.
EXCHANGE BY TELEPHONE. Instructions for exchanges between Participating Funds
may be given by telephone to Wachovia Brokerage Service. Trust customers should
contact their account officer. Shares may be exchanged by telephone only between
fund accounts having identical shareholder registrations. Exchange instructions
given by telephone may be electronically recorded.
Telephone exchange instructions must be received before 4:00 p.m. (Eastern time)
for shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through banks, brokers, and other financial institutions
during times of drastic economic or market changes. If a shareholder cannot
contact his bank, broker, or financial institution by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail. If reasonable procedures are not followed by the Fund, it may be liable
for losses due to unauthorized or fraudulent telephone instructions.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Trust
Divisions of the Wachovia Banks or Wachovia Brokerage Service receives the
redemption request. Redemptions will be made on days on which the Fund computes
its net asset value. Requests for redemption can be made by a shareholder in
person, by telephone, or by writing to his account officer. If at any time the
Fund shall determine it necessary to terminate or modify any of these methods of
redemption, shareholders would be promptly notified.
BY TELEPHONE. A shareholder who is a customer of Wachovia Brokerage Service may
redeem shares of the Fund by telephoning Wachovia Brokerage Service at
1-800-462-7538. Shareholders wishing to redeem by phone will be required to
complete a telephone redemption authorization form available through Wachovia
Brokerage Service. Telephone redemption instructions may be recorded.
A shareholder who is a customer of a Trust Division of the Wachovia Banks and
whose account agreement with the Wachovia Banks permits telephone redemption may
redeem shares of the Fund by telephoning his account officer. Shares will be
redeemed at the net asset value next determined after the Fund receives the
redemption request. Redemption requests must be received by 4:00 p.m. (Eastern
time) in order for shares to be redeemed at that day's net asset value. In no
event will proceeds be credited more than seven days after a proper request for
redemption has been received. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
such a case should occur, another method of redemption, such as "By Mail,"
should be considered.
An authorization permitting a Trust Division of the Wachovia Banks to accept
telephone requests is included as part of a shareholder's account agreement. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
BY MAIL. A shareholder who is a customer of Wachovia Brokerage Service may
redeem shares by sending a written request to Wachovia Brokerage Service. The
written request should include the shareholder's name and address, the Fund
name, the brokerage account number, and the share or dollar amount requested.
Shareholders should call Wachovia Brokerage Service for assistance in redeeming
by mail. Normally, a check for the proceeds is mailed within one business day,
but in no event more than seven days, after receipt of a proper written
redemption request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record
with the Fund, or a redemption payable other than to the shareholder of
record, must have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund;
a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and the Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and the Transfer Agent reserve the right
to amend these standards at any time without notice.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, shares are
redeemed to provide for monthly or quarterly withdrawal payments in an amount
directed by the shareholder. Shareholders may redeem by periodic withdrawal
payments in a minimum amount of $100. Depending upon the amount of the
withdrawal payments, the amount of dividends paid and capital gains
distributions with respect to shares, and the fluctuation of net asset value of
shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000. A shareholder may apply for participation in this program through
Wachovia Brokerage Service. Due to the fact that shares are sold with a sales
charge, it is not advisable for shareholders to be purchasing shares while
participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $250 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $250 because of changes in the Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each Fund in the
Trust have equal voting rights, except that in matters affecting only a
particular fund, only shares of that fund are entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of Trustees
under certain circumstances.
As of December 31, 1993, the Wachovia Banks, Winston-Salem, North Carolina,
acting in various capacities for numerous accounts, were the owners of record of
4,534,433.03 shares (26.55%) of the Fund, and therefore, may, for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
Trustees may be removed by the Trustees or shareholders at a special meeting. A
special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
MASSACHUSETTS BUSINESS TRUSTS
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust. To protect shareholders,
the Trust has filed legal documents with Massachusetts that expressly disclaim
the liability of shareholders for such acts or obligations of the Trust. These
documents require notice of this disclaimer to be given in each agreement,
obligation, or instrument the Trust or the Trustees enter into or sign on behalf
of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations on behalf of the Fund, the Trust is required by its Declaration of
Trust to use the property of the Fund to protect or compensate the shareholder.
On request, the Trust will defend any claim made and pay any judgment
against a shareholder of the Fund for any act or obligation of the Trust on
behalf of the Fund. Therefore, financial loss resulting from liability as a
shareholder of the Fund will occur only if the Trust cannot meet its obligations
to indemnify shareholders and pay judgments against them from the assets of the
Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any bank or non-bank affiliate thereof from sponsoring, organizing, controlling
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting or distributing most securities. However, such
banking laws and regulations do not prohibit such a holding company or its bank
and non-bank affiliates generally from acting as investment adviser, transfer
agent or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of their customers. The Fund's
investment adviser, Wachovia Investment Management Group, and its affiliate
banks, are subject to such banking laws and regulations.
The Adviser believes, based on the advice of its counsel, that it may perform
the services for the Fund contemplated by its investment advisory contract and
the Custodian Agreement with the Trust without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. Changes in either federal
or state statutes and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of present or future statutes and
regulations, could prevent the Adviser from continuing to perform all or a part
of the above services for its customers and/or the Fund. If it were prohibited
from engaging in these customer-related activities, the Trustees would consider
alternative service providers and means of continuing available investment
services. In such event, changes in the operation of the Fund may occur,
including the possible termination of any automatic or other Fund share
investment and redemption services then being provided by the Adviser. It is not
expected that existing Fund shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to the Adviser is
found) as a result of any of these occurrences.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above, or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
TAX INFORMATION
- --------------------------------------------------------------------------------
The Fund expects to pay no federal income tax because it intends to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are subject to federal income tax on any
dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. The Fund will provide shareholders with tax information
for reporting purposes. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the shares.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load which,
if excluded, would increase the total return and yield.
From time to time, the Fund may advertise its performance using certain
reporting services and/or compare its performance to certain indices.
Advertisements and other sales literature for the Fund may quote performance
information which does not reflect the effect of a sales load.
BILTMORE BALANCED FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
COMMON STOCKS--52.8%
- ------------------------------------------------------------------------------------------------
CAPITAL GOODS--5.1%
--------------------------------------------------------------------------------
17,778 Browning-Ferris Industries, Inc. $ 444,450
--------------------------------------------------------------------------------
1,337 Caterpillar, Inc. 113,979
--------------------------------------------------------------------------------
7,151 Cooper Industries, Inc. 362,019
--------------------------------------------------------------------------------
12,894 Dover Corp. 763,969
--------------------------------------------------------------------------------
23,140 General Electric Co. 2,273,505
--------------------------------------------------------------------------------
15,973 Giddings & Lewis, Inc. 387,345
--------------------------------------------------------------------------------
38,581 Harsco Corp. 1,519,127
--------------------------------------------------------------------------------
19,091 Honeywell, Inc. 622,844
--------------------------------------------------------------------------------
30,224 Keystone International, Inc. 782,046
--------------------------------------------------------------------------------
13,068 Pitney Bowes, Inc. 548,856
--------------------------------------------------------------------------------
20,183 York International Corp. 681,176
-------------------------------------------------------------------------------- ---------------
Total 8,499,316
-------------------------------------------------------------------------------- ---------------
CONSUMER DURABLES--0.5%
--------------------------------------------------------------------------------
26,645 Echlin Inc. 882,616
-------------------------------------------------------------------------------- ---------------
CONSUMER NON-DURABLES--16.3%
--------------------------------------------------------------------------------
42,283 Abbott Laboratories 1,236,778
--------------------------------------------------------------------------------
14,976 American Brands, Inc. 514,800
--------------------------------------------------------------------------------
10,786 American Cyanamid Co. 566,265
--------------------------------------------------------------------------------
8,401 American Home Products Co. 526,113
--------------------------------------------------------------------------------
3,919 American Stores Co. 162,149
--------------------------------------------------------------------------------
11,732 Banta Corp. 372,491
--------------------------------------------------------------------------------
9,786 Becton, Dickinson & Co. 332,724
--------------------------------------------------------------------------------
69,196 Bergen Brunswig Corp., Cl. A 1,245,528
--------------------------------------------------------------------------------
12,069 *Brinker International Inc. 500,863
--------------------------------------------------------------------------------
25,614 Bristol-Myers Squibb Co. 1,533,638
--------------------------------------------------------------------------------
</TABLE>
BILTMORE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--CONTINUED
--------------------------------------------------------------------------------
8,754 Brown-Forman Corp., Cl. B $ 660,927
--------------------------------------------------------------------------------
7,786 Circuit City Stores, Inc. 197,570
--------------------------------------------------------------------------------
4,894 Columbia Healthcare Corp. 141,926
--------------------------------------------------------------------------------
38,622 Fruit of the Loom, Inc. 1,274,526
--------------------------------------------------------------------------------
80,729 IBP Inc. 2,028,316
--------------------------------------------------------------------------------
21,297 *International Dairy Queen, Inc., Cl. A 356,725
--------------------------------------------------------------------------------
26,465 *King World Productions, Inc. 1,078,449
--------------------------------------------------------------------------------
18,734 Lee Enterprises, Inc. 583,096
--------------------------------------------------------------------------------
14,008 Lilly (Eli) & Co. 803,709
--------------------------------------------------------------------------------
25,470 Limited Inc. 579,442
--------------------------------------------------------------------------------
6,450 Loews Corp. 596,625
--------------------------------------------------------------------------------
18,904 May Department Stores Co. 801,057
--------------------------------------------------------------------------------
4,979 Melville Corp. 204,139
--------------------------------------------------------------------------------
7,484 Nike, Inc., Cl. B 358,297
--------------------------------------------------------------------------------
9,452 Penney (J.C.) Inc. 504,501
--------------------------------------------------------------------------------
32,251 PepsiCo, Inc. 1,298,103
--------------------------------------------------------------------------------
37,950 Philip Morris Cos., Inc. 2,120,456
--------------------------------------------------------------------------------
25,781 Pioneer Hi-Bred International, Inc. 921,671
--------------------------------------------------------------------------------
7,371 Russell Corp. 205,467
--------------------------------------------------------------------------------
23,003 Service Corp., International 563,574
--------------------------------------------------------------------------------
813 Stanhome, Inc. 27,032
--------------------------------------------------------------------------------
19,771 Stanley Works 773,540
--------------------------------------------------------------------------------
5,893 Supervalu, Inc. 196,679
--------------------------------------------------------------------------------
50,481 Surgical Care Affiliates, Inc. 914,968
--------------------------------------------------------------------------------
15,611 *Toys R Us, Inc. 636,148
--------------------------------------------------------------------------------
17,047 Unifi, Inc. 424,044
--------------------------------------------------------------------------------
35,144 Universal Corp. 900,565
--------------------------------------------------------------------------------
</TABLE>
BILTMORE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--CONTINUED
--------------------------------------------------------------------------------
17,607 Upjohn Co. $ 550,219
--------------------------------------------------------------------------------
9,786 V.F. Corp. 426,914
-------------------------------------------------------------------------------- ---------------
Total 27,120,034
-------------------------------------------------------------------------------- ---------------
ENERGY--6.1%
--------------------------------------------------------------------------------
14,628 Amoco Corp. 780,769
--------------------------------------------------------------------------------
18,905 Ashland Oil Co. 626,228
--------------------------------------------------------------------------------
13,786 British Petroleum, PLC 816,820
--------------------------------------------------------------------------------
8,950 Chevron Corp. 777,531
--------------------------------------------------------------------------------
25,743 Coastal Corp. 691,843
--------------------------------------------------------------------------------
30,251 Exxon Corp. 1,898,250
--------------------------------------------------------------------------------
3,425 Halliburton Co. 105,747
--------------------------------------------------------------------------------
20,339 MAPCO, Inc. 1,230,510
--------------------------------------------------------------------------------
2,000 Mobil Corp. 152,500
--------------------------------------------------------------------------------
18,630 Phillips Petroleum Co. 530,955
--------------------------------------------------------------------------------
13,087 Royal Dutch Petroleum Co. 1,321,787
--------------------------------------------------------------------------------
15,234 Schlumberger, Ltd. 875,955
--------------------------------------------------------------------------------
14,604 Williams Cos., Inc. 396,134
-------------------------------------------------------------------------------- ---------------
Total 10,205,029
-------------------------------------------------------------------------------- ---------------
FINANCE--4.7%
--------------------------------------------------------------------------------
6,400 American International Group, Inc. 551,200
--------------------------------------------------------------------------------
12,720 Capital Holdings Corp. 486,540
--------------------------------------------------------------------------------
9,176 EXCEL, Ltd. 398,009
--------------------------------------------------------------------------------
22,553 Federal Home Loan Mortgage Corp. 1,082,544
--------------------------------------------------------------------------------
24,152 Federal National Mortgage Association 1,823,476
--------------------------------------------------------------------------------
16,915 First Tennessee National Corp. 630,084
--------------------------------------------------------------------------------
6,524 First Union Corp. 265,037
--------------------------------------------------------------------------------
23,650 Huntington Bancshares, Inc. 540,994
--------------------------------------------------------------------------------
</TABLE>
BILTMORE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
--------------------------------------------------------------------------------
7,488 KeyCorp $ 261,144
--------------------------------------------------------------------------------
31,819 Primerica Corp. 1,272,760
--------------------------------------------------------------------------------
6,838 SouthTrust Corp. 117,956
--------------------------------------------------------------------------------
9,120 USLIFE Corp. 348,840
-------------------------------------------------------------------------------- ---------------
Total 7,778,584
-------------------------------------------------------------------------------- ---------------
MATERIALS & SERVICES--7.3%
--------------------------------------------------------------------------------
17,072 Air Products & Chemical 753,302
--------------------------------------------------------------------------------
11,719 Aluminum Company of America 811,541
--------------------------------------------------------------------------------
5,255 Ball Corp. 151,081
--------------------------------------------------------------------------------
3,357 *Cabletron Systems, Inc. 351,646
--------------------------------------------------------------------------------
37,961 Crane Co. 1,010,712
--------------------------------------------------------------------------------
12,257 Dow Chemical Co. 712,438
--------------------------------------------------------------------------------
12,928 Engelhard Corp. 310,272
--------------------------------------------------------------------------------
25,457 FMC Corp. 1,174,204
--------------------------------------------------------------------------------
4,893 Hercules, Inc. 523,551
--------------------------------------------------------------------------------
11,867 International Paper Co. 792,122
--------------------------------------------------------------------------------
3,095 *Litton Industries, Inc. 201,949
--------------------------------------------------------------------------------
5,374 Monsanto Co. 365,432
--------------------------------------------------------------------------------
1,270 NCH Corp. 66,834
--------------------------------------------------------------------------------
103,092 Praxair, Inc. 1,662,359
--------------------------------------------------------------------------------
19,555 Premark International, Inc. 1,530,179
--------------------------------------------------------------------------------
19,629 Scott Paper Co. 740,995
--------------------------------------------------------------------------------
30,240 Sonoco Products Co. 646,380
--------------------------------------------------------------------------------
4,876 Tyco International 231,610
-------------------------------------------------------------------------------- ---------------
Total 12,036,607
-------------------------------------------------------------------------------- ---------------
TECHNOLOGY--7.7%
--------------------------------------------------------------------------------
7,017 Avnet, Inc. 254,366
--------------------------------------------------------------------------------
</TABLE>
BILTMORE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
--------------------------------------------------------------------------------
9,227 Boeing Co. $ 356,393
--------------------------------------------------------------------------------
5,858 *COMPAQ Computer Corp. 423,973
--------------------------------------------------------------------------------
1,017 *Cisco Systems, Inc. 57,206
--------------------------------------------------------------------------------
7,779 *Computer Sciences Corp. 763,314
--------------------------------------------------------------------------------
24,762 Comsat Corp. 783,098
--------------------------------------------------------------------------------
28,594 *Conner Peripherals, Inc. 378,870
--------------------------------------------------------------------------------
13,675 *Digital Equipment Corp. 504,266
--------------------------------------------------------------------------------
19,862 General Motors Corp., Cl. E 568,550
--------------------------------------------------------------------------------
15,345 Hewlett-Packard Co. 1,131,694
--------------------------------------------------------------------------------
4,648 Intel Corp. 285,852
--------------------------------------------------------------------------------
2,483 Lockheed Corp. 174,120
--------------------------------------------------------------------------------
33,358 Loral Corp. 1,100,814
--------------------------------------------------------------------------------
23,289 MCI Communications Corp. 567,669
--------------------------------------------------------------------------------
11,716 Martin Marietta Corp. 480,356
--------------------------------------------------------------------------------
9,167 *Microsoft Corp. 733,360
--------------------------------------------------------------------------------
4,993 *Novell, Inc. 117,336
--------------------------------------------------------------------------------
49,029 *Quantum Corp. 698,663
--------------------------------------------------------------------------------
21,965 Raytheon Co. 1,345,356
--------------------------------------------------------------------------------
13,345 Reynolds & Reynolds Co., Cl. A 562,158
--------------------------------------------------------------------------------
14,679 Tandy Corp. 669,729
--------------------------------------------------------------------------------
9,957 Xerox Corp. 821,453
--------------------------------------------------------------------------------
1,120 *Zebra Technologies Corp., Cl. A 64,120
-------------------------------------------------------------------------------- ---------------
Total 12,842,716
-------------------------------------------------------------------------------- ---------------
TRANSPORTATION--1.1%
--------------------------------------------------------------------------------
20,924 Burlington Northern Inc. 1,200,514
--------------------------------------------------------------------------------
7,541 Delta Air Lines, Inc. 437,378
--------------------------------------------------------------------------------
</TABLE>
BILTMORE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
TRANSPORTATION--CONTINUED
--------------------------------------------------------------------------------
4,672 GATX Corp. $ 175,200
-------------------------------------------------------------------------------- ---------------
Total 1,813,092
-------------------------------------------------------------------------------- ---------------
UTILITIES--4.0%
--------------------------------------------------------------------------------
7,793 ALLTEL Corp. 200,670
--------------------------------------------------------------------------------
11,344 Ameritech Corp. 867,816
--------------------------------------------------------------------------------
4,115 Carolina Power & Light Co. 119,335
--------------------------------------------------------------------------------
15,643 DQE, Inc. 527,951
--------------------------------------------------------------------------------
18,454 GTE Corp. 685,105
--------------------------------------------------------------------------------
3,893 NICOR, Inc. 107,058
--------------------------------------------------------------------------------
42,258 NYNEX Corp. 1,801,247
--------------------------------------------------------------------------------
20,762 Southwestern Bell Corp. 882,385
--------------------------------------------------------------------------------
35,054 Sprint Corp. 1,148,019
--------------------------------------------------------------------------------
6,000 U.S. West, Inc. 280,500
-------------------------------------------------------------------------------- ---------------
Total 6,620,086
-------------------------------------------------------------------------------- ---------------
TOTAL COMMON STOCKS (IDENTIFIED COST $83,718,416) 87,798,080
-------------------------------------------------------------------------------- ---------------
CORPORATE BONDS--12.1%
- ------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--2.6%
--------------------------------------------------------------------------------
$ 1,500,000 First Deposit, 5.75%, (Series 1993-2) 6/15/2001 1,515,465
--------------------------------------------------------------------------------
2,163,024 USAA Auto Loan Grantors Trust, 3.90%, (Series 1993-1) 3/15/99 2,150,175
--------------------------------------------------------------------------------
580,119 World Omni Leasing, 4.60%, 5/17/99 578,124
-------------------------------------------------------------------------------- ---------------
Total 4,243,764
-------------------------------------------------------------------------------- ---------------
FINANCE--4.4%
--------------------------------------------------------------------------------
1,000,000 Allstate Corp., 5.875%, 6/15/98 1,005,680
--------------------------------------------------------------------------------
1,600,000 Associates Corp. of North America, 6.875%, 1/15/97 1,675,904
--------------------------------------------------------------------------------
1,300,000 First Colony Corp., 6.625%, 8/1/2003 1,305,408
--------------------------------------------------------------------------------
775,000 General Electric Capital Corp., 8.00%, 2/1/97 840,890
--------------------------------------------------------------------------------
</TABLE>
BILTMORE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
--------------------------------------------------------------------------------
$ 1,000,000 PaineWebber Group, Inc., 6.25%, 6/15/98 $ 1,002,700
--------------------------------------------------------------------------------
1,444,000 Prudential Home Mortgage Securities, 6.75%, 12/25/2023 1,476,039
-------------------------------------------------------------------------------- ---------------
Total 7,306,621
-------------------------------------------------------------------------------- ---------------
INDUSTRIAL--1.7%
--------------------------------------------------------------------------------
1,165,000 Coca-Cola Co., 7.75%, 2/15/96 1,239,234
--------------------------------------------------------------------------------
775,000 International Business Machines, Inc., 6.375%, 11/1/97 794,212
--------------------------------------------------------------------------------
775,000 Wal-Mart Stores, Inc., 6.125%, 10/1/99 788,911
-------------------------------------------------------------------------------- ---------------
Total 2,822,357
-------------------------------------------------------------------------------- ---------------
RAILS--0.2%
--------------------------------------------------------------------------------
400,000 Union Pacific Railroad, 6.44%, 1/15/98 413,796
-------------------------------------------------------------------------------- ---------------
UTILITIES--1.0%
--------------------------------------------------------------------------------
1,750,000 Korea Electrical Power Corp., 6.375%, 12/1/2003 1,724,642
-------------------------------------------------------------------------------- ---------------
MISCELLANEOUS--2.2%
--------------------------------------------------------------------------------
1,000,000 International American Development Bank, 8.50%, 5/1/2001 1,149,540
--------------------------------------------------------------------------------
1,500,000 Italy Rep, 6.875%, 9/27/2023 1,413,105
--------------------------------------------------------------------------------
1,028,589 **Novus Home Equity Loan, 3.64%, (Series 1993-1) 3/15/2003 1,030,832
-------------------------------------------------------------------------------- ---------------
Total 3,593,477
-------------------------------------------------------------------------------- ---------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $20,246,132) 20,104,657
-------------------------------------------------------------------------------- ---------------
U.S. GOVERNMENT AGENCIES--6.4%
- ------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--2.6%
--------------------------------------------------------------------------------
1,134,673 1.00%, 2/25/97 REMIC Principal Only (Series 1990) 1,126,163
--------------------------------------------------------------------------------
1,515,211 0.00%, 9/25/2018 REMIC Principal Only (Series 1989) 1,411,277
--------------------------------------------------------------------------------
383,856 7.50%, 4/1/2007 396,451
--------------------------------------------------------------------------------
914,757 8.00%, 6/1/2022 953,058
--------------------------------------------------------------------------------
445,114 8.00%, 1/1/2023 463,750
-------------------------------------------------------------------------------- ---------------
Total 4,350,699
-------------------------------------------------------------------------------- ---------------
</TABLE>
BILTMORE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
U.S. GOVERNMENT AGENCIES--CONTINUED
- ------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--1.2%
--------------------------------------------------------------------------------
$ 506,917 7.50%, 3/15/2023 $ 522,282
--------------------------------------------------------------------------------
976,930 7.00%, 5/15/2023 987,608
--------------------------------------------------------------------------------
504,962 7.00%, 8/15/2023 510,481
-------------------------------------------------------------------------------- ---------------
Total 2,020,371
-------------------------------------------------------------------------------- ---------------
TENNESSEE VALLEY AUTHORITY--0.5%
--------------------------------------------------------------------------------
775,000 Tennessee Valley Authority, 6.875%, (Series C) 1/15/2002 803,334
-------------------------------------------------------------------------------- ---------------
MISCELLANEOUS--2.1%
--------------------------------------------------------------------------------
1,500,000 U.S. Department of Veteran Affairs, 6.75%, 6/15/98 REMIC 1,543,594
--------------------------------------------------------------------------------
2,000,000 Federal Home Loan Bank, 4.587%, 8/27/98 1,988,750
-------------------------------------------------------------------------------- ---------------
Total 3,532,344
-------------------------------------------------------------------------------- ---------------
TOTAL U.S. GOVERNMENT AGENCIES (IDENTIFIED COST $10,721,169) 10,706,748
-------------------------------------------------------------------------------- ---------------
U.S. TREASURY OBLIGATIONS--18.3%
- ------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES--12.6%
--------------------------------------------------------------------------------
1,455,000 8.875%, 7/15/95 1,563,674
--------------------------------------------------------------------------------
1,400,000 8.875%, 11/15/98 1,625,316
--------------------------------------------------------------------------------
1,000,000 8.50%, 11/15/95 1,063,590
--------------------------------------------------------------------------------
1,635,000 7.875%, 4/15/98 1,814,082
--------------------------------------------------------------------------------
750,000 7.50%, 11/15/2001 837,540
--------------------------------------------------------------------------------
3,160,000 7.375%, 5/15/96 3,375,259
--------------------------------------------------------------------------------
3,000,000 6.375%, 1/15/2000 3,155,160
--------------------------------------------------------------------------------
6,500,000 5.00%, 6/30/94 6,556,875
--------------------------------------------------------------------------------
1,000,000 4.25%, 5/15/96 997,030
-------------------------------------------------------------------------------- ---------------
Total 20,988,526
-------------------------------------------------------------------------------- ---------------
U.S. TREASURY BONDS--5.7%
--------------------------------------------------------------------------------
7,990,000 8.00%, 11/15/2021 9,498,112
-------------------------------------------------------------------------------- ---------------
TOTAL U.S TREASURY OBLIGATIONS (IDENTIFIED COST $30,586,368) 30,486,638
-------------------------------------------------------------------------------- ---------------
</TABLE>
BILTMORE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
***REPURCHASE AGREEMENT--9.9%
- ------------------------------------------------------------------------------------------------
$ 16,526,987 PaineWebber, Inc., 3.20%, dated 11/30/93, due 12/1/93
(AT AMORTIZED COST)(NOTE 2B) $ 16,526,987
-------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (IDENTIFIED COST $161,799,072) $ 165,623,110\
-------------------------------------------------------------------------------- ---------------
</TABLE>
__*_Non-income producing securities.
** Current rate and next demand date shown.
*** The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
\ The cost for federal tax purposes amounts to $161,827,367. The net unrealized
appreciation of investments on a federal tax basis amounts to $3,795,743,
which is comprised of $6,127,884 appreciation and $2,332,141 depreciation at
November 30, 1993.
Note: The categories of investments are shown as a percentage of net assets
($166,270,753) at November 30, 1993.
The following abbreviation is used throughout this portfolio:
REMIC--Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
BILTMORE BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments in repurchase agreement, at amortized cost (Note 2B) $ 16,526,987
- -------------------------------------------------------------------------------
Investments in securities, at value 149,096,123
- ------------------------------------------------------------------------------- ---------------
Total investments, at amortized cost and value (Note 2A)
(identified cost $161,799,072; tax cost $161,827,367) $ 165,623,110
- ------------------------------------------------------------------------------------------------
Receivable for investments sold 2,101,245
- ------------------------------------------------------------------------------------------------
Dividends and interest receivable 836,226
- ------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 43,992
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 168,604,573
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Payable for investments purchased 2,241,558
- -------------------------------------------------------------------------------
Payable for Fund shares repurchased 4,449
- -------------------------------------------------------------------------------
Accrued expenses and other liabilities 87,813
- ------------------------------------------------------------------------------- ---------------
Total liabilities 2,333,820
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 16,094,625 shares of beneficial interest outstanding $ 166,270,753
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------
Paid-in capital $ 161,128,203
- ------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 3,824,038
- ------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 641,512
- ------------------------------------------------------------------------------------------------
Undistributed net investment income 677,000
- ------------------------------------------------------------------------------------------------ ---------------
Total $ 166,270,753
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE and Redemption Price Per Share:
(net assets of $166,270,753 / 16,094,625 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $10.33
- ------------------------------------------------------------------------------------------------ ---------------
COMPUTATION OF OFFERING PRICE:
Offering Price Per Share (100/95.5 of $10.33)* $10.82
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
*_ On sales of $100,000 or more, the offering price is reduced as stated under
"What Shares Cost" on page 17.
(See Notes which are an integral part of the Financial Statements)
BILTMORE BALANCED FUND
STATEMENT OF OPERATIONS
PERIOD ENDED NOVEMBER 30, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Dividends $ 1,221,396
- ---------------------------------------------------------------------------------------------------
Interest 2,350,859
- --------------------------------------------------------------------------------------------------- ------------
Total investment income (Note 2C) 3,572,255
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 616,635
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee (Note 5) 108,092
- ---------------------------------------------------------------------------------------
Trustees' fees 4,750
- ---------------------------------------------------------------------------------------
Custodian fees (Note 5) 17,697
- ---------------------------------------------------------------------------------------
Recordkeeper fees (Note 5) 32,908
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 5) 11,214
- ---------------------------------------------------------------------------------------
Legal fees 8,500
- ---------------------------------------------------------------------------------------
Printing and postage 9,364
- ---------------------------------------------------------------------------------------
Insurance premiums 12,196
- ---------------------------------------------------------------------------------------
Miscellaneous 7,047
- --------------------------------------------------------------------------------------- ----------
Total expenses 828,403
- ---------------------------------------------------------------------------------------
Deduct--
- ---------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 102,649
- ---------------------------------------------------------------------------
Waiver of custodian fees (Note 5) 17,697
- ---------------------------------------------------------------------------
Reimbursement of other operating expenses by Administrator (Note 5) 44,122 164,468
- --------------------------------------------------------------------------- ---------- ----------
Net expenses 663,935
- --------------------------------------------------------------------------------------------------- ------------
Net investment income 2,908,320
- --------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------
Net realized gain on investment transactions (identified cost basis) 641,512
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 3,824,038
- --------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 4,465,550
- --------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 7,373,870
- --------------------------------------------------------------------------------------------------- ------------
</TABLE>
* For the period from May 10, 1993 (date of initial public investment) to
November 30, 1993.
(See Notes which are an integral part of the Financial Statements)
BILTMORE BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
<S> <C>
1993*
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------------
Net investment income $ 2,908,320
- -----------------------------------------------------------------------------------------------
Net realized gain on investment transactions ($669,807 net gain as computed for federal income
tax purposes) (Note 2D) 641,512
- -----------------------------------------------------------------------------------------------
Change in unrealized appreciation of investments 3,824,038
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets resulting from operations 7,373,870
- ----------------------------------------------------------------------------------------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------------------------
Dividend to shareholders from net investment income (2,231,320)
- ----------------------------------------------------------------------------------------------- -----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------------------------
Net proceeds from sale of shares 165,403,137
- -----------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive payment
of dividends in Fund shares 2,231,320
- -----------------------------------------------------------------------------------------------
Cost of shares redeemed (6,506,254)
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets from Fund share transactions 161,128,203
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets 166,270,753
- -----------------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------------------------------- -----------------
End of period (including undistributed net investment income of $677,000) $ 166,270,753
- ----------------------------------------------------------------------------------------------- -----------------
</TABLE>
* For the period from May 10, 1993 (date of initial public investment) to
November 30, 1993.
(See Notes which are an integral part of the Financial Statements)
BILTMORE BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Biltmore Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended, as an open-end, management investment company. The Trust
was established as a Massachusetts business trust under a Declaration of Trust
dated November 19, 1991. The Declaration of Trust permits the Trust to offer
shares of beneficial interest representing interests in separate portfolios of
the Trust. The shares in any one portfolio may be offered in separate classes.
The financial statements included herein present only those of the Biltmore
Balanced Fund (the "Fund"), one of the portfolios of the Trust. The financial
statements of the other portfolios in the Trust are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on national securities exchanges. Unlisted securities, or
listed securities in which there were no sales, and private placement
securities, are valued at the mean between bid and asked prices. Bonds and
other fixed income portfolio securities are valued at the last sale price
on a national securities exchange, if available. Otherwise, they are valued
on the basis of prices furnished by independent pricing services.
Short-term obligations are ordinarily valued at the mean between bid and
asked prices as furnished by an independent pricing service. However,
short-term obligations with maturities of sixty days or less are valued at
amortized cost, which approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying securities to ensure the existence
of a proper level of collateral.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Trustees. Risks may arise from the potential inability of
counterparties to honor the terms of a repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
C. INCOME--Dividend income is recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. Interest income includes interest
and discount earned (net of premium) on short-term obligations, and
interest earned on all other debt securities including original issue
discount as required by the Internal Revenue Code (the "Code"). Dividends
to shareholders and capital gain distributions, if any, are recorded on the
ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year all of its taxable income, including any net
realized gain on investments. Accordingly, no provision for federal income
tax is necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Fund
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies
and not for the purpose of investment leverage. The Fund will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
F. DEFERRED EXPENSES--Costs incurred by the Fund with respect to registration
of its shares in its first fiscal year, excluding the initial expense of
registering the shares, have been deferred and are being amortized on a
straight-line basis over a period of five years from the Fund's
commencement date.
G. OTHER--Investment transactions are accounted for as of the trade date of
the transaction.
(3) DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Dividends are paid from the net investment income of
the Fund. Net investment income consists of all dividends or interest received
by the Fund, less its expenses. Capital gains realized by the Fund, if any, are
distributed at least once every twelve months.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
<S> <C>
1993*
- ----------------------------------------------------------------------------------------------- -----------------
Shares outstanding, beginning of period --
- -----------------------------------------------------------------------------------------------
Shares sold 16,510,934
- -----------------------------------------------------------------------------------------------
Shares issued to shareholders electing to receive
payment of dividends in Fund shares 220,914
- -----------------------------------------------------------------------------------------------
Shares redeemed (637,223)
- ----------------------------------------------------------------------------------------------- -----------------
Shares outstanding, end of period 16,094,625
- ----------------------------------------------------------------------------------------------- -----------------
</TABLE>
* For the period from May 10, 1993 (date of initial public investment) to
November 30, 1993.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Wachovia Investment Management Group, the Fund's investment adviser ("Adviser"),
receives for its services an annual investment advisory fee equal to .70 of 1%
of the Fund's average daily net assets. The Adviser may voluntarily choose to
waive a portion of its fee or reimburse certain operating expenses of the Fund
in excess of limitations imposed by certain states. The Adviser can modify or
terminate the voluntary waiver and reimbursement at any time at its sole
discretion. For the period ended November 30, 1993, the Adviser earned an
investment advisory fee of $616,635, of which $102,649 was voluntarily waived.
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services, and receives .145 of 1% on the first $400
million of the Trust's average aggregate daily net assets; .120 of 1% on the
next $300 million; .095 of 1% on the next $300 million and .070 of 1% of the
average aggregate daily net assets of the Trust in excess of $1 billion. FAS may
voluntarily waive a portion of its fee or reimburse certain operating expenses
of the Fund. For the period ended November 30, 1993, FAS earned an
administrative fee of $108,092. In addition, FAS reimbursed $44,122 of other
operating expenses. FAS can modify or terminate the voluntary waiver and
reimbursement at any time at its sole discretion.
The Fund has agreed to reimburse FAS for the organizational expenses initially
borne by FAS during the five year period following the date the Fund's
registration statement first became effective.
Federated Services Company ("FSC"), is the transfer agent and dividend
disbursing agent for the Fund. It also provides certain accounting and
recordkeeping services with respect to the Fund's portfolio of investments, FSC
may voluntarily waive a portion of its fee. FSC can modify or terminate the
voluntary
waiver at any time at its sole discretion. For the period ended November 30,
1993 FSC earned recordkeeping fees of $32,908 and transfer and dividend
disbursing agent fees of $11,214.
For the services provided to the Fund pursuant to the Custodian Agreement, the
Fund pays Wachovia Bank of North Carolina, N.A. (the "Custodian") an annual fee
equal to .02 of 1% on the first $250 million of average aggregate daily net
assets of the Fund; .015 of 1% on average aggregate daily net assets from $250
million to $500 million; and .01 of 1% on average aggregate daily net assets
over $500 million. The Custodian may voluntarily waive a portion of its fee. The
Custodian can modify or terminate the voluntary waiver at any time at its sole
discretion. For the period ended November 30, 1993, the Custodian earned
$17,697, all of which was voluntarily waived.
Certain Officers of the Trust are also Officers and Directors of FAS and FSC.
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments excluding short-term obligations for the
period from May 10, 1993 (date of initial public investment) to November 30,
1993, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
PURCHASES $ 227,394,342
- ------------------------------------------------------------------------------------------------- ---------------
SALES $ 82,763,770
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
THE BILTMORE FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Biltmore Balanced Fund (one of the portfolios
comprising The Biltmore Funds) as of November 30, 1993, and the related
statement of operations, statement of changes in net assets and financial
highlights (see page 2 of this prospectus) for the period from May 10, 1993
(date of initial public investment) to November 30, 1993. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of November 30, 1993 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Biltmore Balanced Fund of The Biltmore Funds at November 30, 1993, and the
results of its operations, changes in its net assets and financial highlights
for the period from May 10, 1993 to November 30, 1993, in conformity with
generally accepted accounting principles.
ERNST & YOUNG
Pittsburgh, Pennsylvania
January 14, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Biltmore Balanced Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------
Investment Adviser
Wachovia Investment 301 North Main Street
Management Group Winston-Salem, North Carolina 27150
- -----------------------------------------------------------------------------------------------------------------------
Custodian
Wachovia Bank of Wachovia Trust Operations
North Carolina, N.A. 301 North Main Street
Winston-Salem, North Carolina 27150
- -----------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -----------------------------------------------------------------------------------------------------------------------
Counsel to The Biltmore Funds
Kirkpatrick & Lockhart 1800 M Street, N.W.
Washington, D.C. 20036-5891
- -----------------------------------------------------------------------------------------------------------------------
Counsel to the Independent Trustees
Piper & Marbury 1900 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
- -----------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
3012915A (1/94)
BILTMORE BALANCED FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Biltmore Balanced Fund (the "Fund") of The Biltmore
Funds (the "Trust"), dated January 31, 1994. This Statement is not a
prospectus itself. To receive a copy of the prospectus, Trust
customers of the Wachovia Banks (as defined in the prospectus) may
write the Fund or call their Wachovia Bank Officer. Customers of
Wachovia Brokerage Service may write the Fund or call 1-800-462-7538.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
Money Market Instruments 1
When-Issued and Delayed Delivery Transactions 1
Restricted and Illiquid Securities 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Lending Portfolio Securities 2
Corporate Debt Securities 2
Convertible Securities 3
Zero Coupon Convertible Securities 3
Obligations of Foreign Issuers 3
Privately Issued Mortgage-Related Securities 3
Resets of Interest 3
Caps and Floors 4
Futures and Options Transactions 4
Warrants 7
Investment Limitations 7
THE BILTMORE FUNDS MANAGEMENT 9
- ---------------------------------------------------------------
Officers and Trustees 9
Fund Ownership 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 11
- ---------------------------------------------------------------
Adviser to the Fund 11
Advisory Fees 11
ADMINISTRATIVE SERVICES 11
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 11
- ---------------------------------------------------------------
Portfolio Turnover 12
PURCHASING FUND SHARES 12
- ---------------------------------------------------------------
Conversion to Federal Funds 12
DETERMINING NET ASSET VALUE 12
- ---------------------------------------------------------------
DETERMINING MARKET VALUE OF SECURITIES 12
- ---------------------------------------------------------------
REDEEMING FUND SHARES 13
- ---------------------------------------------------------------
Redemption in Kind 13
TAX STATUS 13
- ---------------------------------------------------------------
The Fund's Tax Status 13
Shareholders' Tax Status 13
Capital Gains 13
TOTAL RETURN 14
- ---------------------------------------------------------------
YIELD 14
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 15
- ---------------------------------------------------------------
APPENDIX 17
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in the Trust. The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated November 19,
1991.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is long-term growth of principal and current
income. The investment objective cannot be changed without approval of
shareholders.
TYPES OF INVESTMENTS
The Fund invests primarily in a diversified portfolio of equity securities and
debt securities. The following discussion supplements the description of the
Fund's investment policies in the prospectus. Unless otherwise indicated, the
investment policies described below may be changed by the Board of Trustees
("Trustees") without shareholder approval. Shareholders will be notified before
any material change in these policies becomes effective. Below are securities in
which the Fund may invest from time to time:
common or preferred stocks and other equity securities which generally have
bond-like attributes, including zero coupon and/or convertible securities;
domestic issues of corporate debt obligations (including convertible bonds)
rated, at the time or purchase, A or better by Moody's Investors Service
("Moody's), Standard & Poor's Corporation ("S&P") or Fitch Investor's Service
("Fitch"), or if not rated are determined by the Fund's investment adviser to
be of comparable quality;
investments in American Depositary Receipts ("ADRs") of foreign companies
traded on the New York Stock Exchange or in the over-the-counter market;
obligations issued or guaranteed by the U.S. government, its agencies, or
instrumentalities;
asset-backed securities;
commercial paper rated, at the time of purchase, not less than A-1 by S&P,
Prime-1 by Moody's or F-1 by Fitch or if not rated of comparable quality as
determined by the Fund's investment adviser;
time and savings deposits (including certificates of deposit) in commercial or
savings banks;
bankers' acceptances;
demand master notes; and
repurchase agreements collateralized by high quality, liquid investments.
MONEY MARKET INSTRUMENTS
The Fund may invest in money market instruments such as:
instruments of domestic and foreign banks and savings and loans if they have
capital, surplus, and undivided profits of over $100,000,000, or if the
principal amount of the instrument is federally insured;
commercial paper rated, at the time of purchase, not less than A-1 by S&P,
Prime-1 by Moody's, or F-1 by Fitch, or if not rated are determined to be of
comparable quality by the Fund's investment adviser;
time and savings deposits (including certificates of deposit) in commercial or
savings banks whose accounts are insured by the Bank Insurance Fund ("BIF"), or
institutions whose accounts are insured by the Savings Association Insurance
Fund ("SAIF"), including certificates of deposit issued by, and other time
deposits in, foreign branches of BIF-insured banks which, if negotiable, mature
in six months or less or if not negotiable, either mature in ninety days or
less, or are withdrawable upon notice not exceeding ninety days; or
bankers' acceptances.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund engages in when-issued and delayed delivery transactions only for the
purpose of acquiring portfolio securities consistent with the Fund's investment
objective and policies, not for investment leverage. These transactions are made
to secure what is considered to be an advantageous price and yield for the Fund.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Fund sufficient to make payment for
securities to be purchased are segregated at the trade date. These securities
are marked to market daily and maintained until the transaction is settled. As a
matter of policy, the Fund does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of an amount
in excess of 20% of the value of its total assets.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission staff
position set forth in the adopting release for Rule 144A (the "Rule") under the
Securities Act of 1933. The Rule is a non-exclusive, safe-harbor for certain
secondary market transactions involving securities subject to restrictions on
resale under federal securities laws. The Rule provides an exemption from
registration for resales of otherwise restricted securities to qualified
institutional buyers. The Rule was expected to further enhance the liquidity of
the secondary market for securities eligible for resale under the Rule. The Fund
believes that the staff of the Securities and Exchange Commission has left the
question of determining the liquidity of all restricted securities (eligible for
resale under the Rule) to the Trust's Board. The Board considers the following
criteria in determining the liquidity of certain restricted securities:
the frequency of trades and quotes for the security;
the number of dealers willing to purchase or sell the security and the number
of other potential buyers;
dealer undertakings to make a market in the security; and
the nature of the security and the nature of the marketplace trades.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's adviser to be
creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements under certain
circumstances. This transaction is similar to borrowing cash. In a reverse
repurchase agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
LENDING PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan. In
circumstances where the Fund does not, the Fund would terminate the loan and
regain the right to vote if that were considered important with respect to the
investment.
CORPORATE DEBT SECURITIES
Corporate debt securities may bear fixed, fixed and contingent, or variable
rates of interest. They may involve equity features such as conversion or
exchange rights, warrants for the acquisition of common stock of the same or a
different issuer, participations based on revenues, sales, or profits, or the
purchase of common stock in a unit transaction (where corporate debt securities
and common stock are offered as a unit).
Increasing rate securities, which currently do not make up a significant share
of the market in corporate debt securities, are generally offered at an initial
interest rate which is at or above prevailing market rates. Interest rates
are reset periodically (most commonly every 90 days) at different levels on a
predetermined scale. These levels of interest are ordinarily set at
progressively higher increments over time. Some increasing rate securities may,
by agreement, revert to a fixed rate status. These securities may also contain
features which allow the issuer the option to convert the increasing rate of
interest to a fixed rate under such terms, conditions, and limitations as are
described in each issuer's prospectus.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock when, in the investment
adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objectives. Otherwise
the Fund may hold or trade convertible securities. In selecting convertible
securities for the Fund, the Fund's adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the Fund's adviser considers numerous factors, including
the economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
ZERO COUPON CONVERTIBLE SECURITIES
Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero coupon
convertible securities accretes at a stated yield until the security reaches its
face amount at maturity. Zero coupon convertible securities are convertible into
a specific number of shares of the issuer's common stock. In addition, zero
coupon convertible securities usually have put features that provide the holder
with the opportunity to put the bonds back to the issuer at a stated price
before maturity. Generally, the prices of zero coupon convertible securities may
be more sensitive to market interest rate fluctuations than conventional
convertible securities.
OBLIGATIONS OF FOREIGN ISSUERS
Obligations of a foreign issuer may present greater risks than investments in
U.S. securities, including higher transaction costs. In addition, investments in
foreign issuers may include additional risks associated with less market
liquidity and political instability. The possible imposition of withholding
taxes on interest income might also adversely affect the payment of principal
and interest on obligations of foreign issuers. Foreign securities may be
denominated in foreign currencies. Therefore, the value in U.S. dollars of the
Fund's assets and income may be affected by changes in exchange rates and
regulations.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
Privately issued mortgage-related securities generally represent an ownership
interest in federal agency mortgage pass-through securities such as those issued
by Government National Mortgage Association. The terms and characteristics of
the mortgage instruments may vary among pass-through mortgage loan pools. The
market for such mortgage-related securities has expanded considerably since its
inception. The size of the primary issuance market and the active participation
in the secondary market by securities dealers and other investors makes
government-related pools highly liquid.
RESETS OF INTEREST
The interest rates paid on the ARMS, CMOs, and REMICs in which the Fund invests
generally are readjusted at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main categories of
indices: those based on U.S. Treasury securities and those derived from a
calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
constant maturity Treasury Note rates, the three-month Treasury Bill rate, the
180-day Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month London Interbank
Offered Rate (LIBOR), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury Note rate,
closely mirror changes in market interest rate levels. Others tend to lag
changes in market rate levels and tend to be somewhat less volatile.
To the extent that the adjusted interest rate on the mortgage security reflects
current market rates, the market value of an adjustable rate mortgage security
will tend to be less sensitive to interest rate changes than a fixed rate debt
security of the same stated maturity. Hence, adjustable rate mortgage securities
which use indices that lag changes in market rates should experience greater
price volatility than adjustable rate mortgage securities that closely mirror
the market. Certain residual interest tranches of CMOs may have adjustable
interest rates that deviate significantly from prevailing market rates, even
after the interest rate is reset, and are subject to correspondingly increased
price volatility. In the event the Fund purchases such residual interest
mortgage securities, it will factor in the increased interest and price
volatility of such securities when determining its dollar-weighted average
duration.
CAPS AND FLOORS
The underlying mortgages which collateralize the ARMS, CMOs, and REMICS in which
the Fund invests will frequently have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower may change up or down:
(1) per reset or adjustment interval, and (2) over the life of the loan. Some
residential mortgage loans restrict periodic adjustments by limiting changes in
the borrower's monthly principal and interest payments rather than limiting
interest rate changes. These payment caps may result in negative amortization.
The value of mortgage securities in which the Fund invests may be affected if
market interest rates rise or fall faster and farther than the allowable caps or
floors on the underlying residential mortgage loans. Additionally, even though
the interest rates on the underlying residential mortgages are adjustable,
amortization and prepayments may occur, thereby causing the effective maturities
of the mortgage securities in which the Fund invests to be shorter than the
maturities stated in the underlying mortgages.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge its portfolio by buying and selling
financial futures contracts, buying put options on portfolio securities and put
options on financial futures contracts for portfolio securities, and writing
call options on futures contracts. The Fund also may write covered call options
on portfolio securities to attempt to increase its current income.
The Fund will maintain its position in securities, options and segregated cash
subject to puts and calls until the options are exercised, closed, or have
expired. An option position on financial futures transactions may be closed out
over-the-counter or on a nationally recognized exchange which provides a
secondary market for options of the same series. The Fund currently does not
intend to invest more than 5% of its total assets in options transactions.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts to hedge
against the effects of changes in the value of portfolio securities due
to anticipated changes in interest rates and market conditions without
necessarily buying or selling the securities. The Fund also may purchase
and sell stock index futures to hedge against changes in prices. The Fund
will not engage in futures transactions for speculative purposes.
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery of
the security ("going long") at a certain time in the future.
For example, in the fixed income securities market, prices generally move
inversely to interest rates. A rise in rates means a drop in price.
Conversely, a drop in rates typically means a rise in price. In order to
hedge its holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver securities
at a predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may decline
during the Fund's anticipated holding period. The Fund would "go long"
(agree to purchase securities in the future at a predetermined price) to
hedge against a decline in market interest rates.
Stock index futures contracts are based on indices that reflect the
market value of common stock of the firms included in the indices. An
index futures contract is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the
differences between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that initial
margin in futures transactions does not involve the borrowing of funds by
the Fund to finance the transactions. Initial margin is in the nature of
a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund, but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will mark to
market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
The Fund will comply with the following restrictions when purchasing and
selling futures contracts. First, the Fund will not participate in
futures transactions if the sum of its initial margin deposits on open
contracts will exceed 5% of the market value of the Fund's total assets,
after taking into account the unrealized profits and losses on those
contracts it has entered into. Second, the Fund will not enter into these
contracts for speculative purposes. Third, since the Fund does not
constitute a commodity pool, it will not market itself as such, nor serve
as a vehicle for trading in the commodities futures or commodity options
markets. Connected with this, the Fund will disclose to all prospective
investors the limitations on its futures and options transactions, and
make clear that these transactions are entered into only for bona fide
hedging purposes, or other permissible purposes pursuant to regulations
promulgated by the Commodity Futures Trading Commission ("CFTC").
Finally, because the Fund will submit to the CFTC special calls for
information, the Fund will not register as a commodities pool operator.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stocks included
in the index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an
index option depends upon movements in the level of the index rather than
the price of a particular stock, whether the Fund will realize a gain or
loss from the purchase of options on an index depends upon movements in
the level of stock prices in the stock market generally or, in the case
of certain indices, in an industry or market segment, rather than
movements in the price of a particular stock. Accordingly, successful use
by the Fund of options on stock indices will be subject to the ability of
the Fund's adviser to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires
different skills and techniques than predicting changes in the price of
individual stocks.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts.
The Fund would use these options solely to protect portfolio securities
against decreases in value resulting from market factors such as an
anticipated increase in rates.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles (but
does not obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, the
Fund will normally close out its option by selling an identical option.
If the hedge is successful, the proceeds received by the Fund upon the
sale of the second option will be large enough to offset both the premium
paid by the Fund for the original option plus the decrease in value of
the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed call options on financial futures contracts or over-the-counter
call options on future contracts to hedge its portfolio against an
increase in market interest rates. When the Fund writes a call option on
a futures contract, it is undertaking the obligation of assuming a short
futures position (selling a futures contract) at the fixed strike price
at any
time during the life of the option if the option is exercised. As market
interest rates rise, causing the prices of futures to decrease, the
Fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call
option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that the Fund keeps the premium received for the option. This premium
can substantially offset the drop in value of the Fund's portfolio
securities.
Prior to the expiration of a call written by the Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The
net premium income of the Fund will then substantially offset the
realized decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio, plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the Fund will take
prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during
the term of the option. The Fund may purchase these put options as long
as they are listed on a recognized options exchange and the underlying
stocks are held in its portfolio.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also 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. As the writer of a call option, the Fund has
the obligation, upon exercise of the option during the option period, to
deliver the underlying security upon payment of the exercise price. The
call options which the Fund writes and sells must be listed on a
recognized options exchange. Writing of call options by the Fund is
intended to generate income for the Fund and thereby protect against
price movements in particular securities in the Fund's portfolio.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the
options for those options on portfolio securities held by the Fund and
not traded on an exchange.
RISKS
When the Fund uses futures and options on futures as hedging devices,
there is a risk that the prices of the securities subject to the futures
contracts may not correlate perfectly with the prices of the securities
in the Fund's portfolio. This may cause the futures contract and any
related options to react differently than the portfolio securities to
market changes. In addition, the Fund's adviser could be incorrect in its
expectations about the direction or extent of market factors such as
stock price movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the Fund's
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures
and options positions depends on this secondary market. The inability to
close out these positions could have an adverse effect on the Fund's
ability to effectively hedge its portfolio.
To minimize risks, the Fund may not purchase or sell futures contracts or
related options if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures positions and premiums paid for
related options would exceed 5% of the market value of the Fund's total
assets. When the Fund purchases futures contracts, an amount of cash and
cash equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the Fund's custodian (or the broker, if legally
permitted) to collateralize the position and thereby insure
that the use of such futures contract is unleveraged. When the Fund sells
futures contracts, it will either own or have the right to receive the
underlying future or security, or will make deposits to collateralize the
position as discussed above.
WARRANTS
The Fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not exceed
the warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and have
no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The 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 put options on portfiolio securities, and writing covered
call options, but may obtain such short-term credits as are necessary for
clearance of purchases and sales of securities.
The deposit or payment by the 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.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets, except to
secure permitted borrowings. In these cases, the Fund may mortgage,
pledge or hypothecate assets 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.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Fund may
purchase pursuant to its investment objective, policies, and limitations.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except that the Fund may purchase and sell
futures contracts and related options.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, including limited partnership
interests, although it 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.
LENDING CASH OR SECURITIES
The 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 Fund from purchasing or
holding U.S. government obligations, money market instruments, variable
rate demand notes, bonds, debentures, notes, certificates of
indebtedness, or other debt securities, entering into repurchase
agreements, or engaging in other transactions where permitted by the
Fund's investment objective, policies, and limitations.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except as permitted by its
investment objective and policies, and except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed.
The 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 the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any portfolio instruments while borrowings in
excess of 5% of the value of the Fund's total assets are outstanding.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the 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 its total assets would be invested in the
securities of that issuer. (For purposes of this limitation, the Fund
considers instruments issued by a U.S. branch of a domestic bank having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment to be "cash items".) Also, the Fund will not acquire
more than 10% of the outstanding voting securities of any one issuer.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the
value of its total assets in securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities, and repurchase agreements
collateralized by such securities.
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 Fund will limit its 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 its total assets in any one
investment company, and will invest no more than 10% of its total assets
in investment companies in general. The Fund 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 Fund assets. While it is
the Fund's policy to waive its investment advisory fees on assets
invested in securities of other open-end investment companies, it should
be noted that investment companies incur certain expenses, such as
custodian and transfer agency fees, and therefore, any investment by the
Fund in shares of another investment company would be subject to such
duplicate expenses. The Fund will invest in other investment companies
primarily for the purpose of investing its short-term cash on a temporary
basis. The Fund has a present intention of investing no more than 5% of
its total assets in investment companies during the current fiscal year.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs, or leases, although it may purchase
the securities of issuers which invest in or sponsor such programs.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
portfolio instruments of unseasoned issuers, including their
predecessors, that have been in operation for less than three years.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser,
owning individually more than -1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities, other than put
options on stock indices, unless the securities are held in the 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 options.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the 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 Fund will not invest more than 5% of its assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, the Fund will limit its
investment in such warrants not listed on nationally recognized stock
exchanges to 2% of its total assets. (If state restrictions change, this
latter restriction may be revised without notice to shareholders.) For
purposes of this investment restriction, warrants acquired by the Fund in
units or attached to securities may be deemed to be without value.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for purposes of
exercising control or management.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 5% of its net 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 Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, over-the-counter
options, certain restricted securities not determined by the Trustees to
be liquid, and non-negotiable time deposits with maturities over seven
days.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not intend to borrow money in excess of 5% of the value of its
total assets during the current fiscal year.
THE BILTMORE FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees of the Trust are listed with their principal occupations
and present positions. Each of the Trustees and officers listed below holds an
identical position with The Biltmore Municipal Funds, another investment
company. Except as listed below, none of the Trustees or officers are affiliated
with Wachovia Bank of North Carolina, N.A., Federated Investors, Federated
Securities Corp., Federated Services Company or Federated Administrative
Services.
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
James A. Hanley Trustee Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) until 1992.
Malcolm T. Hopkins Trustee Private investor and consultant; Director, The Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution);
Director, MAPCO, Inc. (diversified energy); Director, Metropolitan
Series Funds, Inc. (investment company); Director, Kinder-Care Learning
Centers, Inc. (child care); and Director, Wangner Systems Corporation
(manufacturer of fabrics for paper production).
Samuel E. Hudgins Trustee Principal, Lally, Percival & Company Inc.; Director, Atlantic American
Corporation (insurance holding company); Director, Bankers Fidelity Life
Insurance Company; Director and Vice Chairman, Leath Furniture, Inc.
(retail furniture); President, Atlantic American Corporation until 1988;
Director, Vice Chairman and Chief Executive Officer, Rhodes, Inc.
(retail furniture) until 1988; Chairman and Director, Atlantic American
Life Insurance Co., Georgia Casualty & Surety Company, and Bankers
Fidelity Life Insurance until 1988.
J. Berkley Ingram, Jr. Trustee Real estate investor and partner; Director, VF Corporation (apparel
company).
D. Dean Kaylor Trustee Retired; Executive Vice President and Chief Financial Officer, NBD Bank,
N.A. and NBD Bancorp, Inc. (bank and
bank-holding company) until 1990.
John W. McGonigle President and Vice President, Secretary, General Counsel, and Trustee, Federated
Treasurer Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Trustee,
Federated Administrative Services; Executive Vice President and
Director, Federated Securities Corp.
Ronald M. Petnuch Vice President Vice President, Federated Administrative Services; formerly, Associate
and Assistant Corporate Counsel, Federated Investors; Vice President and Assistant
Treasurer Treasurer of certain investment companies for which Federated Securities
Corp. is the principal
distributor.
Joseph M. Huber Secretary Corporate Counsel, Federated Investors.
</TABLE>
The address of the Trustees and officers of the Trust is Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of December 31, 1993, the following shareholders of record owned 5% or more
of the outstanding shares of the Fund: Wachovia Bank of North Carolina, N.A.,
for the account of Wachovia Corporation Retirement Savings & Profit Sharing Plan
(4-12-79), Winston-Salem, North Carolina, owned approximately 2,841,820.85
shares (16.64%); and The South Carolina National Bank, for the account of KEMET
Electrical Corp. & Subsidiary Employee Retirement Program Plan, Winston-Salem,
North Carolina, owned approximately 1,692,610.18 shares (9.91%).
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Wachovia Investment Management Group (the
"Adviser"). The Adviser is a business unit of Wachovia Bank of North Carolina,
N.A., which is a wholly-owned subsidiary of Wachovia Corporation of North
Carolina, a wholly-owned subsidiary of Wachovia Corporation.
The Adviser shall not be liable to the Trust, the Fund or any shareholder of the
Fund 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 Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.
For the period from May 10, 1993 (date of initial public investment) through
November 30, 1993, the Adviser earned $616,635, of which $102,649 was
voluntarily waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the Adviser will waive its fee
or reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
In the interest of limiting expenses of the Fund during its initial period of
operations, the Adviser has agreed to waive a portion of its investment advisory
fee.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services ("FAS"), a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the period from May 10, 1993 (date of initial
public investment) through November 30, 1993, FAS earned $108,092. In addition,
FAS reimbursed $44,122 of other operating expenses.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers and dealers may be used by the Adviser in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce expenses. The Fund has no
obligation to deal with any broker or group of brokers in the execution of
portfolio transactions.
For the period from May 10, 1993 (date of initial public investment) to November
30, 1993, the Fund paid $157,549 in commissions on brokerage transactions.
Some of the Adviser's other clients have investment objectives and programs
similar to that of the Fund. Occasionally, the Adviser may make recommendations
to other clients which result in their purchasing or selling securities
simultaneously with the Fund. Consequently, the demand for securities being
purchased or the supply of securities being sold may increase, and this could
have an adverse effect on the price of those securities. It is the Adviser's
policy not to favor one client over another in making recommendations or in
placing orders. If two or more of the Adviser's clients are purchasing a given
security on the same day from the same broker or dealer, the Adviser may average
the price of the transactions and allocate the average among the clients
participating in the transaction.
As of November 30, 1993, the Fund owned $840,890, $2,273,505, $1,272,760, and
$1,002,700 of securities of General Electric Capital Corp., General Electric
Co., Primerica, and PaineWebber, respectively, several of the Fund's regular
broker/dealers that derive more than 15% of gross revenues from
securities-related activities.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the Fund's
investment adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held. It is not anticipated that the portfolio trading engaged in
by the Fund will result in its annual rate of portfolio turnover exceeding 100%
with respect to fixed income securities and 60% with respect to equity
securities under normal market conditions.
For the period from May 10, 1993 (date of initial public investment) to November
30, 1993, the Fund's portfolio turnover rate was 60%. The higher portfolio
turnover rate for the period was a result of the fact that the first fiscal year
was the initial start-up period for the Fund and, therefore, the portfolio
turnover would be expected to be substantially greater than on a fund with a
longer operating history. Although there were increased taxes because these
transactions generated additional income, there were no additional brokerage
commissions because these transactions were done on a net basis. However, the
Fund paid mark-ups on the securities which represented the spread between bid
and asked prices.
PURCHASING FUND SHARES
- --------------------------------------------------------------------------------
Shares of the Fund are sold at net asset value plus an applicable sales charge
on days on which the New York Stock Exchange and the Federal Reserve Wire System
are open for business. The procedure for purchasing shares of the Fund is
explained in the prospectus under "Investing in the Fund.
BILTMORE BALANCED FUND
ANNUAL REPORT FOR FISCAL YEAR ENDED NOVEMBER 30, 1993
Investment Review
The period between the Fund's inception date on May 7,
1993 and the Fund's fiscal year-end on November 30, 1993,
provided a favorable environment for investors in balanced
portfolios. Inflation remained subdued. Gross Domestic
Product growth was moderate during the second and third
quarters, becoming much stronger in the fourth quarter.
This slower period of growth, combined with the modest
inflation rate, helped push the yield on 10-year Treasury
notes down from 6.01% on April 30, 1993, to 5/17% on October
15, 1993. Rates began to rise from those historically low
levels and by November 30, 1993, the 10-year Treasury note
had risen to 5.82%. The rise in interest rates,
precipitated by stronger economic growth in the fourth
quarter, put pressure on bond prices.
The stock market continued its upward spiral, setting
one record-high after another. For the period between April
30, 1993 and November 30, 1993, the Standard & Poor's 500
Index (the "S&P 500") rose 6.79%.* Gains in the market were
attributable, in part, to falling interest rates and the
unprecedented amounts of cash that continued to flow into
mutual funds, which accounted for a third of the daily New
York Stock Exchange volume in 1993.
The Fund allocation of 52% equities, 37% bonds, and 11%
cash remained fairly consistent through the Fund's fiscal
year-end. Among equity sectors, the Fund was underweighted
in consumer non-durables relative to the S&P 500, prompted
by value-conscious consumers becoming less likely to
purchase "name" products. Conversely, the Fund was
overweighted in cyclical sectors that would benefit from an
improving economy, while underweighting consumer
non-durables. In addition, interest rate sensitive sectors
were reduced by fiscal year-end. Large purchases during the
year that increased cyclical exposure were Praxair, Digital
Equipment, Xerox, Aluminum Company of America and FMC Corp.
Significant sales in consumer non-durables included Circuit
City, National Medical Enterprises and JC Penney. Interest
rate sensitive stocks sold included First Union, Keycorp,
Ameritech and Carolina Power & Light.
The Fund invested primarily in AA or AAA rated
fixed-income issues, as the spreads between these and
lower-quality sectors became historically narrow.
Corporations and governments issued a record volume of new
debt securities throughout 1993, taking advantage of falling
interest rates to refinance older, more expensive debt. The
Fund purchased new issues of several financial companies,
including PaineWebber Group, Allstate Corp., Associates
Corp., and the Inter-American Development Bank. The finance
sector offered comparatively generous yields coupled with
good fundamental prospects, compared to similarly rated
bonds in other sectors of the corporate market.
During the period between the Fund's inception on May
7, 1993 and the fiscal year-end, the fund's net assets grew
form $137.6 million to $166.3 million. The net asset value
was $10.33 per share on November 30, 1993, and the Fund paid
dividends totalling $.15 per share during the fiscal year
ended November 30, 1993. This produced a total return of
4.89% based on net asset value and 0.18% based on offering
price for the period since inception. The 30-day yield was
2.58% based on net asset value and 2.46% based on offering
price.** The average duration for the fixed income portion
of the Fund was 4.70 years.
*This index is unmanaged.
* Past performance is not indicative of future results.
Investment return and principal value will fluctuate, so
when shares are redeemed, they may be worth more or less
than the original cost.PERFORMANCE COMPARISON
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000
INVESTMENT IN BILTMORE BALANCED FUND, THE S&P 500 INDEX+,
AND THE LEHMAN AGGREGATE BOND INDEX+
Past performance is not predicative of future performance.
Your investment return and principal value will fluctuate,
so when shares are redeemed, they may be worth more or less
than original cost. Mutual funds are not obligations of or
guaranteed by any bank, and are not federally insured.
This annual report incorporates by reference and accompanies
the prospectus dated January 31, 1994.
*Reflects operations of Biltmore Balanced Fund from the
start of business on May 7, 1993 through November 30, 1993,
on a cumulative basis.
**Represents a hypothetical investment of $10,000 in
Biltmore Balanced Fund, after deducting the maximum sales
charge of 4.5% ($10,000 investment minus $450 sales charge
=$9,950). The Fund's performance assumes the reinvestment
of all dividends and distributions. The S&P 500 Index and
the Lehman Aggregate Bond Index are adjusted to reflect
reinvestment of dividends on securities in the two indices.
***Total return for shareholders purchasing shares of the
Fund at net asset value without a sales charge, including
accounts purchasing shares through the Trust Divisions of
the Wachovia Banks, is 4.89% for the period ended November
30, 1993, as reflected in the "Financial Highlights" section
of the Fund's prospectus.
+The S&P 500 Index and the Lehman Aggregate Bond Index are
not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's
performance.
FEDERATED SECURITIES CORP.Distributor
[Logo]
BILTMORE EQUITY FUND
ANNUAL REPORT FOR FISCAL YEAR ENDED NOVEMBER 30, 1993
Investment Review
Despite gloomy forecasts, conflicting evidence on the
strength of the economy and high equity valuations, the
stock market continued its upward spiral, setting one
record-high after anther. For the period between April 30,
1993 and November 30, 1993, the Standard & Poor's 500 Index
(the "S&P 500") rose 6.79%.* Gains in the market were
attributable, in part, to falling interest rates and the
unprecedented amounts of cash that continued to flow into
mutual funds, which accounted for a third of the daily New
York Stock Exchange volume in 1993.
Although many stocks in the S&P 500 enjoyed
double-digit advances, the return for the entire index was
constrained by the poor performance of consumer
non-durables. The Fund was underweighted relative to the
S&P 500 in the consumer non-durables sector from its
inception on May 7, 1993 throughout the Fund's fiscal
year-end on November 30, 1993. This strategy was prompted
by consumers who are increasingly value-conscious and less
likely to buy more expensive "name" products.
During the period, the Fund overweighted cyclical
sectors that would benefit from an improving economy, while
underweighting consumer non-durables. In addition, interest
rate sensitive sectors were reduced by fiscal year-end.
Large purchases during the year that increased cyclical
exposure were Praxair, Harsco, Honeywell, Digital Equipment,
Xerox, and York International. Significant sales consumer
non-durables included Philip Morris, Sears Roebuck, Becton
Dickinson and Circuit City. Interest rate sensitive stocks
sold included American International Group and SCE Corp.
On November 30, 1993, the Fund had net assets of $62.0
million and a net asset value of $10.28 per share. The Fund
paid dividends totalling $.09 per share, producing a total
return of 3.68% based on net asset value and (0.98%) based
on offering price for the period since inception. The
30-day yield was 1.76% based on net asset value and 1.68%
based on offering price. The Fund generally maintained
7-12% of its assets in cash during the fiscal year.**
The Fund's investment adviser continues to monitor
industry sector trends to maximize additional opportunities
that are consistent with the investment objective of the
Fund.
*This index is unmanaged.
** Past performance is not indicative of future results.
Investment return and principal value will fluctuate, so
when shares are redeemed, they may be worth more or less
than the original cost.PERFORMANCE COMPARISON
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000
INVESTMENT IN BILTMORE EQUITY FUND AND THE S&P 500 INDEX+
Past performance is not predicative of future performance.
Your investment return and principal value will fluctuate,
so when shares are redeemed, they may be worth more or less
than original cost. Mutual funds are not obligations of or
guaranteed by any bank, and are not federally insured.
This annual report incorporates by reference and accompanies
the prospectus dated January 31, 1994.
*Reflects operations of Biltmore Equity Fund from the start
of business on May 7, 1993 through November 30, 1993, on a
cumulative basis.
**Represents a hypothetical investment of $10,000 in
Biltmore Equity Fund, after deducting the maximum sales
charge of 4.5% ($10,000 investment minus $450 sales charge
=$9,950). The Fund's performance assumes the reinvestment
of all dividends and distributions. The S&P 500 Index is
adjusted to reflect reinvestment of dividends on securities
in the Index.
***Total return for shareholders purchasing shares of the
Fund at net asset value without a sales charge, including
accounts purchasing shares through the Trust Divisions of
the Wachovia Banks, is 3.68% for the period ended November
30, 1993, as reflected in the "Financial Highlights" section
of the Fund's prospectus.
+The S&P 500 Index is not adjusted to reflect sales loads,
expenses, or other fees that the SEC requires to be
reflected in the Fund's performance.
FEDERATED SECURITIES CORP.Distributor
[Logo]
BILTMORE EQUITY INDEX FUND
ANNUAL REPORT FOR FISCAL YEAR ENDED NOVEMBER 30, 1993
INVESTMENT REVIEW
Despite gloomy forecasts, conflicting evidence on the
strength of the economy and high equity valuations, the
stock market continued its upward spiral, setting one
record-high after another. For the period between April 30,
1993 and November 30, 1993, the Standard & Poor's 500 Index
(the "S&P 500") rose 6.79%.* Gains in the market were
attributed in part, to falling interest rates and
unprecedented amounts of cash that continue to flow into
mutual funds, which accounted for one-third of the daily New
York Stock Exchange volume in 1993. Although many stocks in
the S&P 500 enjoyed double-digit advances, the return for
the entire S&P 500 was constrained by the poor performance
of consumer non-durables.
At the inception of the Biltmore Equity Index Fund (the
"Fund"), May 7, 1993, the Fund held 404 of the 500 stocks
that comprise the S&P 500. The Fund's investment adviser
has undertaken to buy all of the stocks in the S&P 500, and
by the Fund's fiscal year-end, November 30, 1993, the Fund
had increased the number of its holdings to 441. It is
anticipated that the Fund will hold all of the stocks in the
S&P 500 early in the next fiscal year.
During the fiscal year, the Fund's investment adviser
began using S&P 500 Index futures contracts. The use of
futures allows the Fund to track the performance of the S&P
500 while managing cash flows into and out of the Fund.
On November 30, 1993, the Fund had net assets of $149.3
million and a net asset value of $10.47 per share. The Fund
paid dividends totalling $0.11 per share, producing a total
return of 5.80% based on net asset value and 1.05% based on
offering price for the period from May 7, 1993 (start of
business) to November 30, 1993. The 30-day yield was 2.19%
based on net asset value and 2.09% based on offering
price.**
*This index is unmanaged.
** Past performance is not indicative of future results.
Investment return and principal value will fluctuate, so
when shares are redeemed, they may be worth more or less
than the original cost.PERFORMANCE COMPARISON
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000
INVESTMENT IN BILTMORE EQUITY INDEX FUND AND THE S&P 500
INDEX+
Past performance is not predicative of future performance.
Your investment return and principal value will fluctuate,
so when shares are redeemed, they may be worth more or less
than original cost. Mutual funds are not obligations of or
guaranteed by any bank, and are not federally insured.
This annual report incorporates by reference and accompanies
the prospectus dated January 31, 1994.
*Reflects operations of Biltmore Equity Index Fund from the
start of business on May 7, 1993 through November 30, 1993,
on a cumulative basis.
**Represents a hypothetical investment of $10,000 in
Biltmore Equity Index Fund, after deducting the maximum
sales charge of 4.5% ($10,000 investment minus $450 sales
charge =$9,950). The Fund's performance assumes the
reinvestment of all dividends and distributions. The S&P
500 Index is adjusted to reflect reinvestment of dividends
on securities in the Index.
***Total return for shareholders purchasing shares of the
Fund at net asset value without a sales charge, including
accounts purchasing shares through the Trust Divisions of
the Wachovia Banks, is 5.80% for the period ended November
30, 1993, as reflected in the "Financial Highlights" section
of the Fund's prospectus.
+The S&P 500 Index is not adjusted to reflect sales loads,
expenses, or other fees that the SEC requires to be
reflected in the Fund's performance.
FEDERATED SECURITIES CORP.Distributor
[Logo]
BILTMORE FIXED INCOME FUND
ANNUAL REPORT FOR FISCAL YEAR ENDED NOVEMBER 30, 1993
INVESTMENT REVIEW
The period between the Fund's inception date on May 7,
1993 and the Fund's fiscal year-end on November 30, 1993,
provided a favorable environment for investors in fixed
income securities. Inflation remained subdued during the
period.
Gross Domestic Product growth was moderate during the
second and third quarters of 1993, becoming much stronger in
the fourth quarter. This slower period of growth, combined
with the modest inflation rate, helped push the yield on
10-year Treasury notes down from 6.01% on April 30, 1993, to
5.17% on October 15, 1993. Rates began to rise from those
historically low levels and, by November 30, 1993, the
10-year Treasury note had risen to 5.82%. The rise in
interest rates, precipitated by stronger economic growth in
the fourth quarter, put pressure on bond prices.
The Fund's adviser incorporates a multi-disciplined
approach in managing the Fund. The approach combines
judgments about the interest rate environment with sector
rotation and yield curve analysis. The Fund's adviser
generally maintained a slightly defensive position during
the period, in the anticipation of a cyclical uptick in
interest rates. As spreads modestly narrowed between
corporates and Treasuries, the Fund slightly decreased its
position in corporate issues and maintained somewhat of a
barbell approach (more duration in short and long
maturities) in anticipation of a flatter yield curve.
The Fund invested primarily in AA or AAA rated issues,
as the spreads between these and lower-quality sectors
became historically narrow. Corporations and governments
issued an record volume of new debt securities throughout
1993, taking advantage of falling interest rates to
refinance older, more expensive debt. The Fund purchased
new issues of several financial companies, including
Beneficial Corp., IBM Credit Corp., and Morgan Stanley
Group. Issues in the financial sector were more attractive
relative to other sectors of the corporate market.
The Fund had net assets of $140.3 million and a net
asset value of $10.00 per share on November 30, 1993. The
Fund paid dividends monthly since its inception, totalling
$0.30 per share, producing a total return of 3.02% based on
net asset value and (1.61)% based on offering price for the
period since inception. The 30-day yield, based upon the
net asset value, decreased from 5.16% on June 30, 1993 to
4.60% at fiscal year-end, reflecting the downward pressure
in interest rates. The 30-day SEC yield based on offering
price decreased from 4.92% to 4.39% for the same period.
The average duration of the Fund was 4.75 years.*
The Fund's adviser continues to monitor the government
and corporate bond markets for additional opportunities that
are consistent with the investment objectives of the Fund.
*Past performance is not indicative of future results.
Investment return and principal value will fluctuate, so
when shares are redeemed, they may be worth more or less
than the original cost.PERFORMANCE COMPARISON
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000
INVESTMENT IN BILTMORE FIXED INCOME FUND AND THE LEHMAN
AGGREGATE BOND INDEX+
Past performance is not predicative of future performance.
Your investment return and principal value will fluctuate,
so when shares are redeemed, they may be worth more or less
than original cost. Mutual funds are not obligations of or
guaranteed by any bank, and are not federally insured.
This annual report incorporates by reference and accompanies
the prospectus dated January 31, 1994.
*Reflects operations of Biltmore Fixed Income Fund from the
start of business on May 7, 1993 through November 30, 1993,
on a cumulative basis.
**Represents a hypothetical investment of $10,000 in
Biltmore Fixed Income Fund, after deducting the maximum
sales charge of 4.5% ($10,000 investment minus $450 sales
charge =$9,950). The Fund's performance assumes the
reinvestment of all dividends and distributions. The Lehman
Aggregate Bond Index is adjusted to reflect reinvestment of
dividends on securities in the Index.
***Total return for shareholders purchasing shares of the
Fund at net asset value without a sales charge, including
accounts purchasing shares through the Trust Divisions of
the Wachovia Banks, is 3.02% for the period ended November
30, 1993, as reflected in the "Financial Highlights" section
of the Fund's prospectus.
+The Lehman Aggregate Bond Index is not adjusted to reflect
sales loads, expenses, or other fees that the SEC requires
to be reflected in the Fund's performance.
FEDERATED SECURITIES CORP.Distributor
[Logo]
BILTMORE SHORT-TERM FIXED INCOME FUND
ANNUAL REPORT FOR FISCAL YEAR ENDED NOVEMBER 30, 1993
INVESTMENT REVIEW
The period between the Fund's inception date on May 7,
1993 and the Fund's fiscal year-end on November 30, 1993,
saw short-term interest rates rise as investors believed
that easier monetary policy had ended for this economic
cycle.
Rates on shorter term Treasuries rose during the period
between the inception of the Fund on May 7, 1993 and the
Fund's fiscal year-end, narrowing the spread to longer
maturities. The 2-year Treasury note yielded 3.80% on
April 30, 1993, versus the 10-year Treasury note yield of
6.01%. That 221 basis point spread narrowed to 160 basis
points by November 30, 1993.
At year-end, 82.4% of the Fund's net assets were
invested in issues rated AAA, including 61.6% in Treasury
obligations. The spread between these issues and
lower-quality securities became historically narrow,
prompting the Fund's investment adviser to purchase higher
quality issues with minimal impact on the Fund's total
return. Issues of financial institutions (16.8% of the
Fund's net assets) and asset-backed securities (6.6%)
appeared to offer more value than other non-government
sectors.
The Fund had net assets of $154.5 million and a net
asset value of $9.91 per share on November 30, 1993. The
Fund paid dividends monthly since its inception, totalling
$0.26 per share, producing a total return of 1.69% based on
net asset value and (2.88)% based on offering price for the
period since inception. The 30-day yield, based upon the
net asset value, decreased from 3.76% to 3.45%, due in part
to maturities of higher coupon securities held by the Fund.
The 30-day SEC yield based on offering price decreased from
3.59% to 3.30% for the same period.* The average yield to
maturity of the securities held in the Fund was 4.02%, with
an average maturity of 1.43 years, as of November 30, 1993.
The Fund's adviser continues to monitor the yields on
short-term securities to maximize additional opportunities
that are consistent with the investment objective of the
Fund.
*Past performance is not indicative of future results.
Investment return and principal value will fluctuate, so
when shares are redeemed, they may be worth more or less
than the original cost.PERFORMANCE COMPARISON
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000
INVESTMENT IN BILTMORE SHORT-TERM FIXED INCOME FUND AND
MERRILL LYNCH 1-3 YEAR U.S. TREASURY INDEX+
Past performance is not predicative of future performance.
Your investment return and principal value will fluctuate,
so when shares are redeemed, they may be worth more or less
than original cost. Mutual funds are not obligations of or
guaranteed by any bank, and are not federally insured.
This annual report incorporates by reference and accompanies
the prospectus dated January 31, 1994.
*Reflects operations of Biltmore Short-Term Fixed Income
Fund from the start of business on May 7, 1993 through
November 30, 1993, on a cumulative basis.
**Represents a hypothetical investment of $10,000 in
Biltmore Short-Term Fixed Income Fund, after deducting the
maximum sales charge of 4.5% ($10,000 investment minus $450
sales charge =$9,950). The Fund's performance assumes the
reinvestment of all dividends and distributions. The
Merrill Lynch 1-3 Year U.S. Treasury Index is adjusted to
reflect reinvestment of dividends on securities in the
Index.
***Total return for shareholders purchasing shares of the
Fund at net asset value without a sales charge, including
accounts purchasing shares through the Trust Divisions of
the Wachovia Banks, is 1.69% for the period ended November
30, 1993, as reflected in the "Financial Highlights" section
of the Fund's prospectus.
+The Merrill Lynch 1-3 Year U.S. Treasury Index is not
adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's
performance.
FEDERATED SECURITIES CORP.Distributor
[Logo]
BILTMORE SPECIAL VALUES FUND
ANNUAL REPORT FOR FISCAL YEAR ENDED NOVEMBER 30, 1993
INVESTMENT REVIEW
Despite gloomy forecasts, conflicting evidence on the
strength of the economy and high equity valuations, the
stock market continued its upward spiral, setting one
record-high after another. Small stocks participated in
this strong market to a higher degree than larger
capitalized companies. For the period between the Fund's
inception date of May 7, 1993, and its fiscal year end on
November 30, 1993, the Russell 2000 Index*, composed
primarily of small-cap growth stocks, rose 10.70%. Most of
the gains in the small-cap market were attributed to growth
stocks which outperformed value stocks, in part due to the
fall in interest rates during the period.
The Fund's adviser began accumulating companies in four
areas of the market believed to offer good long-term value:
.Asset Conversion Opportunities
The Fund purchased stocks of companies whose value
lies in asset conversion activities, such as acquisitions,
divestitures, refinancings, or use of tax benefits.
Purchases included Leucadia Corp., Danielson Holdings, Tyler
Corp., and Wilcox and Gibbs.
.Good Companies at Good Prices
These include high quality, well-managed, strongly
financed companies selling cheaply in the market due to
reasons believed by the Fund's investment adviser to be
incorrect or temporary. Purchases include Lindsey
Manufacturing, Standex international, Sealright Inc., and
Cleveland Cliffs.
.Turnaround Situations
Companies often become good values following
considerable profit pressure, providing that the pressures
are fading and a turn toward profitability is forthcoming.
The Fund's investment adviser has identified fabric
retailing as an industry that has several companies in
turnaround situations, and has made purchases in Hancock
Fabrics, House of Fabrics, and Fabric Centers of America.
.Undiscovered Assets
Companies often have assets that are hidden,
under-utilized, or out-of-favor that sell in the market for
less than their worth. Stocks with this profile that were
added to the Fund included Forest City Enterprises, Catellus
Development, Potash of Saskatchewan and First Mississippi
Corp.
During the fiscal year, the Fund reduced its
holding in four market sectors that the Fund's adviser felt
had become fully valued: Electronics/Technology, Regional
Banks/Finance, Health Care, and Auto Parts.
The Fund had net assets of $12.1 million and a net
asset value of $10.24 per share on November 30, 1993,
producing a total return of 2.40% based on net asset value
for the period since inception. The 30-day yield increased
from (.18%) on June 30, 1993, to 0.19% at year-end.**
*The index is unmanaged.
**Past performance is not indicative of future results.
Investment return and principal value will fluctuate, so
when shares are redeemed, they may be worth more or less
than the original cost.PERFORMANCE COMPARISON
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000
INVESTMENT IN BILTMORE SPECIAL VALUES FUND AND THE RUSSELL
2000 INDEX+
Past performance is not predicative of future performance.
Your investment return and principal value will fluctuate,
so when shares are redeemed, they may be worth more or less
than original cost. Mutual funds are not obligations of or
guaranteed by any bank, and are not federally insured.
This annual report incorporates by reference and accompanies
the prospectus dated January 31, 1994.
*Reflects operations of Biltmore Special Values Fund from
the start of business on May 7, 1993 through November 30,
1993, on a cumulative basis.
**Represents a hypothetical investment of $10,000 in
Biltmore Special Values Fund, after deducting the maximum
sales charge of 4.5% ($10,000 investment minus $450 sales
charge =$9,950). The Fund's performance assumes the
reinvestment of all dividends and distributions. The
Russell 2000 Index is adjusted to reflect reinvestment of
dividends on securities in the Index.
***Total return for shareholders purchasing shares of the
Fund at net asset value without a sales charge, including
accounts purchasing shares through the Trust Division of the
Wachovia Banks, is 2.40% for the period ended November 30,
1993, as reflected in the "Financial Highlights" section of
the Fund's prospectus.
+The Russell 2000 Index is not adjusted to reflect sales
loads, expenses, or other fees that the SEC requires to be
reflected in the Fund's performance.
FEDERATED SECURITIES CORP.Distributor
[Logo]
APPENDIX
A. The graphic presentation here displayed consists of a
boxed legend in the bottom center indicating the components
of the corresponding line graph. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 investment in Biltmore Balanced Fund
(the "Fund"); Standard and Poor's 500 Index and Lehman
Aggregate Bond Index. The "x" axis reflects the cost of the
investment. The "y" axis reflects computation periods from
the Fund's start of business, 05/07/93, through 11/30/93.
The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to Standard
and Poor's 500 Index and Lehman Aggregate Bond Index ; the
ending values are $10,017, $10,610 and $10,349,
respectively. There is also a legend in the upper left
quadrant of the graphic presentation which indicates the
Average Annual Total Return for the period ended November
30, 1993, beginning with the Fund's start of business
(05/07/93); the Average Annual Total Return is 0.18%.
B. The graphic presentation here displayed consists of a
boxed legend in the bottom center indicating the components
of the corresponding line graph. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 investment in Biltmore Equity Fund (the
"Fund") and Standard and Poor's 500 Index. The "x" axis
reflects the cost of the investment. The "y" axis reflects
the computation period since the Fund's start of business,
05/07/93, through 11/30/93. The right margin reflects the
ending value of the hypothetical investment in the Fund as
compared to Standard and Poor's 500 Index; the ending
values are $9,901 and $10,610, respectively. There is also
a legend in the upper left quadrant of the graphic
presentation which indicates the Average Annual Total Return
for the period ended November 30, 1993, beginning with the
Fund's start of business, (05/07/93); the Average Annual
Total Return is 0.98%.
C. The graphic presentation here displayed consists of a
boxed legend in the bottom center indicating the components
of the corresponding line graph. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 investment in Biltmore Equity Index
Fund (the "Fund") and Standard and Poor's 500 Index. The
"x" axis reflects the cost of the investment. The "y" axis
reflects computation periods from the Fund's start of
business, 05/07/93, through 11/30/93. The right margin
reflects the ending value of the hypothetical investment in
the Fund as compared to Standard and Poor's 500 Index ; the
ending values are $110,104 and $10,610, respectively. There
is also a legend in the upper left quadrant of the graphic
presentation which indicates the Average Annual Total Return
for the period ended November 30, 1993, beginning with the
Fund's start of business (05/07/93); the Average Annual
Total Return is 1.05%.
D. The graphic presentation here displayed consists of a
boxed legend in the bottom center indicating the components
of the corresponding line graph. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 investment in Biltmore Fixed Income
Fund (the "Fund") and Lehman Aggregate Bond Index. The "x"
axis reflects the cost of the investment. The "y" axis
reflects the computation period since the Fund's start of
business, 05/07/93, through 11/30/93. The right margin
reflects the ending value of the hypothetical investment in
the Fund as compared to Lehman Aggregate Bond Index; the
ending values are 9,838 and $10,411, respectively. There
is also a legend in the upper left quadrant of the graphic
presentation which indicates the Fund's Average Annual Total
Return for the period ended November 30, 1993, beginning
with the Fund's start of business (05/07/93); the Average
Annual Total Return is 1.61%.
E. The graphic presentation here displayed consists of a
boxed legend in the bottom center indicating the components
of the corresponding line graph. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 investment in Biltmore Short-Term
Fixed Income Fund (the "Fund") and Merrill Lynch 1-3 Year
U.S. Treasury Index. The "x" axis reflects the cost of the
investment. The "y" axis reflects the computation period
since the Fund's start of business, 05/07/93, through
11/30/93. The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to Merrill
Lynch 1-3 Year U.S. Treasury Index; the ending values are
$9,711 and $10,199, respectively. There is also a legend
in the upper left quadrant of the graphic presentation which
indicates the Fund's Average Annual Total Return for the
period ended November 30, 1993, beginning with the Fund's
start of business (05/07/93); the Average Annual Total
Return is 2.88%.
F. The graphic presentation here displayed consists of a
boxed legend in the bottom center indicating the components
of the corresponding line graph. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 investment in Biltmore Special Values
Fund (the "Fund"); and Russell 2000 Index . The "x" axis
reflects the cost of the investment. The "y" axis reflects
the computation period since the Fund's start of business,
05/07/93, through 11/30/93. The right margin reflects the
ending value of the hypothetical investment in the Fund as
compared to Russell 2000 Index; the ending values are
$10,240 and $11,072, respectively. There is also a legend
in the upper left quadrant of the graphic presentation which
indicates the Fund's Average Annual Total Return for the
period ended November 30, 1993, beginning with the Fund's
start of business (05/07/93); the Average Annual Total
Return is 2.40%.
