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
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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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
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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
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INVESTING IN THE FUND 16
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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
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By Telephone 21
By Mail 22
Signatures 22
Systematic Withdrawal Program 22
Accounts with Low Balances 23
SHAREHOLDER INFORMATION 23
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Voting Rights 23
Massachusetts Business Trusts 23
EFFECT OF BANKING LAWS 24
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TAX INFORMATION 25
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PERFORMANCE INFORMATION 25
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FINANCIAL STATEMENTS 26
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REPORT OF ERNST & YOUNG,
INDEPENDENT AUDITORS 42
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ADDRESSES 43
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SUMMARY OF FUND EXPENSES
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<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
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(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
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INCOME FROM INVESTMENT OPERATIONS
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Net investment income 0.19
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Net realized and unrealized gain on investments 0.29
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Total from investment operations 0.48
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LESS DISTRIBUTIONS
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Dividends to shareholders from net investment income (0.15)
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NET ASSET VALUE, END OF PERIOD $ 10.33
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TOTAL RETURN** 4.89%
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RATIOS TO AVERAGE NET ASSETS
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Expenses 0.75%(b)
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Net investment income 3.30%(b)
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Expense waiver/reimbursement (a) 0.19%(b)
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SUPPLEMENTAL DATA
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Net assets, end of period (000 omitted)
$166,271
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Portfolio turnover rate 60 %
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</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
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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
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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."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. The Wachovia Banks act as the
shareholders' agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
- --------------------------------------------------------------------------------
The market value of the Fund's portfolio securities are determined as follows:
for equity securities, according to the last sale price on a national securities
exchange, if available;
in the absence of recorded sales for listed equity securities, according to the
mean between the last closing bid and asked prices;
for unlisted equity securities, the latest bid prices;
for bonds and other fixed income securities, as determined by an independent
pricing service;
for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service; or
for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
option trading on such exchanges, unless the Trustees determine in good faith
that another method of valuing option positions is necessary.
REDEEMING FUND SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940, which obligates the Fund to redeem shares for any one shareholder
in cash only up to the lesser of $250,000 or 1% of the Fund's net asset value
during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund expects to pay no federal income tax because it intends to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
There are tax uncertainties with respect to whether increasing rate securities
will be treated as having an original issue discount. If it is determined that
the increasing rate securities have original issue discount, a holder will be
required to include as income in each taxable year, in addition to interest paid
on the security for that year, an amount equal to the sum of the daily portions
of original issue discount for each day during the taxable year that such holder
holds the security. There may also be tax uncertainties with respect to whether
an extension of maturity on an increasing rate note will be treated as a taxable
exchange. In the event it is determined that an extension of maturity is a
taxable exchange, a holder will recognize a taxable gain or loss, which will be
a short-term capital gain or loss if he holds the security as a capital asset,
to the extent that the value of the security with an extended maturity differs
from the adjusted basis of the security deemed exchanged therefor.
Federal income tax law requires the holder of a zero coupon convertible security
to recognize income with respect to the security prior to the receipt of cash
payments. To maintain its qualification as a regulated investment company and
avoid liability of federal income taxes, the Fund will be required to distribute
income accrued with respect to zero coupon convertible securities which it owns,
and may have to sell portfolio securities (perhaps at disadvantageous times) in
order to generate cash to satisfy these distribution requirements.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as long-term
capital gains regardless of how long shareholders have held Fund shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's cumulative total return from May 10, 1993 (date of initial public
investment) to November 30, 1993 was 0.18%. Cumulative total return reflects the
Fund's total performance over a specific period of time. This total return
assumes and is reduced by the payment of the maximum sales load.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for the thirty-day period ended November 30, 1993 was 2.46%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month period
and is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments required by
the Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in the Fund's expenses;
the relative amount of Fund cash flow; and
various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) index is comprised of approximately
5,000 issues which include non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed rate,
non-convertible domestic bonds of companies in industry, public utilities and
finance. The average maturity of these bonds approximates nine years. Tracked
by Smith Barney Shearson, the index calculates total returns for one month,
three month, twelve month and ten year periods and year-to-date.
MERRILL LYNCH COMPOSITE 1-5 YEAR TREASURY INDEX is comprised of approximately 66
issues of U.S. Treasury securities maturing between 1 and 4.99 years, with
coupon rates of 4.25% or more. These total return figures are calculated for
one, three, six, and twelve month periods and year-to-date and include the
value of the bond plus income and any price appreciation or depreciation.
SALOMON BROTHERS 3-5 YEAR GOVERNMENT INDEX quotes total returns for U.S.
Treasury issues (excluding flower bonds) which have maturities of three to five
years. These total returns are year-to-date figures which are calculated each
month following January 1.
SALOMON BROTHERS AAA-AA CORPORATES calculates total returns of approximately 775
issues which include long-term, high-grade domestic corporate taxable bonds,
rated AAA-AA, with maturities of twelve years or more. It also includes
companies in industry, public utilities and finance.
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in maximum offering price over a specific period of
time. From time to time, the Fund will quote its Lipper ranking in the balanced
funds category in advertising sales literature.
MERRILL LYNCH 3-5 YEAR TREASURY INDEX is comprised of approximately 24 issues of
intermediate-term U.S. government and U.S. Treasury securities with maturities
between 3 and 4.99 years and coupon rates above 4.25%. Index returns are
calculated as total returns for periods of one, three, six and twelve months as
well as year-to-date.
MERRILL LYNCH 3-YEAR TREASURY YIELD CURVE INDEX is an unmanaged index comprised
of the most recently issued 3-year U.S. Treasury notes. Index returns are
calculated as total returns for periods of one, three, six, and twelve months
as well as year-to-date.
LEHMAN BROTHERS GOVERNMENT INDEX is an unmanaged index comprised of all publicly
issued, non-convertible domestic debt of the U.S. government, or any agency
thereof, or any quasi-federal corporation and of corporate debt guaranteed by
the U.S. government. Only notes and bonds with a minimum outstanding principal
of $1 million and a minimum maturity of one year are included.
LEHMAN BROTHERS AGGREGATE BOND INDEX is a total return index measuring both the
capital price changes and income provided by the underlying universe of
securities, weighted by market value outstanding. The Aggregate Bond Index is
comprised of the Lehman Brothers Government Bond Index, Corporate Bond Index,
Mortgage-Backed Securities Index and the Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Federal Farm Credit Bank, Federal Land Bank
and the Bank for Co-Operatives; foreign obligations, U.S. investment-grade
corporate debt and mortgage-backed obligations. All corporate debt included in
the Aggregate Bond Index has a minimum S&P rating of BBB, a minimum Moody's
rating of Baa, or a Fitch rating of BBB.
MERRILL LYNCH CORPORATE AND GOVERNMENT INDEX includes issues which must be in
the form of publicly placed, nonconvertible, coupon-bearing domestic debt and
must carry a term of maturity of at least one year. Par amounts outstanding
must be no less than $10 million at the start and at the close of the
performance measurement period. Corporate instruments must be rated by S&P or
by Moody's as investment grade issues (i.e., BBB/Baa or better).
MERRILL LYNCH DOMESTIC MASTER INDEX includes issues which must be in the form of
publicly placed, nonconvertible, coupon-bearing domestic debt and must carry a
term to maturity of at least one year. Par amounts outstanding must be no less
than $10 million at the start and at the close of the performance measurement
period. The Domestic Master Index is a broader index than the Merrill Lynch
Corporate and Government Index and includes, for example, mortgage related
securities. The mortgage market is divided by agency, type of mortgage and
coupon and the amount outstanding in each agency/type/coupon subdivision must
be no less than $200 million at the start and at the close of the performance
measurement period. Corporate instruments must be rated by S&P or by Moody's as
investment grade issues (i.e. BBB/Baa or better).
DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for the
stock market as a whole.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, is a composite
index of common stocks in industry, transportation, and financial and public
utility companies. In addition, the Standard & Poor's index assumes
reinvestment of all dividends paid by stocks listed on the index. Taxes due on
any of these distributions are not included, nor are brokerage or other fees
calculated in the Standard Poor's figures.
S&P 500/SHEARSON LEHMAN GOVERNMENT/CORPORATE (WEIGHTED INDEX) AND THE S&P
500/SHEARSON LEHMAN GOVERNMENT (WEIGHTED INDEX) combine the components of a
stock-oriented index and a bond-oriented index to obtain results which can be
compared to the performance of a managed fund. The indices' total returns will
be assigned various weights depending upon the Fund's current asset allocation.
SALOMON BROTHERS AAA-AA CORPORATE index calculates total returns of
approximately 775 issues which include long-term, high grade domestic corporate
taxable bonds, rated AAA-AA with maturities of twelve years or more and
companies in industry, public utilities, and finance.
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an unmanaged
index comprised of all the bonds issued by the Lehman Brothers
Government/Corporate Bond Index with maturities between 1 and 9.99 years. Total
return is based on price appreciation/depreciation and income as a percentage
of the original investment. Indices are rebalanced monthly by market
capitalization.
Investors may also consult the fund evaluation consulting universe listed below.
Consulting universes may be composed of pension, profit-sharing, commingled,
endowment/foundation and mutual funds.
SEI BALANCED UNIVERSE is composed of 916 portfolios managed by 390 managers
representing $86 billion in assets. To be included in the universe, a portfolio
must contain a 5% minimum commitment in both equity and fixed-income
securities.
MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by S&P's. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. S&P may apply a plus (+) or
minus (-) to the above rating classifications to show relative standing within
the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated Prime-1 (P-1) (or related supporting institutions) rated
Prime-1 (P-1) have a superior capacity for repayment of senior short-term
promissory obligations. P-1 repayment capacity will normally be evidenced by
many of the following characteristics:
leading market positions in well-established industries;
high rates of return on funds employed;
conservative capitalization structure with moderate reliance on debt and ample
asset protection;
broad margins in earnings coverage of fixed financial charges and high internal
cash generation; or
well-established access to a range of financial markets and assured sources of
alternate liquidity.
FITCH INVESTORS SERVICE, INC, SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
3012915B (1/94)
BILTMORE EQUITY FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
PROSPECTUS
The shares of Biltmore Equity Fund (the "Fund") offered by this prospectus
represent interests in a diversified portfolio of securities, which is one of a
series of investment portfolios in The Biltmore Funds (the "Trust"), an open-end
management investment company (a mutual fund).
The investment objective of the Fund is to produce growth of principal and
income. The Fund pursues this objective by investing primarily in a
professionally-managed and diversified portfolio of quality mid-to
large-capitalization common stocks.
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
(THE "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
Corporate Obligations 4
Securities of Foreign Issuers 5
Stock Index Futures and Options 5
Put and Call Options 6
Restricted and Illiquid Securities 6
Temporary Investments 7
Repurchase Agreements 7
When-Issued and Delayed
Delivery Transactions 7
Lending of Portfolio Securities 7
Investment Limitations 7
THE BILTMORE FUNDS INFORMATION 8
- ------------------------------------------------------
Management of the Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Shares 9
Administrative Arrangements 9
Shareholder Servicing Arrangements 9
Administration of the Fund 10
Administrative Services 10
Custodian 10
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 10
Legal Services 10
Independent Auditors 10
Brokerage Transactions 11
Expenses of the Fund 11
NET ASSET VALUE 11
- ------------------------------------------------------
INVESTING IN THE FUND 11
- ------------------------------------------------------
Share Purchases 11
Through Wachovia Brokerage Service 11
By Mail 12
By Wire 12
Through the Trust Divisions of the
Wachovia Banks 12
Minimum Investment Required 12
What Shares Cost 13
Purchases at Net Asset Value 13
Sales Charge Reallowance 13
Reducing the Sales Charge 14
Quantity Discounts and Accumulated
Purchases 14
Letter of Intent 14
Reinvestment Privilege 14
Concurrent Purchases 14
Systematic Investment Program 15
Exchanging Securities for Fund Shares 15
Certificates and Confirmations 15
Dividends 15
Capital Gains 15
Exchange Privilege 16
Exchange by Telephone 16
REDEEMING SHARES 17
- ------------------------------------------------------
By Telephone 17
By Mail 17
Signatures 17
Systematic Withdrawal Program 18
Accounts with Low Balances 18
SHAREHOLDER INFORMATION 18
- ------------------------------------------------------
Voting Rights 18
Massachusetts Business Trusts 19
EFFECT OF BANKING LAWS 19
- ------------------------------------------------------
TAX INFORMATION 20
- ------------------------------------------------------
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
FINANCIAL STATEMENTS 21
- ------------------------------------------------------
REPORT OF ERNST & YOUNG,
INDEPENDENT AUDITORS 34
- ------------------------------------------------------
ADDRESSES 35
- ------------------------------------------------------
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)........................................................................... 0.60%
12b-1 Fees.................................................................................................. None
Other Expenses (after waiver) (2)........................................................................... 0.33%
Shareholder Servicing Agent Fee (3).......................................................... 0.00%
Total Fund Operating Expenses (after waiver) (4)................................................... 0.93%
</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) Other Expenses are 0.35% absent the voluntary waiver by the administrator.
The administrator can terminate this voluntary waiver at any time at its
sole discretion.
(3) As of the date of this prospectus, the Fund is not paying or accruing
shareholder servicing agent fees. The Fund will not pay or accrue
shareholder servicing agent fees until a separate class of shares has been
created for certain trust and institutional investors, 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."
(4) The Total Fund Operating Expenses were 0.81% 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 estimated to be 1.05% absent the voluntary
waivers described above in Notes 1 and 2.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER 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................................................................................ $54 $73
</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 EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
34.
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
<S> <C>
1993*
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.12
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.25
- ----------------------------------------------------------------------------------------------- -----------------
Total from investment operations 0.37
- -----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.09)
- ----------------------------------------------------------------------------------------------- -----------------
NET ASSET VALUE, END OF PERIOD $ 10.28
- ----------------------------------------------------------------------------------------------- -----------------
TOTAL RETURN** 3.68%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses 0.81%(b)
- -----------------------------------------------------------------------------------------------
Net investment income 2.18%(b)
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.32%(b)
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$61,997
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate % 50
- -----------------------------------------------------------------------------------------------
</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 Equity Fund. The shares in any portfolio may be offered
in separate classes. As of the date of this prospectus, the Board of Trustees
(the "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 stocks. 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 Balanced 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 to produce growth of principal and
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
The Fund pursues its investment objective by investing primarily in a
professionally-managed and diversified portfolio of common stock of companies
with an established market. Under normal market conditions, the Fund intends to
invest at least 65% of its total assets in equity securities. These securities
will be primarily quality mid-to large-capitalization common stocks.
ACCEPTABLE INVESTMENTS. In pursuing its investment objective, the Fund's
investment approach is to produce long term growth of principal and income by
investing in a diversified portfolio of common stocks. The investment adviser's
approach seeks undervalued stocks with improving prospects by
integrating two disciplines to capture both growth and value opportunities. The
adviser will integrate value and growth management techniques in attempting to
select undervalued stocks that have prospects for improving fundamentals while
evening out the price volatility often associated with high growth investments.
Acceptable investments include:
common or preferred stocks of U.S. companies which are either listed on
the New York or American Stock Exchange or traded in over-the-counter
markets and are considered by the Fund's investment adviser to have an
established market;
convertible securities;
investments in American Depository Receipts ("ADRs") of foreign companies
traded on the New York Stock Exchange or in over-the-counter markets. 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 rated A or better by
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("S&P") or Fitch Investors Service, Inc. ("Fitch"). (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 may
consider doing so.);
restricted and illiquid securities;
securities of other investment companies;
demand master notes; and
securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities.
In addition, the Fund may borrow money, lend portfolio securities, and engage in
when-issued and delayed delivery transactions, and may also invest in put and
call options, futures, and options on futures, for hedging purposes.
CORPORATE OBLIGATIONS. The Fund may invest in preferred stocks, bonds,
notes, and debentures of corporate issuers. These obligations will be rated
at the time of purchase in the top three rating categories, or, if unrated,
will be of comparable quality as determined by the Fund's investment
adviser. In addition, the Fund may invest in convertible securities, which
are fixed income securities that may be exchanged or converted into a
predetermined number of shares at the option of the holder during a
specified time period. Convertible securities may take the form of
convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features
of several of these securities. 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 are options to buy the
common stock, they function as convertible bonds, except that the warrants
generally will expire before the bond's maturity. Convertible securities
are senior to equity securities and, therefore, have a claim to assets of
the corporation prior to the holders of common stock in the case of
liquidation. However, convertible securities are generally subordinated to
similar 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 stock in instances in which,
in its 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
investment 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 determination of the issuer's
profits, and the issuer's management capability and practices.
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 jurisdictions 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.
STOCK INDEX FUTURES AND OPTIONS. The Fund may utilize stock index futures
contracts, options, and options on futures contracts, subject to the
limitation that the value of these futures contracts and options will not
exceed 20% of the Fund's total assets. Also, the Fund will not purchase
options to the extent that more than 5% of the value of the Fund's total
assets would be invested in premiums on open put option positions. These
futures contracts and options will be used to handle cash flows into and
out of the Fund and to potentially reduce transactional costs, since
transactional costs associated with futures and options contracts can be
lower than costs stemming from direct investment in stocks.
There are several risks accompanying the utilization of futures contracts
to effectively anticipate market movements. First, positions in futures
contracts may be closed only on an exchange or
board of trade that furnishes a secondary market for such contracts. While
the Fund plans to utilize futures contracts only if there exists an active
market for such contracts, there is no guarantee that a liquid market will
exist for the contracts at a specified time. Furthermore, because, by
definition, futures contracts look to projected price levels in the future,
and not to current levels of valuation, market circumstances may result in
there being a discrepancy between the price of the stock index future and
the movement in the corresponding stock index. The absence of a perfect
price correlation between the futures contract and its underlying stock
index could stem from investors choosing to close futures contracts by
offsetting transactions rather than satisfying additional margin
requirements. This could result in a distortion of the relationship between
the index and the futures market. In addition, because the futures market
imposes less burdensome margin requirements than the securities market, an
increased amount of participation by speculators in the futures market
could result in price fluctuations.
The effective use of futures and options as hedging techniques 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.
PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio
securities. These options will be used only as a hedge to attempt to
protect securities which the Fund holds against decreases in value. 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. 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. The call options which the Fund writes and
sells must be listed on a recognized options exchange. Writing of calls 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.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. This requires a
secondary market on an exchange which may or may not exist for any
particular call or put option at any specific time. The absence of a liquid
secondary market also may limit the Fund's ability to dispose of the
securities underlying an option. The inability to close options also could
have an adverse impact on the Fund's ability to effectively hedge its
portfolio.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies, but
which are subject to restriction on resale under federal securities law.
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.
TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its
investment adviser, market conditions warrant, during periods of other than
normal market conditions, the Fund may, for temporary defensive purposes,
invest in:
certificates of deposit, demand and time deposits, savings shares,
bankers' acceptances, and other instruments of domestic and foreign banks
and savings and loans, which institutions have capital, surplus, and
undivided profits over $100 million, or if the principal amount of the
instrument is insured in full by the Bank Insurance Fund ("BIF"), or by
the Savings Association Insurance Fund ("SAIF"), both of which are
administered by the FDIC;
securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies, or instrumentalities;
commercial paper (including Canadian Commercial Paper and Europaper)
rated A-1 or better by S&P, Prime-1 by Moody's, or F-1 by Fitch, or, if
unrated, of comparable quality as determined by the Fund's investment
adviser; and
repurchase agreements.
REPURCHASE AGREEMENTS. The 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.
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. 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.
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 Trustees and will receive collateral in the
form of cash or U.S. government securities equal to at least 102% of the value
of the securities loaned.
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 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 F. Stanley King, Michael O. Mercer and Scott
C. Satterwhite. The portfolio managers have co-managed the Fund since its
inception.
Mr. King is a Chartered Financial Analyst and a Vice President of Wachovia Bank
of North Carolina, N.A. in Winston-Salem, North Carolina. He serves as manager
of institutional portfolio management in the Investment Management Group. Mr.
King joined Wachovia Bank of North Carolina, N.A. in 1985 as a securities
analyst. He was elected Vice President in 1990 and assumed his current position
in 1991. Mr. King is a native of Franklinville, North Carolina. He has a
bachelor of science and master of science degrees from North Carolina State
University.
Mr. Mercer is Senior Vice President, Wachovia Bank of North Carolina, N.A., and,
as a Portfolio Investment Manager, manages the Wachovia Equity Investment Fund
and other large institutional accounts. Mr. Mercer has co-managed the Fund since
October 1, 1993, and has been with Wachovia Bank of North Carolina, N.A. for the
last ten years.
Mr. Satterwhite is a Chartered Financial Analyst, and Vice President and Manager
of Personal Trust Portfolio Management in Georgia for the Personal Financial
Services Group. Mr. Satterwhite joined Wachovia Bank of North Carolina, N.A. in
1981 and has held positions as a closely-held business analyst and capital
management counselor. Mr. Satterwhite has a bachelors degree from The University
of The South and an MBA from Tulane University.
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, Pittsburgh,
Pennsylvania, 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. However, the Adviser may voluntarily waive and/ or reimburse some
expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
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 Equity 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 Equity 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 OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT 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, their spouses and children under the age of
21 of such persons and any trusts, pension profit-sharing plans and individual
retirement accounts operated for such persons, may purchase shares of the Fund
at net asset value. In addition, trustees, officers, directors and employees of
the Distributor and its affiliates, and any bank or investment dealer who has a
sales agreement with the Distributor relating to the Fund, may also purchase
shares at their net asset value.
SALES CHARGE REALLOWANCE. For 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 of 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
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 Participating 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 in person, by
telephone, or by writing to the shareholder's 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 BIF;
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 SAIF; 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.
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 customer. 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. 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
financial publications 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 EQUITY FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- ----------------------------------------------------------------------------------- --------------
COMMON STOCKS--88.8%
- --------------------------------------------------------------------------------------------------
CAPITAL GOODS--9.2%
-----------------------------------------------------------------------------------
15,000 Amtek, Inc. $ 187,500
-----------------------------------------------------------------------------------
5,100 Browning-Ferris Industries, Inc. 127,500
-----------------------------------------------------------------------------------
2,500 Caterpillar, Inc. 213,125
-----------------------------------------------------------------------------------
1,100 Cooper Industries, Inc. 55,688
-----------------------------------------------------------------------------------
14,400 Dover Corp. 853,200
-----------------------------------------------------------------------------------
13,300 General Electric Co. 1,306,725
-----------------------------------------------------------------------------------
9,800 Giddings & Lewis Inc. 237,650
-----------------------------------------------------------------------------------
29,600 Harsco Corp. 1,165,500
-----------------------------------------------------------------------------------
20,600 Honeywell, Inc. 672,075
-----------------------------------------------------------------------------------
7,600 Keystone International, Inc. 196,650
-----------------------------------------------------------------------------------
20,400 York International 688,500
----------------------------------------------------------------------------------- --------------
Total 5,704,113
----------------------------------------------------------------------------------- --------------
CONSUMER DURABLES--1.9%
-----------------------------------------------------------------------------------
7,900 Ford Motor Co. 479,925
-----------------------------------------------------------------------------------
15,000 LADD Furniture, Inc. 146,250
-----------------------------------------------------------------------------------
14,400 Stanley Works 563,400
----------------------------------------------------------------------------------- --------------
Total 1,189,575
----------------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES--26.6%
-----------------------------------------------------------------------------------
32,000 Abbott Laboratories 936,000
-----------------------------------------------------------------------------------
6,300 American Brands, Inc. 216,562
-----------------------------------------------------------------------------------
5,800 American Cyanamid Co. 304,500
-----------------------------------------------------------------------------------
9,100 American Home Products Co. 569,888
-----------------------------------------------------------------------------------
2,500 Avon Products, Inc. 124,688
-----------------------------------------------------------------------------------
1,700 Baxter International, Inc. 39,950
-----------------------------------------------------------------------------------
6,100 Becton, Dickinson & Co. 207,400
-----------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- ----------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--CONTINUED
-----------------------------------------------------------------------------------
27,500 Bergen Brunswig Corp. Cl. A $ 495,000
-----------------------------------------------------------------------------------
4,900 Borden, Inc. 83,912
-----------------------------------------------------------------------------------
13,900 Bristol-Myers Squibb Co. 832,263
-----------------------------------------------------------------------------------
5,600 Brown-Forman Corp. Cl. A 401,800
-----------------------------------------------------------------------------------
4,800 Brown-Forman Corp. Cl. B 362,400
-----------------------------------------------------------------------------------
5,300 Circuit City Stores, Inc. 134,487
-----------------------------------------------------------------------------------
18,350 Columbia Healthcare Corp. 532,150
-----------------------------------------------------------------------------------
1,100 Donnelley (R.R.) & Sons, Co. 31,625
-----------------------------------------------------------------------------------
5,400 Dow Jones & Co. 193,725
-----------------------------------------------------------------------------------
10,735 Dun & Bradstreet Corp. 669,596
-----------------------------------------------------------------------------------
17,000 Fruit of the Loom, Inc. 561,000
-----------------------------------------------------------------------------------
4,400 IBP Inc. 110,550
-----------------------------------------------------------------------------------
32,000 *International Dairy Queen Inc., Cl. A 536,000
-----------------------------------------------------------------------------------
30,700 Lee Enterprises, Inc. 955,537
-----------------------------------------------------------------------------------
6,800 Lilly (Eli) & Co. 390,150
-----------------------------------------------------------------------------------
24,100 Limited Inc. 548,275
-----------------------------------------------------------------------------------
12,500 Loews Corp. 1,156,250
-----------------------------------------------------------------------------------
19,500 Melville Corp. 799,500
-----------------------------------------------------------------------------------
9,100 Merck & Co. 311,675
-----------------------------------------------------------------------------------
10,300 Nike, Inc. Cl. B 493,112
-----------------------------------------------------------------------------------
17,700 PepsiCo, Inc. 712,425
-----------------------------------------------------------------------------------
2,500 Pfizer, Inc. 166,250
-----------------------------------------------------------------------------------
17,300 Philip Morris Cos., Inc. 966,638
-----------------------------------------------------------------------------------
6,800 Russell Corp. 189,550
-----------------------------------------------------------------------------------
3,000 Sears, Roebuck & Co. 163,125
-----------------------------------------------------------------------------------
1,600 Service Corp., International 39,200
-----------------------------------------------------------------------------------
6,000 Stanhome, Inc. 199,500
-----------------------------------------------------------------------------------
12,700 Surgical Care Affiliates 230,188
-----------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- ----------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--CONTINUED
-----------------------------------------------------------------------------------
3,300 *Telecommunications, Inc. Cl. A $ 99,412
-----------------------------------------------------------------------------------
2,900 *Toys R Us Inc. 118,175
-----------------------------------------------------------------------------------
32,100 Unifi, Inc. 798,487
-----------------------------------------------------------------------------------
2,400 Unilever N.V. 269,100
-----------------------------------------------------------------------------------
13,600 UST, Inc. 365,500
-----------------------------------------------------------------------------------
4,700 Upjohn Co. 146,875
----------------------------------------------------------------------------------- --------------
Total 16,462,420
----------------------------------------------------------------------------------- --------------
ENERGY--10.8%
-----------------------------------------------------------------------------------
20,000 Amoco Corp. 1,067,500
-----------------------------------------------------------------------------------
15,000 Baker Hughes, Inc. 298,125
-----------------------------------------------------------------------------------
8,100 Coastal Corp. 217,687
-----------------------------------------------------------------------------------
8,000 Dresser Industries, Inc. 156,000
-----------------------------------------------------------------------------------
14,000 Exxon Corp. 878,500
-----------------------------------------------------------------------------------
17,100 MAPCO, Inc. 1,034,550
-----------------------------------------------------------------------------------
16,700 Phillips Petroleum Co. 475,950
-----------------------------------------------------------------------------------
15,700 Royal Dutch Petroleum Co. 1,585,700
-----------------------------------------------------------------------------------
13,400 Schlumberger, Ltd. 770,500
-----------------------------------------------------------------------------------
8,000 Unocal Corp. 217,000
----------------------------------------------------------------------------------- --------------
Total 6,701,512
----------------------------------------------------------------------------------- --------------
FINANCE--8.1%
-----------------------------------------------------------------------------------
33,800 American Express Co. 1,060,475
-----------------------------------------------------------------------------------
7,750 American International Group, Inc. 667,469
-----------------------------------------------------------------------------------
12,700 Federal Home Loan Mortgage Corp. 609,600
-----------------------------------------------------------------------------------
12,300 Federal National Mortgage Association 928,650
-----------------------------------------------------------------------------------
4,000 First Financial Management Corp. 219,000
-----------------------------------------------------------------------------------
12,200 Salomon, Inc. 555,100
-----------------------------------------------------------------------------------
17,400 SunTrust Banks, Inc. 763,425
-----------------------------------------------------------------------------------
1,600 Unitrin Inc. 66,400
-----------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- ----------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
-----------------------------------------------------------------------------------
1,300 Wells Fargo & Co. $ 153,075
----------------------------------------------------------------------------------- --------------
Total 5,023,194
----------------------------------------------------------------------------------- --------------
MATERIALS & SERVICES--11.8%
-----------------------------------------------------------------------------------
8,700 Aluminum Company of America 602,475
-----------------------------------------------------------------------------------
19,500 Crane Co. 519,187
-----------------------------------------------------------------------------------
2,900 Dow Chemical Co. 168,563
-----------------------------------------------------------------------------------
20,000 Equifax, Inc. 482,500
-----------------------------------------------------------------------------------
26,000 FMC Corp. 1,199,250
-----------------------------------------------------------------------------------
45,000 Hanson PLC 945,000
-----------------------------------------------------------------------------------
6,400 International Paper Co. 427,200
-----------------------------------------------------------------------------------
14,100 Monsanto Co. 958,800
-----------------------------------------------------------------------------------
11,000 NCH Corp. 578,875
-----------------------------------------------------------------------------------
59,900 Praxair, Inc. 965,887
-----------------------------------------------------------------------------------
14,300 Sonoco Products Co. 305,663
-----------------------------------------------------------------------------------
4,400 Tyco International, Ltd. 209,000
----------------------------------------------------------------------------------- --------------
Total 7,362,400
----------------------------------------------------------------------------------- --------------
TECHNOLOGY--12.5%
-----------------------------------------------------------------------------------
12,000 American Telephone & Telegraph, Inc. 655,500
-----------------------------------------------------------------------------------
9,100 Avnet, Inc. 329,875
-----------------------------------------------------------------------------------
23,100 Boeing Co. 892,238
-----------------------------------------------------------------------------------
3,700 *Cisco Systems, Inc. 208,125
-----------------------------------------------------------------------------------
3,200 *Computer Sciences Corp. 314,000
-----------------------------------------------------------------------------------
3,800 *Cray Research Inc. 100,700
-----------------------------------------------------------------------------------
32,300 *Digital Equipment Corp. 1,191,062
-----------------------------------------------------------------------------------
4,000 Ericsson (LM) Tel Co. Cl. B 158,000
-----------------------------------------------------------------------------------
8,500 General Motors Corp. Cl. B 243,313
-----------------------------------------------------------------------------------
7,900 Hewlett-Packard Co. 582,625
-----------------------------------------------------------------------------------
6,900 International Business Machines, Inc. 371,738
-----------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- ----------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
-----------------------------------------------------------------------------------
20,300 MCI Communications Corp. $ 494,812
-----------------------------------------------------------------------------------
5,850 *Microsoft Corp. 468,000
-----------------------------------------------------------------------------------
8,800 *Novell, Inc. 206,800
-----------------------------------------------------------------------------------
10,000 Raytheon Co. 612,500
-----------------------------------------------------------------------------------
10,100 Xerox Corp. 833,250
-----------------------------------------------------------------------------------
1,000 *Zebra Technologies Corp. Cl. A 57,250
----------------------------------------------------------------------------------- --------------
Total 7,719,788
----------------------------------------------------------------------------------- --------------
TRANSPORTATION--1.3%
-----------------------------------------------------------------------------------
10,800 Delta Air Lines, Inc. 626,400
-----------------------------------------------------------------------------------
5,400 Ryder System, Inc. 157,950
----------------------------------------------------------------------------------- --------------
Total 784,350
----------------------------------------------------------------------------------- --------------
UTILITIES--6.6%
-----------------------------------------------------------------------------------
4,200 ALLTEL Corp. 108,150
-----------------------------------------------------------------------------------
15,400 BellSouth Corp. 879,725
-----------------------------------------------------------------------------------
34,300 GTE Corp. 1,273,388
-----------------------------------------------------------------------------------
6,500 NYNEX Corp. 277,062
-----------------------------------------------------------------------------------
15,000 Pacific Telesis Group 851,250
-----------------------------------------------------------------------------------
5,800 Scana Corp. 283,475
-----------------------------------------------------------------------------------
7,800 SCE Corp. 158,925
-----------------------------------------------------------------------------------
5,400 U.S. West, Inc. 252,450
----------------------------------------------------------------------------------- --------------
Total 4,084,425
----------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $53,921,188) 55,031,777
----------------------------------------------------------------------------------- --------------
</TABLE>
BILTMORE EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ----------------------------------------------------------------------------------- --------------
**REPURCHASE AGREEMENT--10.2%
- --------------------------------------------------------------------------------------------------
$ 6,347,436 PaineWebber, Inc., 3.20%, dated 11/30/93, due 12/01/93 (Note 2B) $ 6,347,436
----------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $60,268,624) $ 61,379,213\
----------------------------------------------------------------------------------- --------------
</TABLE>
_*_ Non-income producing securities.
** 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 of investments for federal tax purposes amounts to $60,310,680. The
net unrealized appreciation of investments on a federal tax cost basis amounts
to $1,068,533, which is comprised of $2,667,168 appreciation and $1,598,635
depreciation at November 30, 1993.
Note: The categories of investments are shown as a percentage of net assets
($61,997,239) at
November 30, 1993.
(See Notes which are an integral part of the Financial Statements)
BILTMORE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investment in repurchase agreement at amortized cost (Note 2B) $ 6,347,436
- ---------------------------------------------------------------------------------
Investments in other securities, at value 55,031,777
- --------------------------------------------------------------------------------- --------------
Total investments, at amortized cost and value (Note 2A)
(identified cost $60,268,624; tax cost $60,310,680) $ 61,379,213
- -------------------------------------------------------------------------------------------------
Receivable for investments sold 577,496
- -------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 396,938
- -------------------------------------------------------------------------------------------------
Dividends and interest receivable 180,326
- -------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 20,487
- ------------------------------------------------------------------------------------------------- --------------
Total assets 62,554,460
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Payable for investments purchased 503,412
- ---------------------------------------------------------------------------------
Accrued expenses and other liabilities 53,809
- --------------------------------------------------------------------------------- --------------
Total liabilities 557,221
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 6,031,010 shares of beneficial interest outstanding $ 61,997,239
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid-in capital $ 60,235,990
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,110,589
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 431,177
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 219,483
- ------------------------------------------------------------------------------------------------- --------------
Total $ 61,997,239
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE and Redemption Price Per Share:
(net assets of $61,997,239 / 6,031,010 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $10.28
- ------------------------------------------------------------------------------------------------- --------------
COMPUTATION OF OFFERING PRICE:
Offering Price Per Share (100/95.5 of $10.28)* $10.76
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
* On sales of $100,000 or more, the offering price is reduced as stated under
"What Shares Cost" on page 13.
(See Notes which are an integral part of the Financial Statements)
BILTMORE EQUITY FUND
STATEMENT OF OPERATIONS
PERIOD ENDED NOVEMBER 30, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Dividends $ 894,381
- --------------------------------------------------------------------------------------------------
Interest 149,141
- -------------------------------------------------------------------------------------------------- -------------
Total investment income (Note 2C) 1,043,522
- --------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 244,017
- -------------------------------------------------------------------------------------
Administrative personnel and services fee (Note 5) 75,000
- -------------------------------------------------------------------------------------
Trustees' fees 4,750
- -------------------------------------------------------------------------------------
Custodian fees (Note 5) 7,006
- -------------------------------------------------------------------------------------
Recordkeeper fees (Note 5) 26,059
- -------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 5) 11,166
- -------------------------------------------------------------------------------------
Legal fees 7,779
- -------------------------------------------------------------------------------------
Printing and postage 7,382
- -------------------------------------------------------------------------------------
Insurance premiums 7,035
- -------------------------------------------------------------------------------------
Miscellaneous 6,376
- ------------------------------------------------------------------------------------- -----------
Total expenses 396,570
- -------------------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 34,860
- --------------------------------------------------------------------------
Waiver of administrative personnel and services fee (Note 5) 32,208
- --------------------------------------------------------------------------
Waiver of custodian fees (Note 5) 7,006
- --------------------------------------------------------------------------
Reimbursement of other operating expenses
by Administrator (Note 5) 37,225 111,299
- -------------------------------------------------------------------------- --------- -----------
Net expenses 285,271
- -------------------------------------------------------------------------------------------------- -------------
Net investment income 758,251
- -------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------
Net realized gain on investment transactions (identified cost basis) 431,177
- --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 1,110,589
- -------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain on investments 1,541,766
- -------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 2,300,017
- -------------------------------------------------------------------------------------------------- -------------
</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 EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1993*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------------------------
Net investment income $ 758,251
- ---------------------------------------------------------------------------------------------
Net realized gain on investment transactions ($473,233 net gain, as computed for federal tax
purposes) (Note 2D) 431,177
- ---------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 1,110,589
- --------------------------------------------------------------------------------------------- -------------------
Change in net assets resulting from operations 2,300,017
- --------------------------------------------------------------------------------------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (538,768)
- --------------------------------------------------------------------------------------------- -------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ---------------------------------------------------------------------------------------------
Net proceeds from sale of shares 75,870,874
- ---------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive payment of dividends in
Fund shares 538,767
- ---------------------------------------------------------------------------------------------
Cost of shares redeemed (16,173,651)
- --------------------------------------------------------------------------------------------- -------------------
Change in net assets from Fund share transactions 60,235,990
- --------------------------------------------------------------------------------------------- -------------------
Change in net assets 61,997,239
- ---------------------------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------------------------
Beginning of period --
- --------------------------------------------------------------------------------------------- -------------------
End of period (including undistributed net investment income of $219,483) $ 61,997,239
- --------------------------------------------------------------------------------------------- -------------------
</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 EQUITY 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 Biltmore Equity
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 of the Trust 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 for which there were no sales, 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 at the mean between the
bid and asked prices provided by an independent pricing service.
Short-term obligations are 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 Board of Trustees ("Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the 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 net 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,
1993*
<S> <C>
- ----------------------------------------------------------------------------------------------- -----------------
Shares outstanding, beginning of period --
- -----------------------------------------------------------------------------------------------
Shares sold 7,567,265
- -----------------------------------------------------------------------------------------------
Shares redeemed (1,589,106)
- -----------------------------------------------------------------------------------------------
Shares issued to shareholders electing to receive payment
of dividends in Fund shares 52,851
- ----------------------------------------------------------------------------------------------- -----------------
Shares outstanding, end of period 6,031,010
- ----------------------------------------------------------------------------------------------- -----------------
</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"),
is entitled to receive 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. The Adviser can terminate any voluntary waiver of its fees or
reimbursement of expenses at any time at its sole discretion. For the period
ended November 30, 1993, the Adviser earned an investment advisory fee of
$244,017, of which $34,860 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. FAS can modify or terminate the voluntary waiver and reimbursement
at any time at its sole discretion. For the period ended November 30, 1993, FAS
earned an administrative fee of $75,000, of which $32,208 was voluntarily
waived. In addition, FAS reimbursed $37,225 of other operating expenses.
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 and dividend disbursing agent
for the Fund. It also provides certain accounting and recordkeeper services with
respect to the Fund's portfolio of investments. FSC may voluntarily waive a
portion of its fees. FSC can modify or terminate the voluntary
waiver at any time at its sole discretion. For the period ended November 30,
1993, FSC earned recordkeeper fees of $26,059 and transfer and dividend
disbursing agent fees of $11,166.
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 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 $7,006, all of
which was voluntarily waived.
Certain Officers of the Trust are also Officers and Directors of FAS and FSC.
(6) INVESTMENT TRANSACTIONS
Purchase, 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 $ 81,339,016
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 27,588,716
- -------------------------------------------------------------------------------------------------- --------------
</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 Equity 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 Equity 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 Equity 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 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
3012914A (1/94)
BILTMORE EQUITY FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Biltmore Equity 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 OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
Futures and Options Transactions 1
Restricted and Illiquid Securities 3
Obligations of Foreign Issuers 3
Demand Master Notes 3
Zero Coupon Convertible Securities 3
Repurchase Agreements 3
Reverse Repurchase Agreements 3
When-Issued and Delayed Delivery Transactions 4
Temporary Investments 4
Lending of Portfolio Securities 4
Investment Limitations 5
THE BILTMORE FUNDS MANAGEMENT 7
- ---------------------------------------------------------------
Officers and Trustees 7
Fund Ownership 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
- ---------------------------------------------------------------
Adviser to the Fund 8
Advisory Fees 8
ADMINISTRATIVE SERVICES 9
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 9
- ---------------------------------------------------------------
Portfolio Turnover 9
PURCHASING FUND SHARES 10
- ---------------------------------------------------------------
Conversion to Federal Funds 10
DETERMINING NET ASSET VALUE 10
- ---------------------------------------------------------------
DETERMINING MARKET VALUE OF SECURITIES 10
- ---------------------------------------------------------------
REDEEMING FUND SHARES 10
- ---------------------------------------------------------------
Redemption in Kind 10
TAX STATUS 11
- ---------------------------------------------------------------
The Fund's Tax Status 11
Shareholders' Tax Status 11
Capital Gains 11
TOTAL RETURN 11
- ---------------------------------------------------------------
YIELD 11
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 11
- ---------------------------------------------------------------
APPENDIX 13
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in The Biltmore Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust dated
November 19, 1991.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide growth of principal and income.
The investment objective cannot be changed without the approval of shareholders.
Unless otherwise indicated, the investment policies described below may be
changed by the Board of Trustees (the "Trustees") without shareholder approval.
Shareholders will be notified before any material change in these policies
becomes effective.
TYPES OF INVESTMENTS
The Fund invests primarily in a professionally-managed and diversified portfolio
of common stocks of companies with an established market. The Fund's investment
adviser seeks to identify undervalued stocks with improving prospects by
integrating two disciplines to capture both growth and value opportunities.
Although the Fund may invest in other securities of these companies, in money
market instruments, and in U.S. government obligations in such proportions as
prevailing market conditions warrant in the judgment of the Fund's investment
adviser, it is the Fund's policy under normal market conditions to invest at
least 65% of its total assets in equity securities.
Set forth below are other securities in which the Fund may invest from time to
time:
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
listed put options on futures contracts, and writing call options on futures
contracts. The Fund may also write covered call options on portfolio securities
to attempt to increase its current income.
The Fund will maintain its positions 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 contracts may be closed out
over-the-counter or on a nationally-recognized exchange which provides a
secondary market for options of the same series.
In addition to purchasing put options and writing call options as described in
the prospectus, the Fund may purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the buyers or writers of
the options when options on the portfolio securities held by the Fund are not
traded on an exchange. The Fund purchases and writes options only with
investment dealers and other financial institutions (such as commercial banks or
savings and loan associations) deemed creditworthy by the Fund's investment
adviser.
Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not.
The Fund may also write call options and purchase put options on financial
futures and stock index futures contracts as a hedge to attempt to protect
securities in its portfolio against decreases in value.
FINANCIAL FUTURES CONTRACTS
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.
A stock index futures contract is a bilateral agreement which obligates
the seller to deliver (and the purchaser to take delivery of) an amount
of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of trading of the
contract and the price at which the agreement is originally made. There
is no physical delivery of the stocks constituting the index, and no
price is paid upon entering into a futures contract. In general,
contracts are closed out prior to their expiration.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts.
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 futures contracts to hedge its portfolio. 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 stock prices fall, causing the
prices of futures to go down, 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 fixed income or
indexed portfolio which is occurring as interest rates rise.
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
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.
"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 option 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.
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 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.
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 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.
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.
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.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject to
repurchase agreements, and these securities are 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 investment
adviser to be creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are 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 assets are marked to market daily and
are maintained until the transaction has been settled.
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, and 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 the securities
to be purchased are segregated on the Fund's records 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 total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are
backed by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which are permissible
investments which may not always receive financial support from the U.S.
government are:
Federal Farm Credit Banks;
Federal Home Loan Banks;
Federal National Mortgage Association;
Student Loan Marketing Association; and
Federal Home Loan Mortgage Corporation.
MONEY MARKET INSTRUMENTS
The Fund may invest in the following money market instruments:
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 insured in full by the Bank
Insurance Fund, or by the Savings Association Insurance Fund, both of
which are administered by the Federal Deposit Insurance Corporation; and
commercial paper rated A-1 or better by Standard and Poor's Corporation,
Prime-1 by Moody's Investors Service, Inc., or F-1 by Fitch Investors
Services, or, if unrated, of comparable quality as determined by the
Fund's investment adviser.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans
are subject to termination at the option of the Fund or the borrower. The Fund
may pay reasonable administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not
always 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.
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 portfolio securities, and writing covered call options, but
may obtain such short-term credits as are necessary for the clearance of
transactions.
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.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its net 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 securities while borrowings in excess of 5% of the value
of the Fund's total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, the Fund may mortgage,
pledge or hypothecate assets to secure such borrowings having a market
value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of total assets at the time of the borrowing. For purposes of
this limitation, the following are not deemed to be pledges: margin
deposits for the purchase and sale of futures contracts and related
options and segregation or collateral arrangements made in connection
with options activities or the purchase of securities on a when-issued
basis.
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.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts. However, the Fund may purchase put options
on stock index futures, put options on financial futures, stock index
futures contracts, and put options on portfolio securities, and may write
covered call options.
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.
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 the Fund's 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 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.
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, demand
master notes, bonds, debentures, notes, certificates of indebtedness, or
other debt securities, entering into repurchase agreements, or engaging
in other transactions where permitted by the Fund's investment objective,
policies, and limitations.
The above investment limitations cannot be changed without shareholder approval.
The following investment 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 customary brokers commissions. However, these limitations are
not applicable if the securities are acquired in a merger, consolidation,
reorganization, or acquisition of assets. While it is the Fund's policy
to waive its investment advisory fees on Fund 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 agent 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 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 its net assets in illiquid
securities, including repurchase agreements providing for settlement in
more than seven days after notice, over-the-counter options, certain
securities not determined under guidelines established by the Trustees to
be liquid, and non-negotiable fixed income time deposits with maturities
over seven days.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except that the Fund 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 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 option positions.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for purposes of
exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its net 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 the New York or American Stock
Exchange to 2% of its net 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 with or attached to securities may be deemed to be without value.
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.
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
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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
NAME THE TRUST PRINCIPAL OCCUPATIONS 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 for 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 shareholder 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 3,969,740.66 shares (28.52%).
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
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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) to November
30, 1993, the Adviser earned $244,017, of which $34,860 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.
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) to November 30, 1993, FAS earned $75,000, of which $32,208
was voluntarily waived. In addition, FAS reimbursed $37,225 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.
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.
For the period from May 10, 1993 (date of initial public investment) to November
30, 1993, the Fund paid $125,447 in commissions on brokerage transactions.
As of November 30, 1993, the Fund owned $1,306,725, $1,060,475, and $555,100 of
securities of General Electric, American Express, and Salomon, Inc. common
stock, respectively, several of the Fund's regular broker/dealers that derive
more than 15% of gross revenues from securities-related activities.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. Securities in its portfolio will be sold
whenever the 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. The Adviser does not anticipate that the Fund's annual
portfolio turnover rate will exceed 60% under normal market conditions.
Transactions for the Fund's portfolio will be based only upon investment
considerations and will not be limited by any other considerations when the
Adviser deems it appropriate to make changes in the Fund's portfolio.
For the period from May 10, 1993 (date of initial public investment) through
November 30, 1993, the Fund's portfolio turnover rate was 50%. 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."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. The Wachovia Banks act as the
shareholders' agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
- --------------------------------------------------------------------------------
The market value of the Fund's portfolio securities are determined as follows:
for equity securities, according to the last sale price on a national securities
exchange, if available;
in the absence of recorded sales for listed equity securities, according to the
mean between the last closing bid and asked prices;
for unlisted equity securities, the latest bid prices;
for bonds and other fixed income securities, as determined by an independent
pricing service;
for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service; or
for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
option trading on such exchanges, unless the Trustees determine in good faith
that another method of valuing option positions is necessary.
REDEEMING FUND SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940, which obligates the Fund to redeem shares for any one shareholder
in cash only up to the lesser of $250,000 or 1% of the Fund's net asset value
during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund expects to pay no federal income tax because it intends to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. The dividends received deduction for corporations will apply
to ordinary income distributions to the extent the distribution represents
amounts that would qualify for the dividends received deduction to the Fund if
the Fund were a regular corporation, and to the extent designated by the Fund as
so qualifying. These dividends, and any short-term capital gains, are taxable as
ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as long-term
capital gains regardless of how long shareholders have held shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's cumulative total return from May 10, 1993 (date of initial public
investment) to November 30, 1993 was (0.98%). Cumulative total return reflects
the Fund's total performance over a specified period of time. This total return
assumes and is reduced by the payment of the maximum sales load.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the reinvestment of all
dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for the thirty-day period ended November 30, 1993 was 1.68%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month period
and is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments required by
the Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
stock market fluctuations;
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in the Fund's expenses;
the relative amount of Fund cash flow; and
various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indicies which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in maximum offering price over a specific period of
time.
DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for the
stock market as a whole.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (THE "S&P
INDEX"), is a composite index of common stocks in industry, transportation, and
financial and public utility companies. In addition, the S&P Index assumes
reinvestment of all dividends paid by stocks listed on the S&P Index. Taxes due
on any of these distributions are not included, nor are brokerage or other fees
calculated in the S&P Index figures.
_MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
quarterly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. S&P may apply a plus (+) or
minus (-) to the above rating classifications to show relative standing within
the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that Fitch does not rate the specific issue.
STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus (+) sign.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior
capacity for repayment of senior short-term promissory obligations. P-1
repayment capacity will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; or
well-established access to a range of financial markets and assured sources of
alternate liquidity.
P-2--Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
capacity for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issuers assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
3012914B (1/94)
BILTMORE EQUITY INDEX FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
PROSPECTUS
The shares of Biltmore Equity Index Fund (the "Fund") offered by this prospectus
represent interests in a diversified portfolio of securities, which is one of a
series of investment portfolios in The Biltmore Funds (the "Trust"), an open-end
management investment company (a mutual fund).
The investment objective of the Fund is to provide a total return that
approximates that of the stock market as measured by the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500 Index"). The Fund seeks to achieve its
investment objective by investing in a broadly diversified portfolio of common
stocks that comprise the S&P 500 Index. The Fund is neither affiliated with nor
sponsored by the Standard & Poor's Corporation.
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 shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for its shares
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 5
U.S. Government Securities 5
Variable Rate U.S. Government
Securities 5
Money Market Instruments 5
Repurchase Agreements 5
Stock Index Futures and Options 5
Index Participation Contracts 6
Lending of Portfolio Securities 7
Restricted and Illiquid Securities 7
Investment Considerations 7
Investment Limitations 7
THE BILTMORE FUNDS INFORMATION 8
- ------------------------------------------------------
Management of the Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Shares 8
Administrative Arrangements 9
Shareholder Servicing Arrangements 9
Administration of the Fund 9
Administrative Services 9
Custodian 9
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 10
Legal Services 10
Independent Auditors 10
Brokerage Transactions 10
Expenses of the Fund 10
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN THE FUND 11
- ------------------------------------------------------
Share Purchases 11
Through Wachovia Brokerage
Service 11
By Mail 11
By Wire 11
Through the Trust Divisions of the
Wachovia Banks 11
Minimum Investment Required 12
What Shares Cost 12
Purchases at Net Asset Value 12
Sales Charge Reallowance 13
Reducing the Sales Charge 13
Quantity Discounts and Accumulated
Purchases 13
Letter of Intent 13
Reinvestment Privilege 14
Concurrent Purchases 14
Systematic Investment Program 14
Exchanging Securities for Fund Shares 14
Certificates and Confirmations 15
Dividends 15
Capital Gains 15
Exchange Privilege 15
Exchange by Telephone 16
REDEEMING SHARES 16
- ------------------------------------------------------
By Telephone 16
By Mail 17
Signatures 17
Systematic Withdrawal Program 17
Accounts with Low Balances 18
SHAREHOLDER INFORMATION 18
- ------------------------------------------------------
Voting Rights 18
Massachusetts Business Trusts 18
EFFECT OF BANKING LAWS 19
- ------------------------------------------------------
TAX INFORMATION 19
- ------------------------------------------------------
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
STANDARD & POOR'S CORPORATION 20
- ------------------------------------------------------
FINANCIAL STATEMENTS 21
- ------------------------------------------------------
REPORT OF ERNST & YOUNG, INDEPENDENT
AUDITORS 46
- ------------------------------------------------------
ADDRESSES 47
- ------------------------------------------------------
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)............................................................................ 0.25%
12b-1 Fees................................................................................................... None
Other Expenses............................................................................................... 0.23%
Shareholder Servicing Agent Fee (2)............................................................. 0.00%
Total Fund Operating Expenses (after waiver) (3)............................................................. 0.48%
</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 0.30%.
(2) As of the date of this prospectus, the Fund is not paying or accruing
shareholder servicing agent fees. The Fund will not pay or accrue
shareholder servicing agent fees until a separate class of shares has been
created for certain trust and institutional investors, 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 0.43% 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 estimated to be 0.53% absent the voluntary
waiver by the investment adviser.
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................................................................................ $50 $60
</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 EQUITY INDEX FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
46.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1993*
<S> <C>
- ---------------------------------------------------------------------------------------- ------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.15
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and futures contracts 0.43
--------
- ----------------------------------------------------------------------------------------
Total from investment operations 0.58
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.11)
- ---------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 10.47
- ---------------------------------------------------------------------------------------- --------
TOTAL RETURN** 5.80%
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 0.43%(a)
- ----------------------------------------------------------------------------------------
Net investment income 2.54%(a)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.12%(a)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $149,266
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 9%
- ----------------------------------------------------------------------------------------
</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) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expenses and net investment
income ratios shown above (Note 5).
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 Equity Index Fund. The shares in any one portfolio may
be offered in separate classes. As of the date of this prospectus, the Board of
Trustees (the "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 investing primarily in common stocks. 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 Balanced Fund, Biltmore Equity
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 to provide a total return that
approximates that of the stock market as measured by the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500 Index"). While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus. The investment
objective cannot be changed without approval of shareholders. Unless indicated
otherwise, the investment policies 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
The Fund pursues its investment objective by investing in a broadly diversified
portfolio of common stocks that make up the S&P 500 Index. The Fund will
normally seek to be invested in all the stocks that comprise the S&P 500 Index.
The Fund will attempt to achieve a correlation between the performance of its
portfolio and that of the S&P 500 Index of at least 0.95 of 1% or better; a
figure of 1.00 would represent perfect correlation. Under normal circumstances,
at least 95% of the value of the Fund's total assets will be invested in stocks
represented in the S&P 500 Index. However, the Fund is
not required to sell securities if the 95% investment level changes due to
increases or decreases in the market value of portfolio securities.
The S&P 500 Index consists of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. The Standard & Poor's Corporation ("S&P")
designates the stocks to be included in the S&P 500 Index on a statistical
basis. A particular stock's weighting in the S&P 500 Index is based on its
relative total market value; that is, its market price per share times the
number of shares outstanding. From time to time, S&P may add or delete stocks
from the S&P 500 Index. Inclusion of a particular stock in the S&P 500 Index in
no way implies an opinion by S&P as to its investment attractiveness. The Fund
utilizes the S&P 500 Index as the standard performance benchmark because it
represents approximately 70% of the total market value of all common stocks. In
addition, it is familiar to investors, and is recognized as a barometer of
common stock investment returns.
The Fund will be managed passively, in the sense that the traditional management
functions of economic, financial, and market analysis will be limited to the
extent that the Fund seeks to duplicate the composition of the S&P 500 Index.
Furthermore, a company's adverse financial circumstance will not require its
elimination from the Fund's portfolio, unless the company's stock is removed
from the S&P 500 Index by S&P. The Fund is managed by utilizing a computer
program that identifies which stocks should be purchased or sold in order to
approximate, as much as possible, the investment return of the securities that
comprise the S&P 500 Index. The Fund will select a stock for purchase into its
investment portfolio based on the stock's inclusion and weighting in the S&P 500
Index, starting with the heaviest-weighted stock. Thus, the proportion of Fund
assets invested in any one stock comprising the S&P 500 Index may not be
identical to the percentage the particular stock represents in the S&P 500
Index.
On occasion, so as to respond to changes in the S&P 500 Index's composition, as
well as corporate mergers, tender offers, and other circumstances, additional
adjustments will be made in the Fund's portfolio. However, it is anticipated
that these adjustments will occur infrequently, and the costs will be minimized.
As a result, portfolio turnover is expected to be well below that encountered in
other investment company portfolios. Therefore, the accompanying costs,
including accounting costs, brokerage fees, custodial expenses, and transfer
taxes, are expected to be relatively low. While the cash flows into and out of
the Fund will impact the Fund's portfolio turnover rate and the Fund's ability
to duplicate the composition of the S&P 500 Index and approximate its
performance, investment adjustments will be made, as practicably as possible, to
account for these circumstances.
Since the Fund will seek to duplicate the S&P 500 Index's stock composition
precisely, it is anticipated that the Fund's performance will approximate the
performance of the S&P 500 Index. Factors such as the size of the Fund's
portfolio, the size and timing of cash flows into and out of the Fund, changes
in the securities markets and the S&P 500 Index itself, and the normal costs of
a mutual fund (such as brokerage and execution costs, advisory fees, and
administrative and custodial costs and expenses) will account for the difference
between the performances of the Fund and the S&P 500 Index.
In order to accommodate cash flows and maintain adequate liquidity to meet
redemption requests, the Fund may enter into stock index futures contracts,
options, options on futures contracts, and index participation interests. This
will allow the Fund to simultaneously maximize the level of the Fund assets that
are tracking the performance of the S&P 500 Index. The Fund can sell futures
contracts and options
in order to close out a previously established position. The Fund will not enter
into any stock index futures contract for the purpose of speculation.
ACCEPTABLE INVESTMENTS. The Fund will invest in common stocks comprising the
S&P 500 Index, as described above. In addition, the Fund may hold cash reserves
which may be invested in, but not limited to, the following:
U.S. GOVERNMENT SECURITIES. The Fund is permitted to invest in U.S.
government securities which 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, the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation, the
Federal Farm Credit System, and the Student Loan Marketing Association.
VARIABLE RATE U.S. GOVERNMENT SECURITIES. Some of the short-term U.S.
government securities the Fund may purchase carry variable interest rates.
These securities have a rate of interest subject to adjustment at least
annually. This adjusted interest rate is ordinarily tied to some objective
standard, such as the 91-day U.S. Treasury bill rate.
MONEY MARKET INSTRUMENTS. The Trust may invest in:
commercial paper rated, at the time of purchase, at least P-1, A-1 or F-1
by S&P, Moody's Investors Service, Inc., or Fitch Investors Service,
Inc., respectively, or, if unrated, of comparable quality as determined
by the Fund's investment adviser; and
instruments of domestic banks and savings and loans (such as certificates
of deposit, demand and time deposits, savings shares, bankers'
acceptances and other instruments of domestic banks and other deposit
institutions).
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.
STOCK INDEX FUTURES AND OPTIONS. The Fund may utilize stock index futures
contracts, options, and options on futures contracts, subject to the limitation
that the value of these futures contracts and options will not exceed 20% of the
Fund's total assets. These contracts and options will serve three purposes.
First, the contracts, some of which require a small margin, will allow the Fund
to maintain sufficient liquidity to meet redemption requests, thereby handling
cash flows into and out of the Fund. In addition, the contracts will increase
the level of Fund assets that may be devoted to approximating the investment
return of the S&P 500 Index. Third, participation in futures contracts could
potentially
reduce transaction costs, since transaction costs associated with futures and
options contracts can be lower than costs stemming from direct investments in
stocks.
There are several risks accompanying the utilization of futures contracts to
effectively anticipate market movements. First, positions in futures contracts
may be closed only on an exchange or board of trade that furnishes a secondary
market for such contracts. While the Fund plans to utilize futures contracts
only if there exists an active market for such contracts, there is no guarantee
that a liquid market will exist for the contracts at a specified time.
Furthermore, because, by definition, futures contracts look to projected price
levels in the future, and not to current levels of valuation, market
circumstances may result in there being a discrepancy between the price of the
stock index future and the movement in the corresponding stock index. The
absence of a perfect price correlation between the futures contract and its
underlying stock index could stem from investors choosing to close futures
contracts by offsetting transactions, rather than satisfying additional margin
requirements. This could result in a distortion of the relationship between the
index and futures market. In addition, because the futures market imposes less
burdensome margin requirements than the securities market, an increased amount
of participation by speculators in the futures market could result in price
fluctuations.
The effective use of futures and options as hedging techniques 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. Please refer to the Statement of Additional Information
for a further discussion of futures and options transactions.
In view of these considerations, 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.
INDEX PARTICIPATION CONTRACTS. In addition to investing in stock index futures
contracts, options and options on futures contracts, the Fund may also
participate in the purchasing and selling of index participation contracts based
on the S&P 500 Index. The Fund will utilize index participation contracts to aid
in the management of cash flows into and out of the Fund and not for speculative
purposes. These contracts provide the equivalent of a position in the stocks of
the S&P 500 Index, where each stock is represented in the same proportion as it
is represented in the S&P 500 Index. Unlike futures contracts, positions in
these instruments may last indefinitely, with no expiration date and will pay
dividends implied by the underlying stocks in the S&P 500 Index. Generally, the
value of an S&P 500 Index participation contract will rise and fall as the value
of the S&P 500 Index rises and falls. Index participation contracts have lower
transaction costs than those associated with the purchase and sale of individual
stocks. The Fund will invest in index participation contracts only if there
exists an active market for such contracts.
The value of these contracts, together with the value of the Fund's investment
in stock index futures contracts, options and options on futures contracts will
not exceed 20% of the Fund's total assets. The Fund's use of these investments
will be to accommodate cash flows and maintain adequate liquidity to meet
redemption requests, while simultaneously maximizing the level of Fund assets
which are tracking the performance of the S&P 500 Index.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities to broker/dealers, banks or other
institutional borrowers of securities on a short-term or long-term basis, or
both. 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 Trustees and will receive
collateral equal to at least 102% of the value of the securities loaned.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will not invest more than 15% of its net assets 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.
INVESTMENT CONSIDERATIONS
The stock investments of the Fund are subject to equity market risk, which is
the possibility that common stocks prices will fluctuate or decline over short
or even extended periods of time. The U.S. stock market tends to be cyclical,
experiencing periods when stock prices generally rise and periods when stock
prices generally decline.
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 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 U.S. government 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 .30 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.
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 Board of 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. However, the Adviser may voluntarily waive and/or reimburse some
expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
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 subisidiary of Wachovia Corporation.
BY MAIL. To purchase shares of the Fund by mail, send a check made payable
to Biltmore Equity Index 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 Equity Index 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 of 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 on Fund shares of 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 of 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 or the 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
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 Participating 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 in person, by
telephone, or by writing to your 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, Wachovia Bank of North Carolina, N.A., Winston-Salem,
North Carolina, acting in various capacities for numerous accounts, was the
owner of record of 9,019,303.3 shares (62.17%) 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. 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.
STANDARD & POOR'S CORPORATION
- --------------------------------------------------------------------------------
"Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500" and "500" are
trademarks of Standard & Poor's Corporation.
The Fund is not sponsored, endorsed, sold or promoted by, or affiliated with,
Standard & Poor's Corporation.
BILTMORE EQUITY INDEX FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--98.5%
- ------------------------------------------------------------------------------------------------
CAPITAL GOODS--4.9%
---------------------------------------------------------------------------------
742 Briggs & Stratton Corp. $ 61,029
---------------------------------------------------------------------------------
10,000 Browning-Ferris Industries, Inc. 250,000
---------------------------------------------------------------------------------
4,640 Caterpillar, Inc. 395,560
---------------------------------------------------------------------------------
300 Cincinnati Milacron Inc. 6,000
---------------------------------------------------------------------------------
500 *Clark Equipment Co. 24,563
---------------------------------------------------------------------------------
5,588 Cooper Industries, Inc. 282,892
---------------------------------------------------------------------------------
2,094 Cummins Engine Co., Inc. 98,941
---------------------------------------------------------------------------------
3,735 Deere & Co. 264,718
---------------------------------------------------------------------------------
2,311 Dover Corp. 136,927
---------------------------------------------------------------------------------
3,007 Eaton Corp. 149,974
---------------------------------------------------------------------------------
10,090 Emerson Electric Co. 570,085
---------------------------------------------------------------------------------
253 Foster Wheeler Corp. 8,475
---------------------------------------------------------------------------------
37,683 General Electric Co. 3,702,355
---------------------------------------------------------------------------------
2,225 Grainger (W.W.) Inc. 130,162
---------------------------------------------------------------------------------
7,746 Honeywell, Inc. 252,713
---------------------------------------------------------------------------------
5,344 Illinois Tool Works Inc. 202,404
---------------------------------------------------------------------------------
5,600 Ingersoll-Rand Co. 214,200
---------------------------------------------------------------------------------
1,800 PACCAR Inc. 120,600
---------------------------------------------------------------------------------
3,400 Parker-Hannifin Corp. 122,400
---------------------------------------------------------------------------------
2,611 Raychem Corp. 96,281
---------------------------------------------------------------------------------
12,700 Westinghouse Electric Corp. 177,800
---------------------------------------------------------------------------------
1,100 Zurn Industries, Inc. 30,112
--------------------------------------------------------------------------------- ---------------
Total 7,298,191
--------------------------------------------------------------------------------- ---------------
CONSUMER DURABLES--4.1%
---------------------------------------------------------------------------------
2,375 Armstrong World Industries, Inc. 108,953
---------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
CONSUMER DURABLES--CONTINUED
---------------------------------------------------------------------------------
1,000 Bassett Furniture Industries, Inc. $ 32,500
---------------------------------------------------------------------------------
1,098 Black & Decker Corp. 22,509
---------------------------------------------------------------------------------
16,077 Chrysler Corp. 848,062
---------------------------------------------------------------------------------
3,000 Cooper Tire & Rubber Co. 68,250
---------------------------------------------------------------------------------
2,631 Dana Corp. 144,047
---------------------------------------------------------------------------------
5,593 Dillard Department Stores, Inc. 230,711
---------------------------------------------------------------------------------
1,618 Echlin, Inc. 53,596
---------------------------------------------------------------------------------
22,065 Ford Motor Co. 1,340,449
---------------------------------------------------------------------------------
32,241 General Motors Corp. 1,704,743
---------------------------------------------------------------------------------
5,000 Genuine Parts Co. 187,500
---------------------------------------------------------------------------------
6,823 Goodyear Tire and Rubber Co. 303,623
---------------------------------------------------------------------------------
5,500 Maytag Corp. 88,000
---------------------------------------------------------------------------------
9,679 *McCaw Cellular Communications, Cl. A 496,049
---------------------------------------------------------------------------------
2,599 *Navistar International Corp. 65,300
---------------------------------------------------------------------------------
1,487 *Outboard Marine Corp. 28,625
---------------------------------------------------------------------------------
658 Pep Boys-Manny, Moe & Jack 16,944
---------------------------------------------------------------------------------
1,790 Pulte Corp. 66,230
---------------------------------------------------------------------------------
3,197 Stanley Works (The) 125,083
---------------------------------------------------------------------------------
300 Timken Co. 9,712
---------------------------------------------------------------------------------
415 TRINOVA Corp. 13,487
---------------------------------------------------------------------------------
3,196 Whirlpool Corp. 189,762
--------------------------------------------------------------------------------- ---------------
Total 6,144,135
--------------------------------------------------------------------------------- ---------------
CONSUMER NON-DURABLES--32.6%
---------------------------------------------------------------------------------
34,567 Abbott Laboratories, Inc. 1,011,085
---------------------------------------------------------------------------------
2,800 Alberto-Culver Co., Cl. B 60,200
---------------------------------------------------------------------------------
10,872 Albertson's, Inc. 269,082
---------------------------------------------------------------------------------
1,076 Allergan Pharmaceuticals Inc. 23,941
---------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--CONTINUED
---------------------------------------------------------------------------------
11,010 American Brands, Inc. $ 378,469
---------------------------------------------------------------------------------
4,243 American Cyanamid Company 222,757
---------------------------------------------------------------------------------
4,644 American Greetings Corp., Cl. A 143,964
---------------------------------------------------------------------------------
14,002 American Home Products Co. 876,875
---------------------------------------------------------------------------------
3,619 American Stores Co. 149,736
---------------------------------------------------------------------------------
12,315 Anheuser-Busch Companies, Inc. 609,592
---------------------------------------------------------------------------------
14,175 Archer-Daniels-Midland Co. 313,622
---------------------------------------------------------------------------------
3,312 Avon Products, Inc. 165,186
---------------------------------------------------------------------------------
1,400 Bard (C.R.), Inc. 34,125
---------------------------------------------------------------------------------
3,655 Bausch & Lomb, Inc. 190,974
---------------------------------------------------------------------------------
14,000 Baxter International, Inc. 329,000
---------------------------------------------------------------------------------
5,018 Becton, Dickinson & Co. 170,612
---------------------------------------------------------------------------------
6,800 Block (H&R), Inc. 260,950
---------------------------------------------------------------------------------
8,213 Blockbuster Entertainment Corp. 274,109
---------------------------------------------------------------------------------
3,600 Borden, Inc. 61,650
---------------------------------------------------------------------------------
22,906 Bristol-Myers Squibb Co. 1,371,497
---------------------------------------------------------------------------------
1,262 Brown-Forman Corp., Cl. B 95,281
---------------------------------------------------------------------------------
8,600 Brunswick Corp. 146,200
---------------------------------------------------------------------------------
707 CBS, Inc. 217,933
---------------------------------------------------------------------------------
7,220 CPC International Inc. 338,437
---------------------------------------------------------------------------------
11,645 Campbell Soup Co. 494,913
---------------------------------------------------------------------------------
755 Capital Cities/ABC, Inc. 477,538
---------------------------------------------------------------------------------
1,400 Charming Shoppes, Inc. 18,900
---------------------------------------------------------------------------------
5,330 Circuit City Stores, Inc. 135,249
---------------------------------------------------------------------------------
2,800 Clorox Co. 145,600
---------------------------------------------------------------------------------
58,414 Coca-Cola Co. 2,467,992
---------------------------------------------------------------------------------
7,058 Colgate-Palmolive Co. 418,187
---------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--CONTINUED
---------------------------------------------------------------------------------
5,265 Columbia Healthcare Corp. $ 152,685
---------------------------------------------------------------------------------
7,659 Comcast Corp., Cl. A 281,468
---------------------------------------------------------------------------------
5,200 Community Psychiatric Centers 66,300
---------------------------------------------------------------------------------
9,500 ConAgra, Inc. 254,125
---------------------------------------------------------------------------------
2,710 Dayton-Hudson Corp. 193,426
---------------------------------------------------------------------------------
2,600 Dial Corp. 99,775
---------------------------------------------------------------------------------
25,724 Disney (Walt) Co. (The) 1,022,529
---------------------------------------------------------------------------------
5,200 Donnelley (R.R.) & Sons Co. 149,500
---------------------------------------------------------------------------------
4,000 Dow Jones & Co., Inc. 143,500
---------------------------------------------------------------------------------
8,137 Dun & Bradstreet Corp. 507,545
---------------------------------------------------------------------------------
14,886 Eastman Kodak Co. 906,185
---------------------------------------------------------------------------------
3,600 Fleming Companies, Inc. 108,000
---------------------------------------------------------------------------------
7,464 Gannett Co., Inc. 415,185
---------------------------------------------------------------------------------
7,476 Gap, Inc. (The) 299,040
---------------------------------------------------------------------------------
7,079 General Mills, Inc. 430,049
---------------------------------------------------------------------------------
5,597 Gerber Products Co. 162,313
---------------------------------------------------------------------------------
4,900 Giant Food, Inc., Cl. A 113,925
---------------------------------------------------------------------------------
9,972 Gillette Co. 623,250
---------------------------------------------------------------------------------
1,000 Great Atlantic & Pacific Tea Co., Inc. 27,750
---------------------------------------------------------------------------------
5,316 Hasbro, Inc. 204,666
---------------------------------------------------------------------------------
12,003 Heinz (H.J.) Co. 450,113
---------------------------------------------------------------------------------
4,143 Hershey Foods Corp. 210,257
---------------------------------------------------------------------------------
2,740 Hilton Hotels Corp. 125,355
---------------------------------------------------------------------------------
20,440 Home Depot, Inc. 845,705
---------------------------------------------------------------------------------
1,774 International Flavors & Fragrances, Inc. 194,253
---------------------------------------------------------------------------------
1,389 Interpublic Group of Cos., Inc. 42,017
---------------------------------------------------------------------------------
29,568 Johnson & Johnson 1,289,904
---------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--CONTINUED
---------------------------------------------------------------------------------
14,800 K Mart Corp. $ 347,800
---------------------------------------------------------------------------------
10,154 Kellogg Co. 613,048
---------------------------------------------------------------------------------
640 *King World Productions Inc. 26,080
---------------------------------------------------------------------------------
1,915 Knight-Ridder, Inc. 110,113
---------------------------------------------------------------------------------
6,600 *Kroger Co. 122,925
---------------------------------------------------------------------------------
13,234 Lilly (Eli) & Co. 759,301
---------------------------------------------------------------------------------
18,300 Limited, Inc. (The) 416,325
---------------------------------------------------------------------------------
4,700 Liz Claiborne, Inc. 111,038
---------------------------------------------------------------------------------
3,006 Loew's Inc. 154,058
---------------------------------------------------------------------------------
2,283 Mattell, Inc. 69,632
---------------------------------------------------------------------------------
11,428 May Department Stores Co. 484,262
---------------------------------------------------------------------------------
17,439 McDonald's Corp. 1,022,361
---------------------------------------------------------------------------------
2,203 McGraw-Hill, Inc. 153,659
---------------------------------------------------------------------------------
2,974 McKesson Corp. 167,659
---------------------------------------------------------------------------------
2,638 Medtronic, Inc. 203,786
---------------------------------------------------------------------------------
3,656 Melville Corp. 149,896
---------------------------------------------------------------------------------
2,697 Mercantile Stores Co., Inc. 97,092
---------------------------------------------------------------------------------
52,196 Merck & Co., Inc. 1,787,713
---------------------------------------------------------------------------------
2,306 Morton International Inc. 214,746
---------------------------------------------------------------------------------
13,700 National Medical Enterprises, Inc. 157,550
---------------------------------------------------------------------------------
6,600 New York Times Co. (The), Cl. A 164,175
---------------------------------------------------------------------------------
3,568 Nike, Inc., Cl. B 170,818
---------------------------------------------------------------------------------
4,501 Nordstrom, Inc. 158,660
---------------------------------------------------------------------------------
9,879 Penney (J.C.) Co., Inc. 527,292
---------------------------------------------------------------------------------
36,024 PepsiCo, Inc. 1,449,966
---------------------------------------------------------------------------------
8,500 Pet Inc. 141,313
---------------------------------------------------------------------------------
14,154 Pfizer, Inc. 941,241
---------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--CONTINUED
---------------------------------------------------------------------------------
38,662 Philip Morris Cos., Inc. $ 2,160,239
---------------------------------------------------------------------------------
3,117 Pioneer Hi-Bred International Inc. 111,433
---------------------------------------------------------------------------------
1,700 Polaroid Corp. 60,138
---------------------------------------------------------------------------------
8,601 *Price/Costco Inc. 164,494
---------------------------------------------------------------------------------
30,083 Proctor & Gamble Co. 1,707,210
---------------------------------------------------------------------------------
3,162 Quaker Oats Co. 231,617
---------------------------------------------------------------------------------
4,866 Ralston Purina Co. 200,114
---------------------------------------------------------------------------------
5,300 Reebok International Ltd. 161,650
---------------------------------------------------------------------------------
8,300 Rite-Aid Corp. 134,875
---------------------------------------------------------------------------------
7,600 Rubbermaid Inc. 254,600
---------------------------------------------------------------------------------
2,400 Russell Corp. 66,900
---------------------------------------------------------------------------------
3,227 St. Jude Medical Inc. 89,549
---------------------------------------------------------------------------------
19,200 Sara Lee Corp. 499,200
---------------------------------------------------------------------------------
8,930 Schering-Plough Corp. 597,194
---------------------------------------------------------------------------------
19,000 Seagram Co., Ltd. 524,875
---------------------------------------------------------------------------------
15,610 Sears, Roebuck & Co. 848,794
---------------------------------------------------------------------------------
997 Service Corp. International 24,426
---------------------------------------------------------------------------------
1,667 Spring Industries, Inc. 69,597
---------------------------------------------------------------------------------
4,800 SuperValu Stores, Inc. 160,200
---------------------------------------------------------------------------------
8,300 Syntex Corp. 142,137
---------------------------------------------------------------------------------
7,600 Sysco Corp. 209,950
---------------------------------------------------------------------------------
2,156 TJX Companies, Inc. (The) 59,829
---------------------------------------------------------------------------------
17,906 *Tele-Communications, Inc., Cl. A 539,418
---------------------------------------------------------------------------------
3,091 Temple-Inland Inc. 156,482
---------------------------------------------------------------------------------
17,883 Time Warner Inc. 789,087
---------------------------------------------------------------------------------
3,595 Times Mirror Co. 112,344
---------------------------------------------------------------------------------
13,754 *Toys "R" Us, Inc. 560,475
---------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--CONTINUED
---------------------------------------------------------------------------------
3,866 Tribune Co. $ 215,529
---------------------------------------------------------------------------------
7,200 UST Inc. 193,500
---------------------------------------------------------------------------------
7,060 Unilever N.V. 791,602
---------------------------------------------------------------------------------
3,443 United States Surgical Corp. 75,316
---------------------------------------------------------------------------------
6,298 Upjohn Co. 196,812
---------------------------------------------------------------------------------
3,173 V.F. Corp. 138,422
---------------------------------------------------------------------------------
105,197 Wal-Mart Stores, Inc. 3,011,264
---------------------------------------------------------------------------------
5,700 Walgreen Co. 232,275
---------------------------------------------------------------------------------
6,292 Warner-Lambert Co. 417,631
---------------------------------------------------------------------------------
676 Wendy's International, Inc. 10,816
---------------------------------------------------------------------------------
11,700 Whitman Corp. 185,737
---------------------------------------------------------------------------------
3,407 Winn-Dixie Stores, Inc. 184,404
---------------------------------------------------------------------------------
8,815 Woolworth (F.W.) Corp. 204,949
---------------------------------------------------------------------------------
5,657 Wrigley (Wm.), Jr. Co. 243,251
--------------------------------------------------------------------------------- ---------------
Total 48,653,320
--------------------------------------------------------------------------------- ---------------
ENERGY--10.7%
---------------------------------------------------------------------------------
1,255 Amax Gold, Inc. 8,007
---------------------------------------------------------------------------------
5,387 Amerada-Hess Corp. 251,169
---------------------------------------------------------------------------------
23,058 Amoco Corp. 1,230,721
---------------------------------------------------------------------------------
3,800 Ashland Oil, Inc. 125,875
---------------------------------------------------------------------------------
7,181 Atlantic Richfield Co. 745,029
---------------------------------------------------------------------------------
6,583 Baker Hughes, Inc. 130,837
---------------------------------------------------------------------------------
14,700 Chevron Corp. 1,277,063
---------------------------------------------------------------------------------
3,500 Coastal Corp. 94,063
---------------------------------------------------------------------------------
3,874 Consolidated Natural Gas Co. 178,688
---------------------------------------------------------------------------------
8,200 Dresser Industries, Inc. 159,900
---------------------------------------------------------------------------------
2,948 Enserch Corp. 51,590
---------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
ENERGY--CONTINUED
---------------------------------------------------------------------------------
55,635 Exxon Corp. $ 3,491,096
---------------------------------------------------------------------------------
4,170 Fluor Corp. 176,704
---------------------------------------------------------------------------------
4,725 Halliburton Co. 145,884
---------------------------------------------------------------------------------
3,081 Kerr-McGee Corp. 144,037
---------------------------------------------------------------------------------
2,862 Louisiana Land & Exploration Co. 113,407
---------------------------------------------------------------------------------
1,019 McDermott International, Inc. 27,513
---------------------------------------------------------------------------------
18,214 Mobil Corp. 1,388,818
---------------------------------------------------------------------------------
634 NACCO Industries, Inc., Cl. A 28,530
---------------------------------------------------------------------------------
7,895 Occidental Petroleum Co. 140,136
---------------------------------------------------------------------------------
5,174 Oryx Energy Co. 96,366
---------------------------------------------------------------------------------
7,148 Panhandle Eastern Corp. 151,895
---------------------------------------------------------------------------------
2,779 Pennzoil Co. 158,403
---------------------------------------------------------------------------------
10,155 Phillips Petroleum Co. 289,418
---------------------------------------------------------------------------------
556 Pittston Company 14,734
---------------------------------------------------------------------------------
7,900 Placer Dome Inc. 180,713
---------------------------------------------------------------------------------
23,862 Royal Dutch Petroleum Co. 2,410,062
---------------------------------------------------------------------------------
3,415 Santa Fe Energy Resources, Inc. 29,881
---------------------------------------------------------------------------------
10,968 Schlumberger, Ltd. 630,660
---------------------------------------------------------------------------------
5,250 Sonat, Inc. 162,094
---------------------------------------------------------------------------------
7,400 Sun Co., Inc. 238,650
---------------------------------------------------------------------------------
7,964 Tenneco, Inc. 383,267
---------------------------------------------------------------------------------
12,177 Texaco, Inc. 782,372
---------------------------------------------------------------------------------
8,427 USX Marathon Corp. 142,205
---------------------------------------------------------------------------------
8,154 Unocal Corp. 221,177
---------------------------------------------------------------------------------
4,596 Williams Companies, Inc. (The) 124,666
--------------------------------------------------------------------------------- ---------------
Total 15,925,630
--------------------------------------------------------------------------------- ---------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
FINANCE--10.9%
---------------------------------------------------------------------------------
5,217 Aetna Life & Casualty Co. $ 318,889
---------------------------------------------------------------------------------
7,500 Ahmanson (H.F.) & Co. 141,562
---------------------------------------------------------------------------------
21,464 American Express Co. 673,433
---------------------------------------------------------------------------------
11,200 American General Corp. 301,000
---------------------------------------------------------------------------------
14,009 American International Group, Inc. 1,206,525
---------------------------------------------------------------------------------
15,543 Banc One Corp. 580,920
---------------------------------------------------------------------------------
2,181 Bank of Boston Corp. 47,437
---------------------------------------------------------------------------------
16,301 BankAmerica Corp. 723,357
---------------------------------------------------------------------------------
3,797 Bankers Trust New York Corp. 290,470
---------------------------------------------------------------------------------
5,075 Barnett Banks, Inc. 209,344
---------------------------------------------------------------------------------
1,209 Beneficial Corp. 89,164
---------------------------------------------------------------------------------
4,650 Boatmen's Bancshares Inc. 133,687
---------------------------------------------------------------------------------
3,414 CIGNA Corp. 215,935
---------------------------------------------------------------------------------
2,727 *CNA Financial Corp. 205,888
---------------------------------------------------------------------------------
3,705 Capital Holdings Corp. 141,716
---------------------------------------------------------------------------------
9,200 Chase Manhattan Corp. 308,200
---------------------------------------------------------------------------------
12,275 Chemical Banking Corp. 472,588
---------------------------------------------------------------------------------
3,876 Chubb Corp. 312,018
---------------------------------------------------------------------------------
16,556 *Citicorp 587,738
---------------------------------------------------------------------------------
4,392 Continental Corp. 130,662
---------------------------------------------------------------------------------
6,204 CoreStates Financial Corp. 158,202
---------------------------------------------------------------------------------
7,182 Dean Witter Discover & Co. 272,916
---------------------------------------------------------------------------------
8,232 Federal Home Loan Mortgage Corp. 395,136
---------------------------------------------------------------------------------
12,044 Federal National Mortgage Association 909,322
---------------------------------------------------------------------------------
4,491 First Chicago Corp. 185,815
---------------------------------------------------------------------------------
3,395 First Fidelity Bancorporation 142,166
---------------------------------------------------------------------------------
3,880 First Interstate Bancorp. 226,495
---------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
---------------------------------------------------------------------------------
6,867 First Union Corp. $ 278,972
---------------------------------------------------------------------------------
6,500 Fleet/Norstar Financial Group, Inc. 196,625
---------------------------------------------------------------------------------
3,831 General Reinsurance Corp. 420,931
---------------------------------------------------------------------------------
1,374 Golden West Financial Corp. 53,071
---------------------------------------------------------------------------------
7,300 Great Western Financial Corp. 129,575
---------------------------------------------------------------------------------
4,132 Household International, Inc. 136,356
---------------------------------------------------------------------------------
2,470 Jefferson-Pilot Corp. 118,560
---------------------------------------------------------------------------------
4,186 Lincoln National Corp. 182,091
---------------------------------------------------------------------------------
5,560 MBNA Corp. 175,835
---------------------------------------------------------------------------------
3,360 Marsh & McLennan Cos., Inc. 269,220
---------------------------------------------------------------------------------
3,333 Mellon Bank Corp. 184,982
---------------------------------------------------------------------------------
9,490 Merrill Lynch & Co., Inc. 430,609
---------------------------------------------------------------------------------
8,821 Morgan (J.P.) & Co., Inc. 625,188
---------------------------------------------------------------------------------
5,700 NBD Bancorp, Inc. 166,013
---------------------------------------------------------------------------------
11,707 NationsBank Corp. 551,692
---------------------------------------------------------------------------------
14,598 Norwest Corp. 333,929
---------------------------------------------------------------------------------
11,800 PNC Bank Corp. 349,575
---------------------------------------------------------------------------------
10,882 Primerica Corp. 435,280
---------------------------------------------------------------------------------
3,097 SAFECO Corp. 175,755
---------------------------------------------------------------------------------
1,811 St. Paul Companies, Inc. 160,726
---------------------------------------------------------------------------------
5,318 Salomon, Inc. 241,969
---------------------------------------------------------------------------------
2,842 Shawmut National Corp. 59,327
---------------------------------------------------------------------------------
6,726 Sun Trust Banks, Inc. 295,103
---------------------------------------------------------------------------------
3,948 Torchmark Corp. 173,712
---------------------------------------------------------------------------------
3,113 Transamerica Corp. 173,939
---------------------------------------------------------------------------------
6,700 *Travelers Corp. 211,887
---------------------------------------------------------------------------------
589 U.S. Bancorp 14,283
---------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
---------------------------------------------------------------------------------
500 USLIFE Corp. $ 19,125
---------------------------------------------------------------------------------
2,499 Wells Fargo & Co. 294,257
--------------------------------------------------------------------------------- ---------------
Total 16,239,172
--------------------------------------------------------------------------------- ---------------
MATERIALS & SERVICES--10.4%
---------------------------------------------------------------------------------
5,096 Air Products & Chemicals, Inc. 260,602
---------------------------------------------------------------------------------
6,000 Alcan Aluminum Ltd. 124,500
---------------------------------------------------------------------------------
2,921 Alco Standard Corp. 142,764
---------------------------------------------------------------------------------
6,371 Allied-Signal, Inc. 453,137
---------------------------------------------------------------------------------
2,558 Alumax, Inc. 49,561
---------------------------------------------------------------------------------
4,069 Aluminum Co. of America 281,778
---------------------------------------------------------------------------------
5,235 *Alza Corp. 144,617
---------------------------------------------------------------------------------
6,800 Bethlehem Steel Corporation 118,150
---------------------------------------------------------------------------------
5,400 Boise Cascade Corp. 124,200
---------------------------------------------------------------------------------
600 Centex Corp. 23,550
---------------------------------------------------------------------------------
3,500 Champion International Co. 107,625
---------------------------------------------------------------------------------
8,000 Corning, Inc. 214,000
---------------------------------------------------------------------------------
5,539 *Crown Cork & Seal Co., Inc. 218,790
---------------------------------------------------------------------------------
5,932 *Cyprus Amax Minerals Co. 131,987
---------------------------------------------------------------------------------
5,200 Deluxe Corp. 181,350
---------------------------------------------------------------------------------
12,075 Dow Chemical Co. 701,859
---------------------------------------------------------------------------------
30,616 Du Pont (E.I.) de Nemours & Co., Inc. 1,458,087
---------------------------------------------------------------------------------
1,207 Echo Bay Mines Ltd. 14,333
---------------------------------------------------------------------------------
1,000 Ecolab, Inc. 44,625
---------------------------------------------------------------------------------
4,162 Engelhard Corp. 99,888
---------------------------------------------------------------------------------
4,300 Ethyl Corp. 77,937
---------------------------------------------------------------------------------
2,300 *FMC Corp. 106,088
---------------------------------------------------------------------------------
3,582 Fleetwood Enterprises, Inc. 86,416
---------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
MATERIALS & SERVICES--CONTINUED
---------------------------------------------------------------------------------
2,546 General Signal Corp. $ 89,110
---------------------------------------------------------------------------------
3,877 Georgia-Pacific Corp. 284,959
---------------------------------------------------------------------------------
1,981 Goodrich (B.F.) Co. 86,421
---------------------------------------------------------------------------------
4,300 Grace (W.R.) & Co. 167,700
---------------------------------------------------------------------------------
3,340 Great Lakes Chemical Corp. 248,830
---------------------------------------------------------------------------------
3,600 Harcourt Gen, Inc. 146,700
---------------------------------------------------------------------------------
2,025 Hercules, Inc. 216,675
---------------------------------------------------------------------------------
2,707 Homestake Mining Co. 50,756
---------------------------------------------------------------------------------
5,222 ITT Corp. 464,758
---------------------------------------------------------------------------------
4,520 IMCERA Group, Inc. 155,940
---------------------------------------------------------------------------------
3,196 Inco Ltd. 76,305
---------------------------------------------------------------------------------
3,357 *Inland Steel Industries, Inc. 109,103
---------------------------------------------------------------------------------
5,194 International Paper Co. 346,700
---------------------------------------------------------------------------------
5,400 James River Corp. of Virginia 101,925
---------------------------------------------------------------------------------
7,221 Kimberly-Clark Corp. 381,810
---------------------------------------------------------------------------------
2,296 *Litton Industries, Inc. 149,814
---------------------------------------------------------------------------------
5,280 Louisiana-Pacific Corp. 220,440
---------------------------------------------------------------------------------
3,559 Marriott Corp. 86,306
---------------------------------------------------------------------------------
8,000 Masco Industries, Inc. 272,000
---------------------------------------------------------------------------------
3,398 Mead Corp. 144,415
---------------------------------------------------------------------------------
1,400 Milipore Corp. 48,300
---------------------------------------------------------------------------------
9,572 Minnesota Mining & Manufacturing Co. 1,043,348
---------------------------------------------------------------------------------
5,287 Monsanto Co. 359,516
---------------------------------------------------------------------------------
5,300 Moore Corp. Ltd. 103,350
---------------------------------------------------------------------------------
5,048 Nalco Chemical Co. 188,669
---------------------------------------------------------------------------------
4,385 Newell Co. 176,496
---------------------------------------------------------------------------------
5,734 Newmont Mining Corp. 297,451
---------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
MATERIALS & SERVICES--CONTINUED
---------------------------------------------------------------------------------
4,050 Nucor Corp. $ 212,119
---------------------------------------------------------------------------------
2,383 *Owens-Corning Fiberglass Corp. 109,320
---------------------------------------------------------------------------------
4,688 PPG Industries, Inc. 331,676
---------------------------------------------------------------------------------
8,400 Pall Corp. 159,600
---------------------------------------------------------------------------------
5,042 Paramount Communications Inc. 397,058
---------------------------------------------------------------------------------
4,351 Phelps Dodge Corp. 190,356
---------------------------------------------------------------------------------
1,921 Potlatch Corp. 90,047
---------------------------------------------------------------------------------
6,000 Praxair, Inc. 96,750
---------------------------------------------------------------------------------
1,629 Premark International, Inc. 127,469
---------------------------------------------------------------------------------
5,082 *Promus Cos., Inc. (The) 214,715
---------------------------------------------------------------------------------
5,266 Reynolds Metals Co. 236,312
---------------------------------------------------------------------------------
3,296 Rohm & Haas Co. 179,220
---------------------------------------------------------------------------------
3,500 Scott Paper Co. 132,125
---------------------------------------------------------------------------------
5,679 Sherwin-Williams Co. 187,407
---------------------------------------------------------------------------------
3,278 Snap-On Tools Corp. 124,564
---------------------------------------------------------------------------------
854 *Stone Container Corp. 9,287
---------------------------------------------------------------------------------
834 Teledyne, Inc. 20,746
---------------------------------------------------------------------------------
2,500 Tyco International Finance 118,750
---------------------------------------------------------------------------------
2,573 USX-U.S. Steel Group 92,628
---------------------------------------------------------------------------------
4,183 Union Camp Corp. 194,509
---------------------------------------------------------------------------------
6,000 Union Carbide Corp. 124,500
---------------------------------------------------------------------------------
945 *Varity Corp. 37,446
---------------------------------------------------------------------------------
21,525 WMX Technologies, Inc. 573,103
---------------------------------------------------------------------------------
600 Westvaco Corp. 19,650
---------------------------------------------------------------------------------
9,556 Weyerhaeuser Co. 418,075
---------------------------------------------------------------------------------
450 Worthington Industries, Inc. 7,762
--------------------------------------------------------------------------------- ---------------
Total 15,588,835
--------------------------------------------------------------------------------- ---------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
TECHNOLOGY--11.7%
---------------------------------------------------------------------------------
3,233 *Advanced Micro Devices, Inc. $ 61,427
---------------------------------------------------------------------------------
6,400 Amdahl Corp. 35,200
---------------------------------------------------------------------------------
60,076 American Telephone & Telegraph Co. 3,281,651
---------------------------------------------------------------------------------
6,135 *Amgen, Inc. 277,609
---------------------------------------------------------------------------------
4,971 AMP, Inc. 289,561
---------------------------------------------------------------------------------
1,200 *Andrew Corp. 40,200
---------------------------------------------------------------------------------
5,800 Apple Computer, Inc. 182,700
---------------------------------------------------------------------------------
1,700 Autodesk, Inc. 75,650
---------------------------------------------------------------------------------
6,517 Automatic Data Processing, Inc. 359,250
---------------------------------------------------------------------------------
16,191 Boeing Co. 625,377
---------------------------------------------------------------------------------
3,934 *COMPAQ Computer Corp. 284,723
---------------------------------------------------------------------------------
8,429 Computer Associates International, Inc. 335,053
---------------------------------------------------------------------------------
974 *Computer Sciences Corp. 95,574
---------------------------------------------------------------------------------
100 *Cray Research, Inc. 2,650
---------------------------------------------------------------------------------
2,270 *DSC Communications Corp. 122,864
---------------------------------------------------------------------------------
6,258 *Digital Equipment Corp. 230,764
---------------------------------------------------------------------------------
6,800 EG&G, Inc. 120,700
---------------------------------------------------------------------------------
803 E-Systems, Inc. 33,626
---------------------------------------------------------------------------------
1,492 General Dynamics Corp. 134,280
---------------------------------------------------------------------------------
975 Grumman Corp. 39,244
---------------------------------------------------------------------------------
3,285 Harris Corp. 146,593
---------------------------------------------------------------------------------
11,374 Hewlett-Packard Co. 838,833
---------------------------------------------------------------------------------
18,963 *Intel Corp. 1,166,225
---------------------------------------------------------------------------------
25,437 International Business Machines Corp. 1,370,418
---------------------------------------------------------------------------------
1,989 Johnson Controls Inc. 105,914
---------------------------------------------------------------------------------
2,663 Lockheed Corp. 186,743
---------------------------------------------------------------------------------
4,486 Loral Corp. 148,038
---------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
---------------------------------------------------------------------------------
1,800 *Lotus Development Corp. $ 82,800
---------------------------------------------------------------------------------
24,864 MCI Communications Corp. 606,060
---------------------------------------------------------------------------------
4,482 Martin-Marietta Corp. 183,762
---------------------------------------------------------------------------------
1,791 McDonnell-Douglas Corp. 195,443
---------------------------------------------------------------------------------
12,205 Motorola, Inc. 1,144,219
---------------------------------------------------------------------------------
2,551 *National Semiconductor Co. 44,961
---------------------------------------------------------------------------------
12,399 Northern Telecom, Ltd. 356,471
---------------------------------------------------------------------------------
1,842 Northrop Corp. 69,996
---------------------------------------------------------------------------------
16,105 *Novell, Inc. 378,468
---------------------------------------------------------------------------------
13,368 *Oracle Systems Corp. 422,763
---------------------------------------------------------------------------------
648 Perkin-Elmer Corp. 22,032
---------------------------------------------------------------------------------
6,861 Pitney Bowes, Inc. 288,162
---------------------------------------------------------------------------------
6,324 Raytheon Co. 387,345
---------------------------------------------------------------------------------
7,835 Rockwell International Corp. 273,246
---------------------------------------------------------------------------------
1,026 Scientific-Atlanta, Inc. 32,191
---------------------------------------------------------------------------------
14,524 Sprint Corp. 475,661
---------------------------------------------------------------------------------
3,493 *Sun Microsystems 93,001
---------------------------------------------------------------------------------
2,673 TRW, Inc. 175,750
---------------------------------------------------------------------------------
8,700 *Tandem Computers, Inc. 90,262
---------------------------------------------------------------------------------
3,836 Tandy Corp. 175,017
---------------------------------------------------------------------------------
300 Tektronix, Inc. 6,600
---------------------------------------------------------------------------------
3,910 Texas Instruments, Inc. 251,217
---------------------------------------------------------------------------------
4,551 Textron, Inc. 250,874
---------------------------------------------------------------------------------
994 Thomas & Betts Corp. 60,013
---------------------------------------------------------------------------------
9,000 *Unisys Corp. 103,500
---------------------------------------------------------------------------------
5,937 United Technologies Corp. 367,352
---------------------------------------------------------------------------------
4,706 Xerox Corp. 388,245
--------------------------------------------------------------------------------- ---------------
Total 17,516,278
--------------------------------------------------------------------------------- ---------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
TRANSPORTATION--2.1%
---------------------------------------------------------------------------------
3,531 *AMR Corp. $ 232,605
---------------------------------------------------------------------------------
4,184 Burlington Northern Inc. 240,057
---------------------------------------------------------------------------------
4,614 CSX Corp. 382,962
---------------------------------------------------------------------------------
3,680 Conrail Inc. 229,540
---------------------------------------------------------------------------------
2,345 Delta Air Lines, Inc. 136,010
---------------------------------------------------------------------------------
2,600 *Federal Express Corp. 185,900
---------------------------------------------------------------------------------
6,146 Norfolk Southern Corp. 416,392
---------------------------------------------------------------------------------
1,932 Roadway Services, Inc. 129,927
---------------------------------------------------------------------------------
5,791 Ryder System, Inc. 169,387
---------------------------------------------------------------------------------
10,600 *Santa Fe Pacific Corp. 217,300
---------------------------------------------------------------------------------
1,116 *UAL (Allegis) Corp. 165,726
---------------------------------------------------------------------------------
9,236 Union Pacific Corp. 586,486
--------------------------------------------------------------------------------- ---------------
Total 3,092,292
--------------------------------------------------------------------------------- ---------------
UTILITIES--11.1%
---------------------------------------------------------------------------------
9,152 American Electric Power Co., Inc. 330,616
---------------------------------------------------------------------------------
11,974 Ameritech Corp. 916,011
---------------------------------------------------------------------------------
16,600 Arkla, Inc. 130,725
---------------------------------------------------------------------------------
6,200 Baltimore Gas & Electric Co. 156,550
---------------------------------------------------------------------------------
19,351 Bell Atlantic Corp. 1,161,060
---------------------------------------------------------------------------------
21,876 BellSouth Corp. 1,249,666
---------------------------------------------------------------------------------
10,431 Carolina Power & Light Co. 302,499
---------------------------------------------------------------------------------
10,000 Central & SouthWest Corp. 297,500
---------------------------------------------------------------------------------
3,448 *Columbia Gas System, Inc. 81,890
---------------------------------------------------------------------------------
9,930 Commonwealth Edison Co. 281,764
---------------------------------------------------------------------------------
8,607 Consolidated Edison Co. 267,893
---------------------------------------------------------------------------------
6,700 Detroit Edison Co. 216,075
---------------------------------------------------------------------------------
7,632 Dominion Resources, Inc. 337,716
---------------------------------------------------------------------------------
10,168 Duke Power Co. 427,056
---------------------------------------------------------------------------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
UTILITIES--CONTINUED
---------------------------------------------------------------------------------
11,254 Enron Corp. $ 350,281
---------------------------------------------------------------------------------
9,307 Entergy Corp. 343,196
---------------------------------------------------------------------------------
7,814 FPL Group, Inc. 290,095
---------------------------------------------------------------------------------
43,108 GTE Corp. 1,600,384
---------------------------------------------------------------------------------
6,712 Houston Industries, Inc. 304,557
---------------------------------------------------------------------------------
6,900 Niagara Mohawk Power Corp. 141,450
---------------------------------------------------------------------------------
4,000 NICOR, Inc. 110,000
---------------------------------------------------------------------------------
4,124 Northern States Power Co. 174,239
---------------------------------------------------------------------------------
19,078 NYNEX Corp. 813,200
---------------------------------------------------------------------------------
5,961 Ohio Edison Co. 133,377
---------------------------------------------------------------------------------
394 PSI Resources, Inc. 10,146
---------------------------------------------------------------------------------
5,200 Pacific Enterprises 133,250
---------------------------------------------------------------------------------
17,551 Pacific Gas & Electric Co. 603,316
---------------------------------------------------------------------------------
18,651 Pacific Telesis Group 1,058,444
---------------------------------------------------------------------------------
5,800 Pacificorp 110,200
---------------------------------------------------------------------------------
6,876 Philadelphia Electric Co. 192,528
---------------------------------------------------------------------------------
8,893 Public Service Enterprise Group, Inc. 287,911
---------------------------------------------------------------------------------
20,976 SCEcorp. 427,386
---------------------------------------------------------------------------------
14,439 Southern Co. 624,487
---------------------------------------------------------------------------------
27,490 Southwestern Bell Corp. 1,168,325
---------------------------------------------------------------------------------
10,484 Texas Utilities Co. 448,191
---------------------------------------------------------------------------------
5,985 Union Electric Co. 231,171
---------------------------------------------------------------------------------
19,133 U.S. West, Inc. 894,468
--------------------------------------------------------------------------------- ---------------
Total 16,607,623
--------------------------------------------------------------------------------- ---------------
TOTAL COMMON STOCKS (IDENTIFIED COST $141,034,795) 147,065,476
--------------------------------------------------------------------------------- ---------------
</TABLE>
BILTMORE EQUITY INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
SHORT-TERM U.S. TREASURY OBLIGATIONS--0.3%
- ------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS--0.3%
---------------------------------------------------------------------------------
$ 460,000 12/16/93 (at amortized cost) (Note 2A) $ 459,436
--------------------------------------------------------------------------------- ---------------
**REPURCHASE AGREEMENT--0.9%
- ------------------------------------------------------------------------------------------------
1,292,925 PaineWebber, Inc., 3.20%, dated 11/30/93, due 12/1/93
(AT AMORTIZED COST) (NOTE 2B) 1,292,925
--------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (IDENTIFIED COST, $142,787,156) $ 148,817,837\
--------------------------------------------------------------------------------- ---------------
</TABLE>
\_ The cost of investments for federal tax purposes amounts to $142,804,055. The
net unrealized appreciation of investments on a federal tax basis amounts to
$6,013,782, which is comprised of $10,222,978 appreciation and $4,209,196
depreciation at November 30, 1993.
_*_ Non-income producing securities.
** The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
Note: The categories of investments are shown as a percentage of net assets
($149,265,726) at November 30, 1993.
(See Notes which are an integral part of the Financial Statements)
BILTMORE EQUITY INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments, at value (Notes 2A and 2B) (identified cost $142,787,156,
and tax cost, $142,804,055) $ 148,817,837
- -------------------------------------------------------------------------------------------------
Dividends and interest receivable 510,919
- -------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 70,981
- -------------------------------------------------------------------------------------------------
Deferred expenses (Note 2G) 43,389
- -------------------------------------------------------------------------------------------------
Receivable for daily variation margin on open futures contracts (Note 2F) 450
- -------------------------------------------------------------------------------------------------
Receivable from Adviser (Note 5) 339
- ------------------------------------------------------------------------------------------------- ---------------
Total assets 149,443,915
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------
Payable for Fund shares redeemed $ 91,122
- --------------------------------------------------------------------------------------
Accrued expenses and other liabilities 87,067
- -------------------------------------------------------------------------------------- ---------
Total liabilities 178,189
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSETS for 14,252,482 shares of beneficial interest outstanding $ 149,265,726
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid-in capital $ 142,442,985
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts (Note 2F) 6,026,709
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 238,906
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 557,126
- ------------------------------------------------------------------------------------------------- ---------------
Total $ 149,265,726
- ------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, AND REDEMPTION PRICE PER SHARE:
($149,265,726 / 14,252,482 shares of beneficial interest outstanding) $10.47
- ------------------------------------------------------------------------------------------------- ---------------
COMPUTATION OF OFFERING PRICE:
Offering Price Per Share (100/95.5 of $10.47)* $10.96
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
* On sales of $100,000 or more, the offering price is reduced as stated under
"What Shares Cost" on page 12.
(See Notes which are an integral part of the Financial Statements)
BILTMORE EQUITY INDEX FUND
STATEMENT OF OPERATIONS
PERIOD ENDED NOVEMBER 30, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------------
Dividends $2,446,783
- -------------------------------------------------------------------------------------------------------
Interest 27,750
- ------------------------------------------------------------------------------------------------------- ----------
Total investment income (Note 2C) 2,474,533
- -------------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 249,910
- --------------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 102,301
- --------------------------------------------------------------------------------------------
Trustees' fees 4,750
- --------------------------------------------------------------------------------------------
Custodian fees (Note 5) 16,742
- --------------------------------------------------------------------------------------------
Recordkeeper fees (Note 5) 38,258
- --------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 5) 11,147
- --------------------------------------------------------------------------------------------
Legal fees 8,700
- --------------------------------------------------------------------------------------------
Printing and postage 8,029
- --------------------------------------------------------------------------------------------
Insurance premiums 9,416
- --------------------------------------------------------------------------------------------
Miscellaneous 13,051
- -------------------------------------------------------------------------------------------- ---------
Total expenses 462,304
- --------------------------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 41,652
- ---------------------------------------------------------------------------------
Waiver of custodian fees (Note 5) 16,742
- ---------------------------------------------------------------------------------
Reimbursement of other operating expenses by the Administrator (Note 5) 49,405 107,799
- --------------------------------------------------------------------------------- --------- ---------
Net expenses 354,505
- ------------------------------------------------------------------------------------------------------- ----------
Net investment income 2,120,028
- ------------------------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND FUTURES CONTRACTS:
- -------------------------------------------------------------------------------------------------------
Net realized gain on investments and futures contracts (identified cost basis) 238,906
- -------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments and futures contracts 6,026,709
- ------------------------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments and futures contracts 6,265,615
- ------------------------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $8,385,643
- ------------------------------------------------------------------------------------------------------- ----------
</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 EQUITY INDEX FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1993*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------------
Net investment income $ 2,120,028
- -----------------------------------------------------------------------------------------------
Net realized gain on investments ($255,390 net gain, as computed for federal tax purposes)
(Note 2D) 238,906
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and futures contracts 6,026,709
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets resulting from operations 8,385,643
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (1,562,902)
- ----------------------------------------------------------------------------------------------- -----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------------------------
Net proceeds from sales of shares 164,026,362
- -----------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive payment of dividends in
Fund shares 1,562,902
- -----------------------------------------------------------------------------------------------
Cost of shares redeemed (23,146,279)
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets from Fund share transactions 142,442,985
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets 149,265,726
- -----------------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------------------------------- -----------------
End of period (including undistributed net investment income of $557,126) $ 149,265,726
- ----------------------------------------------------------------------------------------------- -----------------
</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 EQUITY INDEX 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 Biltmore Equity
Index 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 of the Trust 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 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 Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the 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 objectives 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. FUTURES CONTRACTS--Upon entering into a stock index futures contract with a
broker, the Fund is required to deposit in a segregated account an amount
("initial margin") of cash or U.S. government securities equal to a
percentage of the contract value. The Fund agrees to receive from or pay
the broker an amount of cash equal to a specific dollar amount times the
difference between the closing value of the stock index and the price at
which the contract was made. On a daily basis, the value of a stock index
futures contract is determined and any difference between such value and
the original futures contract value is reflected in the "daily variation
margin" account. Daily variation margin adjustments, arising from this
"marking to market" process, are recorded by the Fund as unrealized gains
or losses.
The Fund may decide to close its position on a contract at any time prior
to the contract's expiration. When a contract is closed, the Fund
recognizes a realized gain or loss. Risks of entering into futures
contracts include the possibility that there may be an illiquid market and
that a change in the value of the contract may not correlate with changes
in the value of the underlying securities.
G. DEFERRED EXPENSES--The 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 using the straight-line method over a period of five years from
the Funds' commencement date.
H. 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 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,
1993*
<S> <C>
- ----------------------------------------------------------------------------------------------- -----------------
Shares outstanding, beginning of period --
- -----------------------------------------------------------------------------------------------
Shares sold 16,360,663
- -----------------------------------------------------------------------------------------------
Shares issued to shareholders electing to receive payment of
dividends in Fund shares 153,909
- -----------------------------------------------------------------------------------------------
Shares redeemed (2,262,090 )
- ----------------------------------------------------------------------------------------------- -----------------
Shares outstanding, end of period 14,252,482
- ----------------------------------------------------------------------------------------------- -----------------
</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 Trust's investment adviser
("Adviser"), is entitled to receive for its services an annual investment
advisory fee equal to .30 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 or
reimbursement at any time at its sole discretion. For the period ended November
30, 1993, the investment advisory fee amounted to $249,910, of which $41,652 was
voluntarily waived.
Federated Administrative Services ("FAS") provides administrative personnel and
services at an annual rate of .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 administrative fees of $102,301.
In addition, FAS reimbursed $49,405 of other operating
expenses. FAS can modify or terminate the voluntary waiver and reimbursement at
any time at its sole discretion.
Organization expenses of the Fund ($31,524) were borne initially by FAS. The
Trust has agreed to reimburse FAS for the organization expenses initially borne
by FAS during the five year period following the date the Fund's registration
statement first became effective. During the period ended November 30, 1993, the
Fund paid $701 pursuant to this agreement.
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. For the period ended November 30, 1993, the Custodian earned
$16,742, all of which was voluntarly waived.
Federated Services Company ("FSC"), is the transfer 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 fees. FSC can modify or terminate the
voluntary waiver at any time at its sole discretion. For the period ended
November 30, 1993, FSC earned recordkeeper fees of $38,258 and transfer and
dividend disbursing agent fees of $11,147.
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 investments, for the
period from May 10, 1993 (date of initial public investment) to November 30,
1993, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
PURCHASES-- $ 153,916,465
- ------------------------------------------------------------------------------------------------- ---------------
SALES-- $ 12,661,665
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
(7) FINANCIAL FUTURES CONTRACTS
At November 30, 1993, open positions in stock index futures contracts were as
follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
<S> <C> <C> <C>
December 1993 2 S&P 500 Index Futures Long $3,972
</TABLE>
At November 30, 1993, the Fund has deposited $460,000 of U.S. Treasury Bills in
a segregated account to cover margin requirements on open futures contracts.
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 Equity Index 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 Equity Index 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 Equity Index Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Wachovia Investment Management Group 301 North Main Street
Winston-Salem, North Carolina 27150
- ---------------------------------------------------------------------------------------------------------------------
Custodian
Wachovia Bank of North Carolina, N.A. Wachovia Trust Operations
301 North Main Street
Winston-Salem, North Carolina 27150
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pitsburgh, 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 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
3012919A (1/94)
BILTMORE EQUITY INDEX FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Biltmore Equity Index 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 OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
When-Issued and Delayed Delivery Transactions 3
Lending of Portfolio Securities 3
Reverse Repurchase Agreements 3
Investment Limitations 4
THE BILTMORE FUNDS MANAGEMENT 6
- ---------------------------------------------------------------
Officers and Trustees 6
Fund Ownership 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 8
- ---------------------------------------------------------------
Adviser to the Fund 8
Advisory Fees 8
ADMINISTRATIVE SERVICES 8
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 8
- ---------------------------------------------------------------
PORTFOLIO TURNOVER 9
- ---------------------------------------------------------------
PURCHASING FUND SHARES 9
- ---------------------------------------------------------------
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
- ---------------------------------------------------------------
DETERMINING MARKET VALUE OF SECURITIES 9
- ---------------------------------------------------------------
REDEEMING FUND SHARES 9
- ---------------------------------------------------------------
Redemption in Kind 10
TAX STATUS 10
- ---------------------------------------------------------------
The Fund's Tax Status 10
Shareholders' Tax Status 10
Capital Gains 10
TOTAL RETURN 10
- ---------------------------------------------------------------
YIELD 10
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 11
- ---------------------------------------------------------------
STANDARD & POOR'S CORPORATION 11
- ---------------------------------------------------------------
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 OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide a total return that approximates
that of the stock market as measured by the S&P 500 Index. The investment
objective cannot be changed without approval of shareholders.
TYPES OF INVESTMENTS
In addition to the common stocks described in the prospectus, the Fund may also
invest in money market instruments and U.S. government obligations and
securities in such proportions as, in the judgment of the Adviser, prevailing
market conditions warrant. 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
(the "Trustees") without shareholder approval. Shareholders will be notified
before any material change in the policies becomes effective.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are
backed by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
Federal Land Banks;
Central Bank for Cooperatives;
Federal Farm Credit Banks;
Federal Intermediate Credit Banks;
Federal Home Loan Banks;
Farmers Home Administration;
Federal National Mortgage Association;
Student Loan Marketing Association; and
Federal Home Loan Mortgage Corporation.
VARIABLE RATE U.S. GOVERNMENT SECURITIES
In the case of certain U.S. government securities purchased by the Fund
that carry variable interest rates, these rates will reduce the changes
in the market value of such securities from their original purchase
prices.
Accordingly, the potential for capital appreciation or capital
depreciation should not be greater than the potential for capital
appreciation or capital depreciation of fixed interest rate U.S.
government securities having maturities equal to the interest rate
adjustment dates of the variable rate U.S. government securities.
The Fund may purchase variable rate U.S. government securities upon the
determination by the Trustees that the interest rate as adjusted will
cause the instrument to have a current market value that approximates its
par value on the adjustment date.
MONEY MARKET INSTRUMENTS
The Fund may invest in the following money market instruments:
instruments of domestic and foreign banks and savings and loans having
capital, surplus, and undivided profits of over $100,000,000, or if the
principal amount of the instrument is insured in full by the Federal
Deposit Insurance Corporation;
commercial paper issued by domestic or foreign corporations, such as
Europaper, rated A-1 by Standard & Poor's Corporation, Prime-1 by
Moody's Investors Service, Inc., or F-1 by Fitch Investors Service, Inc.
or, if unrated, of comparable quality as determined 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.
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 a
defaulting seller of the securities 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.
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.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are corporate debt instruments that have
variable or floating interest rates and provide the Fund with the right
to tender the security for repurchase at its stated principal amount plus
accrued interest. Such securities typically bear interest at a rate that
is intended to cause the securities to trade at par. The interest rate
may float or be adjusted at regular intervals (ranging from daily to
annually), and is normally based on an interest rate index or a published
interest rate. Most variable rate demand notes allow the Fund to demand
the repurchase of the security on not more than seven days prior notice.
Other notes only permit the Fund to tender the security at the time of
each interest rate adjustment or at other fixed intervals. See "Demand
Features."
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby
commitments ("demand features") which require the issuer of the demand
feature 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.
STOCK INDEX FUTURES AND OPTIONS
The Fund may utilize stock index futures contracts, options, and options
on futures contracts as discussed in the prospectus.
A stock index futures contract is a bilateral agreement which obligates
the seller to deliver (and the purchaser to take delivery of) an amount
of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of trading of the
contract and the price at which the agreement is originally made. There
is no physical delivery of the stocks constituting the index, and no
price is paid upon entering into a futures contract. In general,
contracts are closed out prior to their expiration. The Fund, when
purchasing or selling a futures contract, will initially be required to
deposit in a segregated
account in the broker's name with the Fund's custodian an amount of cash
or U.S. government securities approximately equal to 5-10% of the
contract value. This amount is known as "initial margin," and it is
subject to change by the exchange or board of trade on which the contract
is traded. Subsequent payments to and from the broker are made on a daily
basis as the price of the index or the securities underlying the futures
contract fluctuates. These payments are known as "variation margins," and
the fluctuation in value of the long and short positions in the futures
contract is a process referred to as "marking to market." The Fund may
decide to close its position on a contract at any time prior to the
contract's expiration. This is accomplished by the Fund taking an
opposite position at the then prevailing price, thereby terminating its
existing position in the contract. Because both the initial and variation
margin resemble a performance bond or good faith deposit on the contract,
they are returned to the Fund upon the termination of the contract,
assuming that all contractual obligations have been satisfied. Therefore,
the margin utilized in futures contracts is readily distinguishable from
the margin employed in security transactions, since futures contracts
margin does not involve the borrowing of funds to finance the
transaction.
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. Put options on stock indices are similar
to put options on stocks except for the delivery requirements. Instead of
giving the Fund the right to make delivery of stock at a specified price,
a put option on a stock index gives the Fund, as holder, the right to
receive an amount of cash upon exercise of the option.
The Fund may also write covered call options. 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 Fund may only: (1) buy listed put options on stock indices; (2) buy
listed put options on securities held in its portfolio; and (3) sell
listed call options either on securities held in its portfolio or on
securities which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any such
additional consideration). The Fund will maintain its positions in
securities, option rights, and segregated cash subject to puts and calls
until the options are exercised, closed, or expired.
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 objectives and
policies, and 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. 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.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction has been settled. As a
matter of non-fundamental investment 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 total value of the Fund's
assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. 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.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are 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 assets are marked to market daily and
are maintained until the transaction has been settled.
INVESTMENT LIMITATIONS
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts or
commodity futures contracts. However, the Fund may purchase put options
on stock index futures, put options on financial futures, stock index
futures contracts, and put options on portfolio securities, and may write
covered call options.
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 portfolio securities, and writing covered
call options, but may obtain such short-term credits as are necessary for
the clearance of purchases and sales of transactions. 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.
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 purchase or holding of
corporate or government bonds, debentures, notes, certificates of
indebtedness or other debt securities of an issuer, repurchase
agreements, or engaging in other transactions where permitted by the
Fund's investment objective, policies and limitations.
UNDERWRITING
The Fund will not underwrite any issue of securities except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
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 enter
into reverse repurchase agreements and otherwise borrow up to one-third
of the value of its total assets, including the amount 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
instruments is deemed to be inconvenient or disadvantageous. The Fund
will not purchase any securities while borrowings in excess of 5% of the
value of the Fund's total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it 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 the total assets at the
time of the borrowing. For the purpose 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.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in securities of issuers
whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
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 U.S. government securities) if as
a result more than 5% of the value of the Fund's 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 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
securities of companies 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 secured by such instruments.
The above investment limitations cannot be changed without shareholder approval.
The following investment limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these policies becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investments 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 assets. While it is the
Fund's policy to waive its investment advisory fees on Fund assets
invested in securities of 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.
However, the Fund may invest in Standard & Poor's Depository Receipts
(SPDRs), which represent interests in the portfolio of securities held by
a unit investment trust, a type of investment company. SPDRs trade like
shares of common stock on the American Stock Exchange and are intended to
provide investment results that generally correspond to the price and
yield performance of the S&P 500 Index. The Fund's purchase of SPDRs are
subject to the 3%, 5% and 10% limitations described above and secondary
market purchases and sales are subject to ordinary brokerage commissions.
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 RESTRICTED SECURITIES
The Fund will not invest more than 5% of its net assets in securities
subject to restrictions on resale under federal securities law, 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, non-negotiable fixed
income time deposits with maturities over seven days, over-the-counter
options, and certain securities not determined under guidelines
established by the Trustees to be liquid.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities 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 MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
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 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 option positions.
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.
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 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
NAME THE TRUST PRINCIPAL OCCUPATIONS 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 Income Plan (1-1-41), Winston-Salem, North Carolina, owned
approximately 2,862,337.45 shares (19.73%); Wachovia Bank of North Carolina,
N.A., for the account of Wachovia Corporation Retirement Savings and Profit
Sharing Plan (4-12-79), Winston-Salem, North Carolina, owned approximately
2,417,487.43 shares (16.66%); Wachovia Bank of North Carolina, N.A., for the
account of Employees BDM Inter. Inc. (8-26-85), Winston-Salem, North Carolina,
owned approximately 936,611.61 shares (6.46%); Wachovia Bank of North Carolina,
N.A., for the account of Wellman, Inc. Retirement Plan, Winston-Salem, North
Carolina, owned approximately 1,701,737.03 shares (7.39%); Wachovia Bank of
North Carolina, N.A., for the account of Electrolux Corporation Defined
Contribution Equity Investment Fund, Winston-Salem, North Carolina, owned
approximately 1,731,129.78 shares (11.93%).
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
("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) to November
30, 1993, the Adviser earned $249,910, of which $41,652 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) to November 30, 1993, FAS earned $102,301. In addition, FAS
reimbursed $49,405 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.
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.
For the period from May 10, 1993 (date of initial public investment) to November
30, 1993, the Fund paid $20,407 in commissions on brokerage transactions.
As of November 30, 1993, the Fund owned $3,702,355, $673,433, $272,916,
$430,609, $435,280, and $241,969, of securities of General Electric, American
Express, Dean Witter Discover & Co., Merrill Lynch & Co., Inc., Primerica Corp.,
and Salomon, Inc., 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, and the Fund will be managed passively, securities in its
portfolio will be sold whenever it is appropriate to approximate the investment
return of the S&P 500 Index, without regard to the length of time a particular
security may have been held. The Fund will not attempt to set or meet a
portfolio turnover rate since any turnover would be incidental to transactions
undertaken in an attempt to achieve the Fund's investment objective. The Fund
estimates that its rate of portfolio turnover will generally not exceed 25%. For
the period from May 10, 1993 (date of initial public investment) to November 30,
1993, the Fund's portfolio turnover rate was 9%.
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."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. The Wachovia Banks act as the
shareholders' agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
- --------------------------------------------------------------------------------
The market value of the Fund's portfolio securities are determined as follows:
for equity securities, according to the last sale price on a national securities
exchange, if available;
in the absence of recorded sales for listed equity securities, according to the
mean between the last closing bid and asked prices;
for unlisted equity securities, the latest bid prices;
for bonds and other fixed income securities, as determined by an independent
pricing service;
for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service; or
for all other securities, at fair value as determined in good faith by the Board
of Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
option trading on such exchanges, unless the Trustees determine in good faith
that another method of valuing option positions is necessary.
REDEEMING FUND SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940, which obligates the Fund to redeem shares for any one shareholder
in cash only up to the lesser of $250,000 or 1% of the Fund's net asset value
during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund expects to pay no federal income tax because it intends to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. The dividends received deduction for corporations will apply
to ordinary income distributions to the extent the distribution represents
amounts that would qualify for the dividends received deduction to the Fund if
the Fund were a regular corporation, and to the extent designated by the Fund as
so qualifying. These dividends, and any short-term capital gains, are taxable as
ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as long-term
capital gains regardless of how long shareholders have held shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's cumulative total return from May 10, 1993 (date of initial public
investment) to November 30, 1993 was 1.05%. Cumulative total return reflects the
Fund's total performance over a specific period of time. This total return
assumes and is reduced by the payment of the maximum sales load.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the reinvestment of all
dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for the thirty-day period ended November 30, 1993 was 2.09%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month period
and is reinvested every six months. The yield does not necessarily reflect
income actually
earned by the Fund because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
portfolio quality;
average portfolio maturity;
types of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in Fund expenses;
the relative amount of Fund cash flow; and
various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and the maximum offering price (i.e., net asset value plus any sales charge) per
share fluctuate daily. Both net earnings and offering price per share are
factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
STANDARD & POOR'S CORPORATION DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industry, transportation, and financial and
public utility companies, can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the
Standard & Poor's index assumes reinvestments of all dividends paid by stocks
listed on its index. Taxes due on any of these distributions are not included,
nor are brokerage or other fees calculated in Standard & Poor's figures.
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in the maximum offering price over a specific period of
time. From time to time, the Fund will quote its Lipper ranking in the "index
funds" category in advertising and sales literature.
_MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on nonstandardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
quarterly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
STANDARD & POOR'S CORPORATION
- --------------------------------------------------------------------------------
Standard & Poor's Corporation ("S&P") makes no representation or warranty,
express or implied, to the owners of the Fund or any member of the public
regarding the advisablility of investing in securities generally or in the Fund
particularly or the ability of the S&P 500 Index (as defined in the prospectus)
to track general stock market performance. S&P's only relationship to Federated
Securities Corp., the Fund's distributor (the "Licensee") is the licensing of
certain trademarks and trade names of S&P and of the S&P 500 Index which is
determined, composed and calculated by S&P without regard to the Licensee or the
Fund. S&P has no obligation to take the needs of the Licensee or the owners of
the Fund into consideration in determining, composing or calculating the S&P 500
Index. S&P is not responsible for and has not participated in the determination
of, the timing of, prices at, or quantities of the Fund to be issued or in the
determination or calculation of the equation by which the Fund is to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Fund.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500 Index
or any data included therein. S&P makes no warranty, express or implied, as to
results to be obtained by the Licensee, owners of the Fund, or any other person
or entity from the use of the S&P 500 Index or any data included therein in
connection with the rights licensed hereunder or for any other use. S&P makes no
express or implied warranties, and expressly disclaims all warranties or
merchantability or fitness for a particular purpose or use with respect to the
S&P 500 Index or any data included therein. Without limiting any of the
foregoing, in no event shall S&P have any liability for any special, punitive,
indirect or consequential damages (including lost profits), even if notified of
the possibility of such damages.
3012919B (1/94)
BILTMORE FIXED INCOME FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
PROSPECTUS
The shares of Biltmore Fixed Income Fund (the "Fund") offered by this prospectus
represent interests in a diversified portfolio of securities, which is one of a
series of investment portfolios in The Biltmore Funds (the "Trust"), an
open-end, management investment company (a mutual fund).
The investment objective of the Fund is to seek a high level of total return. As
a secondary investment objective, the Fund will attempt to minimize volatility
of principal relative to the fixed income markets. The Fund seeks to achieve its
investment objectives by investing in a diversified portfolio of high-grade
fixed income 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, NOR ARE THEY 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 Objectives 3
Investment Policies 3
Acceptable Investments 4
U.S. Government Obligations 5
Corporate Debt Obligations 6
Fixed Rate Corporate Debt
Obligations 6
Floating Rate Corporate Debt
Obligations 6
Demand Master Notes 6
Convertible Securities 7
Mortgage-Backed Securities 7
Adjustable Rate Mortgage
Securities ("ARMS") 8
Collateralized Mortgage Obligations 8
Real Estate Mortgage Investment
Conduits ("REMICs") 8
Asset-Backed Securities 8
Demand Features 9
Restricted and Illiquid Securities 9
Repurchase Agreements 10
When-Issued and Delayed Delivery
Transactions 10
Lending of Portfolio Securities 10
Other Investment Techniques 10
Debt Considerations 11
Investment Limitations 11
THE BILTMORE FUNDS INFORMATION 11
- ------------------------------------------------------
Management of the Trust 11
Board of Trustees 11
Investment Adviser 11
Advisory Fees 12
Adviser's Background 12
Distribution of Shares 12
Administrative Arrangements 12
Shareholder Servicing Arrangements 13
Administration of the Fund 13
Administrative Services 13
Custodian 13
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 14
Legal Services 14
Independent Auditors 14
Brokerage Transactions 14
Expenses of the Fund 14
NET ASSET VALUE 15
- ------------------------------------------------------
INVESTING IN THE FUND 15
- ------------------------------------------------------
Share Purchases 15
Through Wachovia Brokerage Service 15
By Mail 15
By Wire 15
Through the Trust Division of the
Wachovia Banks 16
Minimum Investment Required 16
What Shares Cost 16
Purchases at Net Asset Value 16
Sales Charge Reallowance 17
Reducing the Sales Charge 17
Quantity Discounts and Accumulated
Purchases 17
Letter of Intent 17
Reinvestment Privilege 18
Concurrent Purchases 18
Systematic Investment Program 18
Exchanging Securities for Fund Shares 18
Certificates and Confirmations 19
Dividends 19
Capital Gains 19
Exchange Privilege 19
Exchange by Telephone 20
REDEEMING SHARES 20
- ------------------------------------------------------
By Telephone 20
By Mail 21
Signatures 21
Systematic Withdrawal Program 21
Accounts with Low Balances 22
SHAREHOLDER INFORMATION 22
- ------------------------------------------------------
Voting Rights 22
Massachusetts Business Trusts 22
EFFECT OF BANKING LAWS 23
- ------------------------------------------------------
TAX INFORMATION 24
- ------------------------------------------------------
PERFORMANCE INFORMATION 24
- ------------------------------------------------------
FINANCIAL STATEMENTS 25
- ------------------------------------------------------
REPORT OF ERNST & YOUNG,
INDEPENDENT AUDITORS 38
- ------------------------------------------------------
ADDRESSES 39
- ------------------------------------------------------
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)............................................................ 0.50%
12b-1 Fees................................................................................... None
Other Expenses............................................................................... 0.24%
Shareholder Servicing Agent Fee (2)..................................................... 0.00%
Total Fund Operating Expenses (after waiver) (3)................................... 0.74%
</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 0.60%.
(2) As of the date of this prospectus, the Fund is not paying or accruing
shareholder servicing agent fees. The Fund will not pay or accrue
shareholder servicing agent fees until a separate class of shares has been
created for certain trust and institutional investors, 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 0.68% 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 estimated to be 0.84%absent the voluntary waiver
by the investment adviser.
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........................................................................... $52 $68
</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 FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
38.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1993*
<S> <C>
- ---------------------------------------------------------------------------------------- ------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.31
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.01)
- ---------------------------------------------------------------------------------------- --------
Total from investment operations 0.30
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.30)
- ---------------------------------------------------------------------------------------- --------
NET ASSET VALUE, END OF PERIOD $ 10.00
- ---------------------------------------------------------------------------------------- --------
TOTAL RETURN** 3.02%
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 0.68%(a)
- ----------------------------------------------------------------------------------------
Net investment income 5.44%(a)
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.19%(a)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $140,325
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 149%
- ----------------------------------------------------------------------------------------
</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) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expenses and net investment
income ratios shown above (Note 5).
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 Fixed Income Fund. The shares in any one portfolio may
be offered in separate classes. As of the date of this prospectus, the Board of
Trustees (the "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 investing primarily in fixed-income securities. 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 Balanced Fund, Biltmore Equity
Fund, Biltmore Equity Index 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 OBJECTIVES
The investment objective of the Fund is to seek a high level of total return. As
a secondary investment objective, the Fund will attempt to minimize volatility
of principal relative to the fixed income markets. Total return consists of
income and capital gains. While there is no assurance that the Fund will achieve
its investment objectives, it endeavors to do so by following the investment
policies described in this prospectus. The investment objectives 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
The Fund pursues its investment objectives by investing primarily in a
diversified portfolio of fixed income securities that, at the time of purchase,
are high grade (i.e., are rated in the top three investment categories or, if
unrated, of comparable quality to securities with such ratings.) The Fund will
maintain an average dollar-weighted maturity of between 6 to 10 years. The Fund
will invest, under normal circumstances, at least 65% of the value of its total
assets in fixed income securities. As noted above, the Fund will invest
primarily in fixed income securities that, at the time of purchase, are rated in
the top
three investment grade categories (see below) by a nationally recognized
statistical rating organization ("NRSRO") or, if unrated, are of comparable
quality to securities having such ratings, as determined by the Fund's
investment adviser. The Fund's adviser will use a multi-disciplined management
approach which combines judgments about the interest rate environment with other
value-added management techniques such as sector rotation and security swapping,
in selecting the Fund's investments. Fixed income securities will be purchased
for the Fund based on the adviser's expectations regarding general market
interest rate trends and the impact such trends would have on the total return
of the fixed income securities. As a secondary consideration, the Fund's adviser
will attempt to minimize volatility of principal relative to the fixed income
markets. However, the primary consideration will be total return, which includes
capital gain and income.
Investment grade is a term used to describe securities eligible for purchase by
prudent investors. The Fund will invest in fixed income securities that are
rated, at the time of purchase, in the top three investment grade rating
categories by an NRSRO (i.e., A or higher). For example, Standard & Poor's
Corporation ("S&P"), an NRSRO, designates its top four bond ratings as
investment grade: AAA, AA, A and BBB. Moody's Investors Service, Inc.
("Moody's") is also an NRSRO, and it designates its top four bond ratings as
investment grade: Aaa, Aa, A and Baa. The Fund also may invest in fixed income
securities that are determined by the Fund's adviser to be of comparable quality
to securities that are rated in the top three investment grade categories. If a
security purchased by the Fund is subsequently downgraded below the top three
investment grade rating categories, the Fund will not be required to dispose of
it. Instead, the downgraded security will be evaluated on a case-by-case basis
by the Fund's adviser. The adviser will determine whether or not the security
continues to be an acceptable investment. If not, the security will be sold. A
description of the rating categories is contained in the Appendix to the
Statement of Additional Information.
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 fixed income securities issues
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.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in a professionally-managed,
diversified portfolio of fixed income securities which include:
domestic issues of corporate debt obligations, including demand master
notes rated at the time of purchase Aaa, Aa, or A by Moody's, AAA, AA, or
A by S&P or by Fitch Investors Service, Inc. ("Fitch") or, if unrated, of
comparable quality as determined by the Fund's investment adviser;
obligations of the U.S. government, which include long-term U.S. Treasury
bonds,
intermediate term U.S. Treasury notes and short-term U.S. Treasury bills;
notes, bonds, and discount notes issued or backed by U.S. government
agencies or instrumentalities, including Federal Home Loan Banks, Federal
National Mortgage Association, Government National Mortgage Association,
Bank for Cooperatives (including Central Bank for
Cooperatives), Federal Land Banks, Federal Intermediate 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;
convertible securities;
mortgage-backed securities (see below);
asset-backed securities (see below);
commercial paper that at the time of purchase is rated not less than P-1,
A-1, or F-1, by Moody's, S&P, or Fitch, respectively, or, if unrated, 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;
repurchase agreements collateralized by high quality, liquid investments;
and
money market instruments.
In addition, the Fund may borrow money, lend portfolio securities, and invest in
restricted and illiquid securities, and securities of other investment
companies. The Fund also may engage in reverse repurchase agreements,
when-issued and delayed delivery transactions, put and call options, futures,
and options on futures for hedging purposes.
U.S. GOVERNMENT OBLIGATIONS. The U.S. government obligations 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. Goverment agencies or
instrumentalities, such as the Federal Farm Credit System, Federal Home
Loan Banks, Federal National Mortgage Association, 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. No
assurance can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to so do.
These agencies and instrumentalities 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. goverment to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
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 at the time of purchase
in the top three rating categories 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.
Some of the floating rate corporate debt obligations in which the Fund may
invest include floating rate corporate debt securities issued by savings
and loans and collateralized by adjustable rate mortgage loans, also known
as collateralized thrift notes. Many of these collateralized thrift notes
have received AAA ratings from NRSROs. Collateralized thrift notes differ
from traditional "pass through" certificates in which payments made are
linked to monthly payments made by individual borrowers net of any fees
paid to the issuer or guarantor of such 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.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities that
may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and
warrants, or a combination of the features of several of these securities. 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 are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar 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 stock in instances in which, 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 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 adviser considers numerous factors, including
the economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determination of the issuer's profits,
and the issuer's management capability and practices.
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, at the time of purchase, are rated
AAA by an NRSRO 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 which, at the time of purchase, are rated A or higher
by an NRSRO 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.
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.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities 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 limitation 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.
REPURCHASE AGREEMENTS. Certain of the 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 high-quality, liquid 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.
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. 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.
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 investment adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral in the form
of cash or U.S. government securities equal to at least 102% of the value of the
securities loaned.
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 techniques 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.
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.
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. However, the
Fund's investment adviser will attempt to minimize the fluctuation of the Fund's
net asset value by predicting the direction of interest rates.
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 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 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 collaterized 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 .60 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.
Samuel M. Gibbs, II is the Fund's portfolio manager and is Senior Vice
President and Manager of Fixed-Income Investments for Wachovia Investment
Management Group. Mr. Gibbs joined Wachovia Bank of North Carolina, N.A. in
1969 as a portfolio manager. He became a bond trader and fixed-income
portfolio manager in 1975 and was elected Vice President in 1976. He
assumed his current position in 1977 and was elected Senior Vice President
in 1987. Mr. Gibbs is a graduate of Davidson College and has an MBA from
the University of South Carolina.
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,
Pittsburgh, Pennsylvania, 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 Board of 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. However, the Adviser may voluntarily waive
and/or reimburse some expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
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 Fixed Income 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 Fixed Income 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 objectives 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 of 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 monthly 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 of 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 fund into which an exchange is to be effected.
Shareholders using this privilege must exchange shares having a net asset value
at least equal to the minimum investment of the Participating Funds 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 Participating 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 in person, by
telephone, or by writing to your 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, Wachovia Bank of North Carolina, N.A., Winston-Salem,
North Carolina, acting in various capacities for numerous accounts, was the
owner of record of 3,969,740.66 shares (28.52%) 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 information for
reporting purposes. 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 charge
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 FIXED INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
ASSET-BACKED SECURITIES--2.2%
- ------------------------------------------------------------------------------------------------
$ 858,494 Ford Credit Trust, 4.85%, 1/15/98 $ 862,787
--------------------------------------------------------------------------------
1,374,455 GMAC Grantor Trust, 4.00%, 9/15/98 1,366,290
--------------------------------------------------------------------------------
865,209 USAA Auto Loan Grantors Trust, 3.90%, 3/15/99 860,070
-------------------------------------------------------------------------------- ---------------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST, $3,103,292) 3,089,147
-------------------------------------------------------------------------------- ---------------
CORPORATE BONDS--22.8%
- ------------------------------------------------------------------------------------------------
BANKING--4.3%
--------------------------------------------------------------------------------
1,000,000 Bankers Trust NY Corp., 4.70%, 7/1/96 997,140
--------------------------------------------------------------------------------
1,500,000 Branch Banking & Trust Co., 4.75%, 5/15/96 1,561,620
--------------------------------------------------------------------------------
2,500,000 MBNA American Bank, N.A., 4.95%, 12/2/96 2,500,000
--------------------------------------------------------------------------------
500,000 NationsBank Corp., 5.375%, 4/15/2000 483,455
--------------------------------------------------------------------------------
500,000 SunTrust Banks, Inc., 7.375%, 7/1/2002 532,790
-------------------------------------------------------------------------------- ---------------
Total 6,075,005
-------------------------------------------------------------------------------- ---------------
CHEMICALS--2.6%
--------------------------------------------------------------------------------
1,680,000 Du Pont (E.I.) de Nemours & Co., Inc., 7.00%-8.65%,
4/16/97-12/1/97 1,855,438
--------------------------------------------------------------------------------
1,776,500 Monsanto Co., 7.09%, 12/15/2000 1,840,349
-------------------------------------------------------------------------------- ---------------
Total 3,695,787
-------------------------------------------------------------------------------- ---------------
DRUGS--2.7%
--------------------------------------------------------------------------------
1,215,000 American Home Products, 6.875%, 4/15/97 1,283,174
--------------------------------------------------------------------------------
240,000 Merck & Co., 7.75%, 5/1/96 256,219
--------------------------------------------------------------------------------
850,000 Pfizer, Inc., 6.50%, 2/1/97 886,703
--------------------------------------------------------------------------------
1,255,000 Schering Plough Corp., 7.75%, 5/15/96 1,335,721
-------------------------------------------------------------------------------- ---------------
Total 3,761,817
-------------------------------------------------------------------------------- ---------------
ELECTRONICS--0.5%
--------------------------------------------------------------------------------
605,000 Motorola, Inc., 8.40%, 8/15/2031 723,574
-------------------------------------------------------------------------------- ---------------
</TABLE>
BILTMORE FIXED INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------------
FINANCE--7.0%
--------------------------------------------------------------------------------
$ 670,000 Barclays American Corp., 9.125%, 12/1/97 $ 749,515
--------------------------------------------------------------------------------
2,330,000 Beneficial Corp., 6.15%-10.00%, 1/15/96-12/1/2021 2,607,008
--------------------------------------------------------------------------------
240,000 European Investment Bank, 4.905%, 11/21/94 241,558
--------------------------------------------------------------------------------
785,000 Exxon Capital Corp., 6.50%-7.875%, 4/15/96-7/15/99 827,059
--------------------------------------------------------------------------------
1,380,000 General Electric Capital Corp., 0.00%-9.50%, 3/4/95-5/1/96 1,428,063
--------------------------------------------------------------------------------
365,000 General Electric Credit International N.V., 0.00%, 3/4/94 360,883
--------------------------------------------------------------------------------
1,000,000 IBM Credit Corp., 5.00%, 5/10/96 999,190
--------------------------------------------------------------------------------
240,000 IBM International Finance, 7.75%, 4/18/94 243,149
--------------------------------------------------------------------------------
1,215,000 Inter American Development Bank, 7.50%, 12/15/96 1,299,625
--------------------------------------------------------------------------------
315,000 International Bank for Reconstruction & Development, 9.00%,
11/15/95 341,705
--------------------------------------------------------------------------------
630,000 TransAmerica Financial Corp., 9.25%, 6/30/97 710,199
-------------------------------------------------------------------------------- ---------------
Total 9,807,954
-------------------------------------------------------------------------------- ---------------
HOME FURNISHINGS--0.2%
--------------------------------------------------------------------------------
240,000 Armstrong World Industries, Inc., 9.75%, 4/15/2008 295,140
-------------------------------------------------------------------------------- ---------------
OIL & GAS--2.1%
--------------------------------------------------------------------------------
2,190,000 BP America, Inc., 8.875%, 12/1/97 2,459,786
--------------------------------------------------------------------------------
350,000 Mobil Corp., 8.375%, 2/12/2001 398,737
-------------------------------------------------------------------------------- ---------------
Total 2,858,523
-------------------------------------------------------------------------------- ---------------
POLLUTION CONTROL--0.4%
--------------------------------------------------------------------------------
580,000 Waste Management, Inc., 7.875%, 8/15/96 621,383
-------------------------------------------------------------------------------- ---------------
SECURITIES--0.8%
--------------------------------------------------------------------------------
1,080,000 Morgan Stanley Group, Inc., 5.65%, 6/15/97 1,085,875
-------------------------------------------------------------------------------- ---------------
UTILITIES--2.2%
--------------------------------------------------------------------------------
1,400,000 Korea Electric Power Corp., 6.375%, 12/1/2003 1,379,714
--------------------------------------------------------------------------------
</TABLE>
BILTMORE FIXED INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------------
UTILITIES--CONTINUED
--------------------------------------------------------------------------------
$ 1,645,000 Public Service Electric & Gas Co., 7,125%, 11/1/97 $ 1,722,266
-------------------------------------------------------------------------------- ---------------
Total 3,101,980
-------------------------------------------------------------------------------- ---------------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $32,188,785) 32,027,038
-------------------------------------------------------------------------------- ---------------
U.S. GOVERNMENT AGENCIES--16.6%
- ------------------------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK--0.1%
--------------------------------------------------------------------------------
180,000 8.30%, 1/20/95 188,662
-------------------------------------------------------------------------------- ---------------
FEDERAL HOME LOAN MORTGAGE CORP.--2.5%
--------------------------------------------------------------------------------
43,930 12.50%, 2/1/2010-4/1/2014 49,888
--------------------------------------------------------------------------------
57,445 11.00%, 10/1/2010-10/1/2015 63,819
--------------------------------------------------------------------------------
9,482 10.00%, 1/1/2019-2/1/2019 10,332
--------------------------------------------------------------------------------
88,625 9.50%, 7/1/2016-2/1/2019 94,942
--------------------------------------------------------------------------------
8,867 9.00%, 9/1/2017-1/1/2019 9,315
--------------------------------------------------------------------------------
26,407 8.50%, 5/1/2017-8/1/2017 27,414
--------------------------------------------------------------------------------
235,404 8.00%, 1/1/2008-1/1/2019 244,853
--------------------------------------------------------------------------------
1,010,978 7.50%, 2/1/2023 1,037,829
--------------------------------------------------------------------------------
962,722 7.00%, 6/1/2008 987,088
--------------------------------------------------------------------------------
1,000,000 5.00%, 12/15/2000, REMIC 1,005,781
-------------------------------------------------------------------------------- ---------------
Total 3,531,261
-------------------------------------------------------------------------------- ---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--2.4%
--------------------------------------------------------------------------------
9,344 12.50%, 9/1/2013-8/1/2015 10,608
--------------------------------------------------------------------------------
10,014 10.00%, 1/1/2019-2/1/2019 10,996
--------------------------------------------------------------------------------
24,067 9.50%, 6/1/2016-2/1/2019 26,000
--------------------------------------------------------------------------------
7,260 9.00%, 1/1/2017-8/1/2018 7,709
--------------------------------------------------------------------------------
6,713 8.50%, 2/1/2017-2/1/2019 7,048
--------------------------------------------------------------------------------
105,787 8.00%, 11/1/2008-9/1/2009 110,745
--------------------------------------------------------------------------------
3,096,451 7.50%, 4/1/2007-1/1/2023 3,190,972
--------------------------------------------------------------------------------
</TABLE>
BILTMORE FIXED INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
U.S. GOVERNMENT AGENCIES--CONTINUED
- ------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--CONTINUED
--------------------------------------------------------------------------------
$ 22,993 7.43%, 8/1/2023 $ 22,562
-------------------------------------------------------------------------------- ---------------
Total 3,386,640
-------------------------------------------------------------------------------- ---------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--11.4%
--------------------------------------------------------------------------------
68,615 12.25%, 8/15/2013-5/15/2014 77,963
--------------------------------------------------------------------------------
7,936 11.50%, 6/15/2013-12/15/2017 9,126
--------------------------------------------------------------------------------
182,559 11.00%, 8/15/2015-12/15/2015 207,889
--------------------------------------------------------------------------------
180,189 10.50%, 10/15/2000-8/15/2017 201,073
--------------------------------------------------------------------------------
23,098 10.00%, 1/15/2019-2/15/2019 25,350
--------------------------------------------------------------------------------
2,223,432 9.50%, 6/15/2001-11/15/2020 2,396,457
--------------------------------------------------------------------------------
3,558,108 9.00%, 5/15/2016-1/15/2021 3,791,344
--------------------------------------------------------------------------------
2,074,814 8.50%, 5/15/2016-6/15/2022 2,188,250
--------------------------------------------------------------------------------
3,239,813 8.00%, 2/15/2017-9/15/2022 3,390,658
--------------------------------------------------------------------------------
2,502,523 7.50%, 2/15/2022-3/15/2023 2,578,375
--------------------------------------------------------------------------------
975,023 7.00%, 6/15/2023 985,680
--------------------------------------------------------------------------------
80,158 5.50%, 8/15/98 79,298
-------------------------------------------------------------------------------- ---------------
Total 15,931,463
-------------------------------------------------------------------------------- ---------------
PRIVATE EXPORT FUNDING CORP.--0.2%
--------------------------------------------------------------------------------
240,000 8.40%, 7/31/2001 274,303
-------------------------------------------------------------------------------- ---------------
TOTAL U.S. GOVERNMENT AGENCIES (IDENTIFIED COST, $23,484,883) 23,312,329
-------------------------------------------------------------------------------- ---------------
U.S. TREASURY OBLIGATIONS--54.1%
- ------------------------------------------------------------------------------------------------
U.S. TREASURY BONDS--18.7%
--------------------------------------------------------------------------------
1,176,000 9.375%, 2/15/2006 1,512,818
--------------------------------------------------------------------------------
1,230,000 8.00%, 11/15/2021 1,462,163
--------------------------------------------------------------------------------
18,575,000 7.875%, 2/15/2021 21,715,290
--------------------------------------------------------------------------------
1,423,000 7.25%, 5/15/2016 1,544,183
-------------------------------------------------------------------------------- ---------------
Total 26,234,454
-------------------------------------------------------------------------------- ---------------
</TABLE>
BILTMORE FIXED INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
U.S. TREASURY OBLIGATIONS--CONTINUED
- ------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES--35.4%
--------------------------------------------------------------------------------
$ 1,095,000 9.125%, 5/15/99 $ 1,293,644
--------------------------------------------------------------------------------
240,000 8.875%, 7/15/95 257,926
--------------------------------------------------------------------------------
1,090,000 8.50%, 11/15/2000 1,274,962
--------------------------------------------------------------------------------
850,000 8.125%, 2/15/98 949,739
--------------------------------------------------------------------------------
2,030,000 8.00%, 10/15/96 2,215,867
--------------------------------------------------------------------------------
850,000 7.875%, 8/15/2001 968,465
--------------------------------------------------------------------------------
2,420,000 7.50%, 11/15/2001 2,702,462
--------------------------------------------------------------------------------
1,105,000 7.25%, 8/31/96 1,182,527
--------------------------------------------------------------------------------
1,605,000 6.875%, 4/30/97 1,712,326
--------------------------------------------------------------------------------
590,000 6.375%, 1/15/2000-8/15/2002 618,405
--------------------------------------------------------------------------------
7,595,000 6.25%, 2/15/2003 7,843,052
--------------------------------------------------------------------------------
730,000 6.125%, 12/31/96 762,507
--------------------------------------------------------------------------------
1,785,000 6.00%, 12/31/97-10/15/99 1,845,944
--------------------------------------------------------------------------------
490,000 5.875%, 5/15/95 503,093
--------------------------------------------------------------------------------
240,000 5.50%, 2/15/95 244,687
--------------------------------------------------------------------------------
1,500,000 5.25%, 7/31/98 1,509,135
--------------------------------------------------------------------------------
1,135,000 5.125%, 11/15/95-3/31/98 1,151,439
--------------------------------------------------------------------------------
6,840,000 4.625%, 11/30/94-2/15/96 6,887,215
--------------------------------------------------------------------------------
2,500,000 4.25%, 5/15/96 2,492,575
--------------------------------------------------------------------------------
2,945,000 4.125%, 5/31/95-6/30/95 2,949,994
--------------------------------------------------------------------------------
10,310,000 3.875%, 3/31/95-8/31/95 10,277,994
-------------------------------------------------------------------------------- ---------------
Total 49,643,958
-------------------------------------------------------------------------------- ---------------
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST, $76,503,603) 75,878,412
-------------------------------------------------------------------------------- ---------------
</TABLE>
BILTMORE FIXED INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
*REPURCHASE AGREEMENT--3.5%
- ------------------------------------------------------------------------------------------------
$ 4,927,396 PaineWebber, Inc., 3.20%, dated 11/30/93, due 12/1/93
(AT AMORTIZED COST) (NOTE 2B) $ 4,927,396
-------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (IDENTIFIED COST, $140,207,959) $ 139,234,322\
-------------------------------------------------------------------------------- ---------------
</TABLE>
*_ 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 of investments for federal tax purposes amounts to $140,234,821. The
net unrealized depreciation of investments on a federal tax cost basis
amounts to $1,000,499, which is comprised of $215,396 appreciation and
$1,215,895 depreciation at November 30, 1993.
Note: The categories of investments are shown as a percentage of net assets
($140,325,369) at November 30, 1993.
The following abbreviation is used in this portfolio:
REMIC--Real Estate Mortgage Investment Conduit
(See Notes, which are an integral part of the Financial Statements)
BILTMORE FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments in securities, at value (Notes 2A and 2B)
(identified cost $140,207,959, and tax cost, $140,234,821) $ 139,234,322
- ------------------------------------------------------------------------------------------------
Receivable for investments sold 2,532,176
- ------------------------------------------------------------------------------------------------
Interest receivable 1,880,893
- ------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 634,714
- ------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 41,670
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 144,323,775
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Payable for investments purchased $ 3,879,714
- ---------------------------------------------------------------------------------
Payable for Fund shares redeemed 32,618
- ---------------------------------------------------------------------------------
Accrued expenses and other liabilities 86,074
- --------------------------------------------------------------------------------- -------------
Total liabilities 3,998,406
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 14,031,227 shares of beneficial interest outstanding $ 140,325,369
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------
Paid-in capital $ 140,353,677
- ------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (973,637)
- ------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 866,743
- ------------------------------------------------------------------------------------------------
Undistributed net investment income 78,586
- ------------------------------------------------------------------------------------------------ ---------------
Total $ 140,325,369
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE and Redemption Price Per Share:
($140,325,369 / 14,031,227 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $10.00
- ------------------------------------------------------------------------------------------------ ---------------
COMPUTATION OF OFFERING PRICE:
Offering Price Per Share (100/95.5 of $10.00)* $10.47
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
*_ On sales of $100,000 or more, the offering price is reduced as stated under
"What Shares Cost" on page 16.
(See Notes which are an integral part of the Financial Statements)
BILTMORE FIXED INCOME FUND
STATEMENT OF OPERATIONS
PERIOD ENDED NOVEMBER 30, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 4,656,158
- --------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 456,294
- -------------------------------------------------------------------------------------
Administrative personnel and services fee (Note 5) 93,341
- -------------------------------------------------------------------------------------
Custodian fees (Note 5) 15,284
- -------------------------------------------------------------------------------------
Recordkeeper fees (Note 5) 40,312
- -------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 5) 11,693
- -------------------------------------------------------------------------------------
Legal fees 8,779
- -------------------------------------------------------------------------------------
Printing and postage 7,963
- -------------------------------------------------------------------------------------
Insurance premiums 9,150
- -------------------------------------------------------------------------------------
Trustees' fees 4,750
- -------------------------------------------------------------------------------------
Miscellaneous 13,762
- ------------------------------------------------------------------------------------- -----------
Total expenses 661,328
- -------------------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 76,055
- --------------------------------------------------------------------------
Waiver of custodian fees (Note 5) 15,284
- --------------------------------------------------------------------------
Reimbursement of other operating expenses by the
Administrator (Note 5) 52,005 143,344
- -------------------------------------------------------------------------- --------- -----------
Net expenses 517,984
- -------------------------------------------------------------------------------------------------- -------------
Net investment income 4,138,174
- -------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------
Net realized gain on investment transactions (identified cost basis) 866,743
- --------------------------------------------------------------------------------------------------
Net change in unrealized depreciation on investments (973,637)
- -------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain (loss) on investments (106,894)
- -------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 4,031,280
- -------------------------------------------------------------------------------------------------- -------------
</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 FIXED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1993*
<S> <C>
-----------------
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------------
Net investment income $ 4,138,174
- -----------------------------------------------------------------------------------------------
Net realized gain on investment transactions ($893,605 net gain,
as computed for federal tax purposes) (Note 2D) 866,743
- -----------------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments (973,637)
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets resulting from operations 4,031,280
- ----------------------------------------------------------------------------------------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (4,059,588)
- ----------------------------------------------------------------------------------------------- -----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------------------------
Net proceeds from sale of shares 150,258,206
- -----------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing
to receive payment of distributions in Fund shares 4,052,129
- -----------------------------------------------------------------------------------------------
Cost of shares redeemed (13,956,658)
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets from Fund share transactions 140,353,677
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets 140,325,369
- -----------------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------------------------------- -----------------
End of period (including undistributed net investment income of $78,586) $ 140,325,369
- ----------------------------------------------------------------------------------------------- -----------------
</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 FIXED INCOME 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 Biltmore Fixed
Income 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 of the Trust 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--U.S. government obligations are valued at the mean
between the over-the-counter bid and asked prices as furnished by an
independent pricing service. Bonds and other fixed-income securities held
by the Fund are valued at the last sale price on a national securities
exchange, if available. Otherwise, they are valued at the mean between the
bid and asked prices provided by independent pricing services.
Short-term obligations are 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 Board of Trustees ("Trustees"). Risks may arise from the potential
inability of counterparties to honor the terms of the repurchase agreement.
Accordingly, the Fund could receive less than the repurchase price on the
sale of collateral securities.
C. INCOME--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 gains 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 the
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 monthly to all shareholders invested in the Fund
on the record date. Dividends are paid from 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,
1993*
<S> <C>
- ----------------------------------------------------------------------------------------------- -----------------
Shares outstanding, beginning of period --
- -----------------------------------------------------------------------------------------------
Shares sold 15,019,817
- -----------------------------------------------------------------------------------------------
Shares issued to shareholders electing to receive payment of
distributions in Fund shares 402,730
- -----------------------------------------------------------------------------------------------
Shares redeemed (1,391,320 )
- ----------------------------------------------------------------------------------------------- -----------------
Shares outstanding, end of period 14,031,227
- ----------------------------------------------------------------------------------------------- -----------------
</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"),
is entitled to receive for its services an annual investment advisory fee equal
to .60 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 of its fee or reimbursement of expenses
at any time at its sole discretion. For the period ended November 30, 1993, the
Adviser earned an investment advisory fee of $456,294, of which $76,055 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 $93,341. In addition, FAS reimbursed $52,005 of other
operating expenses. FAS can modify or terminate this voluntary reimbursement at
any time at its sole discretion.
Organization expenses of the Fund ($31,369) were borne initially by FAS. The
Fund has agreed to reimburse FAS for the organization expenses initially borne
by FAS during the five year period following the date the Fund's registration
statement first became effective. During the period ended November 30, 1993, the
Fund paid $697 pursuant to this agreement.
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
$15,284, all of which was voluntarly waived.
Federated Services Company ("FSC") is the transfer 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 fees. FSC can modify or terminate the voluntary waiver at any
time at its sole discretion. For the period ended November 30, 1993 FSC, earned
recordkeeper fees of $40,312 and transfer and dividend disbursing agent fees of
$11,693.
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 investments, for the
period from May 10, 1993 (date of initial public investment) to November 30,
1993, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
PURCHASES-- $ 320,302,361
- ------------------------------------------------------------------------------------------------- ---------------
SALES-- $ 185,902,979
- ------------------------------------------------------------------------------------------------- ---------------
</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 Fixed Income 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 Fixed Income 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 Fixed Income Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Wachovia Investment Management Group 301 North Main Street
Winston-Salem, North Carolina 27150
- ---------------------------------------------------------------------------------------------------------------------
Custodian
Wachovia Bank of North Carolina, N.A. Wachovia Trust Operations
301 North Main Street
Winston-Salem, North Carolina 27150
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent, and
Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pitsburgh, 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 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
3012917A (1/94)
BILTMORE FIXED INCOME FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Biltmore Fixed Income 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
Corporate Debt Securities 1
Zero Coupon Convertible Securities 1
Privately-Issued Mortgage-Related Securities 1
Resets of Interest Rates 1
Caps and Floors 2
When-Issued and Delayed Delivery Transactions 2
Restricted and Illiquid Securities 2
Variable Rate Demand Notes 3
Repurchase Agreements 3
Reverse Repurchase Agreements 3
Lending of Portfolio Securities 3
Futures and Options Transactions 3
Warrants 6
Duration 6
Investment Limitations 6
THE BILTMORE FUNDS MANAGEMENT 9
- ---------------------------------------------------------------
Officers and Trustees 9
Fund Ownership 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
- ---------------------------------------------------------------
Adviser to the Fund 10
Advisory Fees 10
ADMINISTRATIVE SERVICES 10
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 10
- ---------------------------------------------------------------
PORTFOLIO TURNOVER 11
- ---------------------------------------------------------------
PURCHASING FUND SHARES 11
- ---------------------------------------------------------------
Conversion to Federal Funds 11
DETERMINING NET ASSET VALUE 12
- ---------------------------------------------------------------
DETERMINING MARKET VALUE OF SECURITIES 12
- ---------------------------------------------------------------
REDEEMING FUND SHARES 12
- ---------------------------------------------------------------
Redemption in Kind 12
TAX STATUS 12
- ---------------------------------------------------------------
The Fund's Tax Status 12
Shareholders' Tax Status 13
Capital Gains 13
TOTAL RETURN 13
- ---------------------------------------------------------------
YIELD 13
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 13
- ---------------------------------------------------------------
APPENDIX 15
- ---------------------------------------------------------------
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 investment objective of the Fund is to seek a high level of total return. As
a secondary investment objective, the Fund will attempt to minimize volatility
of principal relative to the fixed income markets. The investment objectives
cannot be changed without the approval of shareholders.
TYPES OF INVESTMENTS
The Fund pursues its investment objectives by investing primarily in fixed
income securities that, at the time of purchase, are of high grade, which
consists of securities that are rated in the top three investment grade
categories by an NRSRO or, if unrated, are of comparable quality to securities
with such ratings as determined by the Fund's investment adviser. 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. Listed below are securities in which the Fund may
invest from time to time.
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, A-1 or better by Standard &
Poor's Corporation ("S&P"), Prime-1 or better by Moody's Investors Service
("Moody's"), or F-1 or better by Fitch Investors Service, Inc. ("Fitch") or, if
unrated, are of comparable quality as determined by the Fund's Adviser;
time and savings deposits whose accounts are insured by the Bank Insurance Fund
("BIF"), which is administered by the Federal Deposit Insurance Corporation
("FDIC"), or in institutions whose accounts are insured by the Savings
Association Insurance Fund ("SAIF"), which is also administered by the FDIC,
including certificates of deposit issued by and other time deposits in foreign
branches of BIF-insured banks; or
bankers' acceptances.
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).
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 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.
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 RATES
The interest rates paid on the ARMS, CMOs, and REMICs (as defined in the
prospectus) 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 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.
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
objectives and policies, and not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price or 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 payments for the
securities to be purchased are segregated on the Fund's records 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 total value of its
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.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term corporate debt instruments that have
variable or floating interest rates and provide the Fund with the right to
tender the security for repurchase at its stated principal amount plus accrued
interest. Such securities typically bear interest at a rate that is intended to
cause the securities to trade at par. The interest rate may float or be adjusted
at regular intervals (ranging from daily to annually), and is normally based on
an interest rate index or a published interest rate. Many variable rate demand
notes allow the Fund to demand the repurchase of the security on not more than
seven days prior notice. Other notes only permit the Fund to tender the security
at the time of each interest rate adjustment or at other fixed intervals.
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 also may 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 OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. 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.
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 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 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.
"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.
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.
DURATION
Duration is a commonly used measure of the potential volatility in the price of
a bond, or other fixed income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the magnitude of the change in the
price of a bond relative to a given change in the market rate of interest. A
bond's price volatility depends on three primary variables: the bond's coupon
rate; maturity date; and the level of market yields of similar fixed income
securities. Generally, bonds with lower coupons or longer maturities will be
more volatile than bonds with higher coupons or shorter maturities. Duration
combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values of the
cash flows of a bond or bonds, including interest and principal payments, by the
sum of the present values of the cash flows. When the Fund invests in mortgage
pass-through securities, its duration will be calculated in a manner which
requires assumptions to be made regarding future principal prepayments. A more
complete description of this calculation is available upon request from the
Fund.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio 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.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except as permitted by its
investment objectives 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 securities while borrowings in excess of 5% of the value
of the Fund's total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it 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.
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.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that the Fund may engage
in transactions involving futures contracts and related options.
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 objectives, policies, and
limitations.
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.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. 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 objectives, policies, and limitations.
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 assets. While it is the
Fund's policy to waive its investment advisory fees on Fund 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 RESTRICTED SECURITIES
The Fund will not invest more than 10% of its total assets in securities
subject to restrictions on resale under the Securities Act of 1933,
except for certain restricted securities which meet the criteria for
liquidity as established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in securities
which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice, over-the-counter
options, non-negotiable time deposits with maturities over seven days,
and certain securities not determined under guidelines established by the
Trustees to be liquid.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except that the Fund 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 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 option positions.
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.
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
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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
NAME THE TRUST PRINCIPAL OCCUPATIONS 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
Treasurer President and Assistant Treasurer of certain investment
companies for which Federated Securities Corp. is the principal
distributor.
Joseph M. Huber Secretary Corporate Counsel, Federated Investors.
</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 Shadowline Incorporated Pension Plan Trust
(12-28-56), Winston-Salem, North Carolina, owned approximately 352,999.13 shares
(6.18%); and Wachovia Bank of Georgia, N.A., for the account of First Financial
Management Corp. Savings Plus Plan (1-1-88), Winston-Salem, North Carolina,
owned approximately 577,767.14 shares (10.12%).
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
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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) to November
30, 1993, the Adviser earned $456,294, of which $76,055 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) to November 30, 1993, FAS earned $93,341. In addition, FAS
reimbursed $52,005 of other operating expenses.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order
can be obtained elsewhere. The Adviser makes decisions on portfolio transactions
and selects brokers and dealers subject to review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers 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.
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 $1,085,875 of securities of Morgan
Stanley Group, Inc., one of its regular broker/dealers that derives more than
15% of gross revenues from securities-related activities.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objectives. 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 objectives, without regard to the length of time
a particular security may have been held. The Fund's investment adviser does not
anticipate that the Fund's annual portfolio turnover rate will exceed 100% under
normal market conditions.
During the period from May 10, 1993 (date of initial public investment) through
November 30, 1993, the Fund's portfolio turnover rate was 149%. A higher rate of
portfolio turnover involves correspondingly greater transaction expenses which
must be borne directly by the Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. Nevertheless, transactions for a Fund's
portfolio will be based only upon investment considerations and will not be
limited by any other considerations when the Fund's investment adviser deems it
appropriate to make changes in the Fund's portfolio.
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."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. The Wachovia Banks act as the
shareholders' agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
- --------------------------------------------------------------------------------
The market value of the Fund's portfolio securities are determined as follows:
for equity securities, according to the last sale price on a national securities
exchange, if available;
in the absence of recorded sales for listed equity securities, according to the
mean between the last closing bid and asked prices;
for unlisted equity securities, the latest bid prices;
for bonds and other fixed income securities, as determined by an independent
pricing service;
for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service; or
for all other securities, at fair value as determined in good faith by the Board
of Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
option trading on such exchanges, unless the Trustees determine in good faith
that another method of valuing option positions is necessary.
REDEEMING FUND SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940, which obligates the Fund to redeem shares for any one shareholder
in cash only up to the lesser of $250,000 or 1% of the Fund's net asset value
during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund expects to pay no federal income tax because it intends to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
There are tax uncertainties with respect to whether increasing rate securities
will be treated as having an original issue discount. If it is determined that
the increasing rate securities have original issue discount, a holder will be
required to include as income in each taxable year, in addition to interest paid
on the security for that year, an amount equal to the sum of the daily portions
of original issue discount for each day during the taxable year that such holder
holds the security. There may also be tax uncertainties with respect to whether
an extension of maturity on an increasing rate note will be treated as a taxable
exchange. In the event it is determined that an extension of
maturity is a taxable exchange, a holder will recognize a taxable gain or loss,
which will be a short-term capital gain or loss if the holder holds the security
as a capital asset, to the extent that the value of the security with an
extended maturity differs from the adjusted basis of the security deemed
exchanged therefor.
Federal income tax law requires the holder of a zero coupon convertible security
to recognize income with respect to the security prior to the receipt of cash
payments. To maintain its qualification as a regulated investment company and
avoid liability of federal income taxes, the Fund will be required to distribute
income accrued with respect to zero coupon convertible securities which it owns,
and may have to sell portfolio securities (perhaps at disadvantageous times) in
order to generate cash to satisfy these distribution requirements.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as long-term
capital gains regardless of how long shareholders have held shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's cumulative total return from May 10, 1993 (date of initial public
investment) to November 30, 1993 was (1.61%). Cumulative total return reflects
the Fund's total performance over a specific period of time. This total return
assumes and is reduced by the payment of the maximum sales load.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the reinvestment of all
dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for the thirty-day period ended November 30, 1993 was 4.39%.
The yield for the Fund is determined each day 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 value is then annualized using
semi-annual compounding. This means that the amount of income generated during
the thirty-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in the Fund's expenses;
the relative amount of Fund cash flow; and
various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) index is comprised of approximately
5,000 issues which include: non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed rate,
non-convertible domestic bonds of companies in industry, public utilities, and
finance. The average maturity of these bonds approximates nine years. Tracked
by Smith Barney Shearson, the index calculates total returns for one-month,
three-month, twelve-month, and ten-year periods and year-to-date.
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the fixed income funds
category in advertising sales literature.
LEHMAN BROTHERS AGGREGATE BOND INDEX is a total return index measuring both the
capital price changes and income provided by the underlying universe of
securities, weighted by market value outstanding. The Aggregate Bond Index is
comprised of the Lehman Brothers Government Bond Index, Corporate Bond Index,
Mortgage-Backed Securities Index and the Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Federal Farm Credit Bank, Federal Land Bank
and the Bank for Co-Operatives; foreign obligations, U.S. investment-grade
corporate debt and mortgage-backed obligations. All corporate debt included in
the Aggregate Bond Index has a minimum rating of BBB by S&P or Fitch Investor's
Service, Inc. ("Fitch"), or a minimum rating of Baa by Moody's.
MERRILL LYNCH CORPORATE AND GOVERNMENT INDEX includes issues which must be in
the form of publicly placed, nonconvertible, coupon-bearing domestic debt and
must carry a term of maturity of at least one year. Par amounts outstanding
must be no less than $10 million at the start and at the close of the
performance measurement period. Corporate instruments must be rated by S&P or
by Moody's as investment grade issues (i.e., BBB/Baa or better).
MERRILL LYNCH DOMESTIC MASTER INDEX includes issues which must be in the form of
publicly placed, nonconvertible, coupon-bearing domestic debt and must carry a
term to maturity of at least one year. Par amounts outstanding must be no less
than $10 million at the start and at the close of the performance measurement
period. The Domestic Master Index is a broader index than the Merrill Lynch
Corporate and Government Index and includes, for example, mortgage related
securities. The mortgage market is divided by agency, type of mortgage and
coupon and the amount outstanding in each agency/type/coupon subdivision must
be no less than $200 million at the start and at the close of the performance
measurement period. Corporate instruments must be rated by S&P or by Moody's as
investment grade issues (i.e., BBB/Baa or better).
SALOMON BROTHERS AAA-AA Corporate index calculates total returns of
approximately 775 issues which include long-term, high grade domestic corporate
taxable bonds, rated AAA-AA with maturities of twelve years or more and
companies in industry, public utilities, and finance.
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an unmanaged
index comprised of all the bonds issued by the Lehman Brothers
Government/Corporate Bond Index with maturities between 1 and 9.99 years. Total
return is based on price appreciation/depreciation and income as a percentage
of the original investment. Indices are rebalanced monthly by market
capitalization.
_MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
S&P may apply a plus (+) or minus (-) to the above rating classifications to
show relative standing within the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING DEFINITIONS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2, and 3, in
the generic rating classifications Aa and A in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
P-1--Issuers (or related supporting institutions) rated Prime-1 (P-1) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; or
well-established access to a range of financial markets and assured sources of
alternate liquidity.
P-2--Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
3012917B (1/94)
BILTMORE SHORT-TERM FIXED INCOME FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
PROSPECTUS
The shares of Biltmore Short-Term Fixed Income Fund (the "Fund") offered by this
prospectus represent interests in a diversified portfolio of securities, which
is one of a series of investment portfolios in The Biltmore Funds (the "Trust"),
an open-end management investment company (a mutual fund).
The investment objective of the Fund is to produce a high level of current
income. The Fund will attempt to do so with a minimum of principal volatility.
The Fund pursues this investment objective by investing in a diversified
portfolio of short-term, high-grade, fixed income 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
U.S. Government Obligations 5
Corporate Debt Obligations 5
Fixed Rate Corporate Debt Obligations 5
Floating Rate Corporate Debt
Obligations 6
Convertible 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
Demand Master Notes 8
Demand Features 9
Restricted and Illiquid Securities 9
Repurchase Agreements 9
When-Issued and Delayed Delivery
Transactions 10
Lending of Portfolio Securities 10
Other Investment Techniques 10
Debt Considerations 10
Duration 10
Investment Limitations 11
THE BILTMORE FUNDS INFORMATION 11
- ------------------------------------------------------
Management of the Trust 11
Board of Trustees 11
Investment Adviser 11
Advisory Fees 11
Adviser's Background 12
Distribution of Shares 12
Administrative Arrangements 12
Shareholder Servicing Arrangements 12
Administration of the Fund 13
Administrative Services 13
Custodian 13
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 13
Legal Services 13
Independent Auditors 14
Brokerage Transactions 14
Expenses of the Fund 14
NET ASSET VALUE 14
- ------------------------------------------------------
INVESTING IN THE FUND 14
- ------------------------------------------------------
Share Purchases 14
Through Wachovia Brokerage Service 15
By Mail 15
By Wire 15
Through the Trust Division of the
Wachovia Banks 15
Minimum Investment Required 15
What Shares Cost 16
Purchases at Net Asset Value 16
Sales Charge Reallowance 16
Reducing the Sales Charge 17
Quantity Discounts and Accumulated
Purchases 17
Letter of Intent 17
Reinvestment Privilege 17
Concurrent Purchases 18
Systematic Investment Program 18
Exchanging Securities for Fund Shares 18
Certificates and Confirmations 18
Dividends 19
Capital Gains 19
Exchange Privilege 19
Exchange by Telephone 20
REDEEMING SHARES 20
- ------------------------------------------------------
By Telephone 20
By Mail 20
Signatures 21
Systematic Withdrawal Program 21
Accounts with Low Balances 21
SHAREHOLDER INFORMATION 22
- ------------------------------------------------------
Voting Rights 22
Massachusetts Business Trusts 22
EFFECT OF BANKING LAWS 22
- ------------------------------------------------------
TAX INFORMATION 23
- ------------------------------------------------------
PERFORMANCE INFORMATION 24
- ------------------------------------------------------
FINANCIAL STATEMENTS 25
- ------------------------------------------------------
REPORT OF ERNST & YOUNG, INDEPENDENT
AUDITORS 35
- ------------------------------------------------------
ADDRESSES 36
- ------------------------------------------------------
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).............................................................. 0.40%
12b-1 Fees..................................................................................... None
Other Expenses................................................................................. 0.23%
Shareholder Servicing Agent Fee (2)....................................................... 0.00 %
Total Fund Operating Expenses (after waiver) (3)..................................... 0.63%
</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 0.55%.
(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 0.58% 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 estimated to be 0.78% 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........................................................................... $51 $64
</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 SHORT-TERM FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
35.
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1993*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.27
- -----------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments (0.10)
- ----------------------------------------------------------------------------------------------- -----------------
Total from investment operations 0.17
- -----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.26)
- ----------------------------------------------------------------------------------------------- -----------------
NET ASSET VALUE, END OF PERIOD $ 9.91
- ----------------------------------------------------------------------------------------------- -----------------
TOTAL RETURN** 1.69%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses 0.58%(a)
- -----------------------------------------------------------------------------------------------
Net investment income 4.78%(a)
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.22%(a)
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $154,459
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 73 %
- -----------------------------------------------------------------------------------------------
</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) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expenses and net investment
income ratios shown above (Note 5).
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 Short-Term Fixed Income 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 investing primarily in short-term high-grade bonds and
notes. 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 Balanced Fund, Biltmore Equity
Fund, Biltmore Equity Index Fund, Biltmore Fixed Income Fund, Biltmore Money
Market Fund (Institutional Shares and Investment Shares), Biltmore Prime Cash
Management Fund (Institutional Shares), Biltmore Quantitative Equity 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 to produce a high level of current
income. The Fund will attempt to do so with a minimum of principal volatility.
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 diversified portfolio of short-term, high-grade, fixed income
securities. Under normal market circumstances, the Fund will invest at least 65%
of its assets in such securities. The Fund will maintain an average
dollar-weighted maturity of between one to three years. The targeted duration of
the Fund will be 1.5 years or less. The permitted investments include:
domestic issues of corporate debt obligations rated, at the time of
purchase, A or better by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P"), or Fitch Investors Service
("Fitch"), or, if unrated, of comparable quality to securities having
such ratings as determined by the Fund's investment adviser. 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 Information);
obligations of the United States government;
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, Bank for
Cooperatives (including Central Bank for Cooperatives), Federal Land
Banks, Federal Intermediate 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;
convertible securities;
mortgage-backed securities (see below);
asset-backed securities (see below);
commercial paper that is rated, at the time of purchase, 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 to securities having such ratings;
time and savings deposits (including certificates of deposit) in
commercial or savings banks;
bankers' acceptances;
demand master notes;
repurchase agreements collateralized by high quality, liquid investments;
and
money market instruments.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted securities, securities of other investment companies, warrants, and
engage in when-issued and delayed delivery transactions. The Fund may also
engage in put and call options, futures, and options on futures 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 alternative debt obligation
issues 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.
U.S. GOVERNMENT OBLIGATIONS. The U.S. government obligations 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 the Federal Farm Credit System, Federal Home
Loan Banks, Federal National Mortgage Association, 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. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to so do.
These agencies and instrumentalities 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. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
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 to securities having such ratings 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.
CONVERTIBLE SECURITIES. Convertible securities are 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 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 are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and
therefore have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar 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.
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.
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.
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 of the Fund 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.
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.
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.
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 Trustees and will receive collateral in the
form of cash or U.S. government securities equal to at least 102% of the value
of the securities loaned.
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 techniques 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.
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.
DURATION
Duration is a commonly used measure of the potential volatility in the price of
a bond, or other fixed income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the magnitude of the change in the
price of a bond relative to a given change in the market rate of interest. A
bond's price volatility depends on three primary variables: the bond's coupon
rate; maturity date; and
the level of market yields of similar fixed income securities. Generally, bonds
with lower coupons or longer maturities will be more volatile than bonds with
higher coupons or shorter maturities. Duration combines these variables into a
single measure.
Duration is calculated by dividing the sum of the time-weighted values of the
cash flows of a bond or bonds, including interest and principal payments, by the
sum of the present values of the cash flows. When the Fund invests in mortgage
pass-through securities, its duration will be calculated in a manner which
requires assumptions to be made regarding future principal prepayments. A more
complete description of this calculation is available upon request from the
Fund.
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 0.55 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.
Samuel M. Gibbs, II is the Fund's portfolio manager, and is Senior Vice
President and Manager of Fixed-Income Investments for Wachovia Investment
Management Group. Mr. Gibbs joined Wachovia Bank of North Carolina, N.A. in
1969 as a portfolio manager. He became a bond trader and fixed income
portfolio manager in 1975 and was elected Vice President in 1976. Mr. Gibbs
assumed his current position in 1977 and was elected Senior Vice President
in 1987. Mr. Gibbs is a graduate of Davidson College and has an MBA from
the University of South Carolina.
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 the 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. However the Adviser may voluntarily waive and/or reimburse some
expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
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 Short-Term Fixed Income 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 Short-Term Fixed Income 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 which Wachovia Bank of
North Carolina, N.A. and 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 the 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. Monthly statements are sent to report dividends paid
during the month.
DIVIDENDS
Dividends are declared and paid monthly 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 or the 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 fund into which an exchange is to be effected.
Shareholders using this privilege must exchange shares having a net asset value
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 Participating 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 the shareholder's 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, Wachovia Bank of North Carolina, N.A., Winston-Salem,
North Carolina, acting in various capacities for numerous accounts, was the
owner of record of 7,927,799.94 shares (50.64%) 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. 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
financial publications 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 SHORT-TERM FIXED INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
ASSET-BACKED SECURITIES--6.6%
- ------------------------------------------------------------------------------------------------
$ 1,742,672 CIT Group Securitization Series 1993, 4.70%, 6/15/2018 $ 1,734,499
--------------------------------------------------------------------------------
1,844,588 Ford Credit Grantor Trust, 1993-A, 4.85%, 1/15/98 1,853,811
--------------------------------------------------------------------------------
963,329 GMAC 1992-G, Grantor Trust 4.30%, 11/15/94 963,329
--------------------------------------------------------------------------------
838,015 GMAC 1993-A, Grantor Trust 4.15%, 3/15/98 836,968
--------------------------------------------------------------------------------
4,123,364 GMAC 1993-B, Grantor Trust 4.00%, 9/15/98 4,098,871
--------------------------------------------------------------------------------
500,000 Novus Home Equity Loan, Series 1993-1, 3.64%, 3/15/2003 501,090
--------------------------------------------------------------------------------
252,383 Shawmut National Grantor Trust, Series 1992-A, 5.55%, 11/15/97 254,432
-------------------------------------------------------------------------------- ---------------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST, $10,280,842) 10,243,000
-------------------------------------------------------------------------------- ---------------
COLLATERALIZED MORTGAGE OBLIGATIONS--2.7%
- ------------------------------------------------------------------------------------------------
813,016 Federal Home Loan Mortgage Corp., CMO, Series 1476A, 5.50%,
8/15/97 814,788
--------------------------------------------------------------------------------
1,921,073 Household Finance Corp., CMO, Series 1992A3, 5.80%, 4/20/2007 1,949,889
--------------------------------------------------------------------------------
1,412,213 GE Capital Mortgage Services, Inc., CMO, Series 1993A 5.00%,
8/25/2008 1,413,089
-------------------------------------------------------------------------------- ---------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST, $4,185,400) 4,177,766
-------------------------------------------------------------------------------- ---------------
CORPORATE BONDS--21.9%
- ------------------------------------------------------------------------------------------------
BANKING--2.3%
--------------------------------------------------------------------------------
1,000,000 Bankers Trust NY Corp., 4.70%, 7/1/96 997,140
--------------------------------------------------------------------------------
1,500,000 MBNA American Bank, N.A., 4.95%, 12/2/96 1,500,000
--------------------------------------------------------------------------------
1,045,000 NationsBank Corp., 5.375%, 12/1/95 1,060,351
-------------------------------------------------------------------------------- ---------------
Total 3,557,491
-------------------------------------------------------------------------------- ---------------
CONSUMER DURABLES--0.9%
--------------------------------------------------------------------------------
1,305,000 Eastman Kodak Co., 10.05%, 3/15/94 1,325,828
-------------------------------------------------------------------------------- ---------------
CONSUMER PRODUCTS--0.3%
--------------------------------------------------------------------------------
520,000 Philip Morris Cos., Inc., 8.70%, 8/1/94 535,356
-------------------------------------------------------------------------------- ---------------
</TABLE>
BILTMORE SHORT-TERM FIXED INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
CORPORATE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------------
FINANCE--11.7%
--------------------------------------------------------------------------------
$ 2,880,000 Beneficial Corp., 9.15%, 7/31/95 $ 3,092,976
--------------------------------------------------------------------------------
3,140,000 European Investment Bank, 4.905%, 11/21/94 3,160,379
--------------------------------------------------------------------------------
520,000 Ford Motor Credit Co., 8.00%, 6/1/94 530,275
--------------------------------------------------------------------------------
4,640,000 IBM Credit Corp., 5.00%-6.125%, 11/15/94-5/10/96 4,694,018
--------------------------------------------------------------------------------
785,000 ITT Financial Corp., 5.00%, 8/15/95 789,184
--------------------------------------------------------------------------------
3,665,000 International Bank for Reconstruction & Development, Zero-coupon,
2/15/94 3,639,235
--------------------------------------------------------------------------------
2,090,000 Norwest Financial, Inc., 7.95%, 6/15/94 2,134,809
-------------------------------------------------------------------------------- ---------------
Total 18,040,876
-------------------------------------------------------------------------------- ---------------
FINANCIAL SERVICES--5.0%
--------------------------------------------------------------------------------
6,045,000 Merrill Lynch & Co., Inc., 5.50%-6.75%, 3/15/95-7/28/95 6,201,236
--------------------------------------------------------------------------------
1,570,000 U.S. West Financial Services, Inc., 8.55%, 12/1/93 1,570,000
-------------------------------------------------------------------------------- ---------------
Total 7,771,236
-------------------------------------------------------------------------------- ---------------
FOOD & BEVERAGE--1.0%
--------------------------------------------------------------------------------
1,500,000 PepsiCo, Inc., 4.60%, 6/30/96 1,487,925
-------------------------------------------------------------------------------- ---------------
UTILITIES--0.7%
--------------------------------------------------------------------------------
1,045,000 Virginia Electric & Power Co., 9.375%, 11/1/94 1,093,937
-------------------------------------------------------------------------------- ---------------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $34,216,000) 33,812,649
-------------------------------------------------------------------------------- ---------------
U.S. TREASURY OBLIGATIONS--61.6%
- ------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES
--------------------------------------------------------------------------------
4,145,000 8.25%, 11/15/94 4,321,826
--------------------------------------------------------------------------------
2,300,000 8.00%, 7/15/94 2,363,250
--------------------------------------------------------------------------------
3,050,000 7.25%, 8/31/96 3,263,988
--------------------------------------------------------------------------------
1,700,000 7.00%, 4/15/94 1,723,103
--------------------------------------------------------------------------------
4,305,000 5.875%, 5/15/95 4,420,030
--------------------------------------------------------------------------------
1,045,000 5.75%, 3/31/94 1,053,485
--------------------------------------------------------------------------------
9,155,000 5.50%, 2/15/95 9,333,797
--------------------------------------------------------------------------------
9,555,000 5.125%, 11/15/95 9,720,684
--------------------------------------------------------------------------------
</TABLE>
BILTMORE SHORT-TERM FIXED INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
U.S. TREASURY OBLIGATIONS--CONTINUED
- ------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES--CONTINUED
--------------------------------------------------------------------------------
$ 2,500,000 4.875%, 1/31/94 $ 2,506,250
--------------------------------------------------------------------------------
7,820,000 4.625%, 2/15/96 7,872,550
--------------------------------------------------------------------------------
11,865,000 4.375%, 8/15/96 11,840,914
--------------------------------------------------------------------------------
3,500,000 4.25%, 10/31/94-5/15/96 3,511,480
--------------------------------------------------------------------------------
14,010,000 4.125%, 5/31/95-6/30/95 14,037,618
--------------------------------------------------------------------------------
19,195,000 3.875%, 2/28/95-10/31/95 19,184,792
-------------------------------------------------------------------------------- ---------------
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST, $95,712,912) 95,153,767
-------------------------------------------------------------------------------- ---------------
U.S. GOVERNMENT AGENCIES--0.8%
- ------------------------------------------------------------------------------------------------
1,277,806 Federal National Mortgage Association REMIC, Principal Only,
Series 1990-110AB, 2/25/97 (IDENTIFIED COST, $1,248,864) 1,268,222
-------------------------------------------------------------------------------- ---------------
*VARIABLE RATE INSTRUMENTS--2.1%
- ------------------------------------------------------------------------------------------------
FINANCE
--------------------------------------------------------------------------------
3,140,000 General Electric Capital Corp., 8.52%, 12/15/94 (IDENTIFIED COST, $3,348,590) 3,269,776
-------------------------------------------------------------------------------- ---------------
**REPURCHASE AGREEMENT--3.5%
- ------------------------------------------------------------------------------------------------
5,416,108 PaineWebber, Inc., 3.20%, dated 11/30/93, due 12/1/93
(at amortized cost) (Note 2B) 5,416,108
-------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (IDENTIFIED COST, $154,408,716) $ 153,341,288\
-------------------------------------------------------------------------------- ---------------
</TABLE>
* 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 $154,420,674. The net unrealized
depreciation on a federal tax basis amounts to $1,079,386, which is comprised
of $43,102 appreciation and $1,122,488 depreciation at November 30, 1993.
Note: The categories of investments are shown as a percentage of net assets
($154,459,176) at November 30, 1993.
The following abbreviations are used throughout this portfolio:
CMO--Collateralized Mortgage Obligation
REMIC--Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
BILTMORE SHORT-TERM FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments in securities at amortized cost and value (Notes 2A and 2B)
(identified cost $154,408,716; tax cost $154,420,674) $ 153,341,288
- ------------------------------------------------------------------------------------------------
Interest receivable 1,634,734
- ------------------------------------------------------------------------------------------------
Receivable for investments sold 1,519,306
- ------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 10,517
- ------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 48,635
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 156,554,480
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Payable for investments purchased $ 1,500,000
- ---------------------------------------------------------------------------------
Payable for Fund shares redeemed 500,055
- ---------------------------------------------------------------------------------
Accrued expenses and other liabilities 95,249
- --------------------------------------------------------------------------------- -------------
Total liabilities 2,095,304
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 15,586,073 shares of beneficial interest outstanding $ 154,459,176
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------
Paid-in capital $ 155,868,175
- ------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (1,067,428)
- ------------------------------------------------------------------------------------------------
Accumulated undistributed net realized loss on investments (505,157)
- ------------------------------------------------------------------------------------------------
Undistributed net investment income 163,586
- ------------------------------------------------------------------------------------------------ ---------------
Total net assets $ 154,459,176
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE:
(net assets of $154,459,176 / 15,586,073 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $9.91
- ------------------------------------------------------------------------------------------------ ---------------
COMPUTATION OF OFFERING PRICE:
Offering Price Per Share (100/95.5 of $9.91)* $10.38
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
*On sales of $100,000 or more, the offering price is reduced as stated under
"What Shares Cost" on page 16.
(See Notes which are an integral part of the Financial Statements)
BILTMORE SHORT-TERM FIXED INCOME FUND
STATEMENT OF OPERATIONS
PERIOD ENDED NOVEMBER 30, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 4,722,315
- --------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 485,212
- -------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 108,292
- -------------------------------------------------------------------------------------
Trustees' fees 4,750
- -------------------------------------------------------------------------------------
Custodian fees (Note 5) 17,733
- -------------------------------------------------------------------------------------
Recordkeeper fees (Note 5) 31,458
- -------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 5) 11,668
- -------------------------------------------------------------------------------------
Legal fees 8,700
- -------------------------------------------------------------------------------------
Printing and postage 9,920
- -------------------------------------------------------------------------------------
Insurance premiums 8,553
- -------------------------------------------------------------------------------------
Miscellaneous 14,691
- ------------------------------------------------------------------------------------- -----------
Total expenses 700,977
- -------------------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 132,330
- ------------------------------------------------------------------------
Waiver of custodian fees (Note 5) 17,733
- ------------------------------------------------------------------------
Reimbursement of other operating expenses by Administrator (Note 5) 43,126 193,189
- ------------------------------------------------------------------------ ----------- -----------
Net expenses 507,788
- -------------------------------------------------------------------------------------------------- -------------
Net investment income 4,214,527
- -------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------
Net realized loss on investments (identified cost basis) (505,157)
- --------------------------------------------------------------------------------------------------
Net change in unrealized depreciation on investments (1,067,428)
- -------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized loss on investments (1,572,585)
- -------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 2,641,942
- -------------------------------------------------------------------------------------------------- -------------
</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 SHORT-TERM FIXED INCOME 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 $ 4,214,527
- -----------------------------------------------------------------------------------------------
Net realized loss on investments transactions ($493,199 net loss as computed for federal tax
purposes) (Note 2D) (505,157)
- -----------------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments (1,067,428)
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets resulting from operations 2,641,942
- ----------------------------------------------------------------------------------------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------------------------
Dividend to shareholders from net investment income (4,050,941)
- ----------------------------------------------------------------------------------------------- -----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------------------------
Net proceeds from sales of shares 169,877,616
- -----------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive payment
of dividends in Fund shares 4,049,570
- -----------------------------------------------------------------------------------------------
Cost of shares redeemed (18,059,011)
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets from Fund share transactions 155,868,175
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets 154,459,176
- -----------------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------------------------------- -----------------
End of period (including undistributed net investment income of $163,586) $ 154,459,176
- ----------------------------------------------------------------------------------------------- -----------------
</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 SHORT-TERM FIXED INCOME 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
Short-Term Fixed Income 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 for which there were no sales, and private placement
securities, are valued at the mean between bid and asked prices. Bonds and
other fixed income securities are valued at the last sale price on a
national securities exchange on that day, 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 Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INCOME--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.
At November 30, 1993 the Fund, for federal tax purposes, had a capital loss
carryforward of $493,199, which will reduce the Fund's taxable income
arising from a future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of
distribution to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal tax. Pursuant to the Code, such
capital loss carryforward will expire in 2001.
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 objectives 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--The 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 using the straight-line method 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 monthly 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 16,990,534
- -----------------------------------------------------------------------------------------------
Shares issued to shareholders electing to receive
payment of dividends in Fund shares 407,113
- -----------------------------------------------------------------------------------------------
Shares redeemed (1,811,574)
- ----------------------------------------------------------------------------------------------- -----------------
Shares outstanding, end of period 15,586,073
- ----------------------------------------------------------------------------------------------- -----------------
</TABLE>
*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"),
is entitled to receive for its services an annual investment advisory fee equal
to .55 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. For the period
ended November 30, 1993, the Adviser earned an investment advisory fee of
$485,212, of which $132,330 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 $108,292. In addition, FAS reimbursed $43,126 of other
operating expenses. FAS can modify or terminate the voluntary waiver and
reimbursement at any time at its sole discretion.
The Trust 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 fees. FSC can modify or terminate the
voluntary waiver at any time at its sole discretion. For the period ended
November 30, 1993, FSC earned recordkeeper fees of $31,458 and transfer and
dividend disbursing agent fees of $11,668.
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 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. For the period ended November 30, 1993, the Custodian earned $17,733,
all of which was voluntarily waived.
Certain Officers of the Trust are 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-- $ 258,028,198
- ------------------------------------------------------------------------------------------------- ---------------
SALES AND MATURITIES-- $ 108,597,101
- ------------------------------------------------------------------------------------------------- ---------------
</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 Short-Term Fixed Income 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 Short-Term Fixed Income 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 Short-Term Fixed Income Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Wachovia Investment Management Group 301 North Main Street
Winston-Salem, North Carolina 27150
- ---------------------------------------------------------------------------------------------------------------------
Custodian
Wachovia Bank of North Carolina, N.A. Wachovia Trust Operations
301 North Main Street
Winston-Salem, North Carolina 27150
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
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 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
3012916A (1/94)
BILTMORE SHORT-TERM FIXED INCOME FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Biltmore Short-Term Fixed Income 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 OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
Money Market Instruments 1
Variable Rate Demand Notes 1
When-Issued and Delayed
Delivery Transactions 1
Restricted and Illiquid Securities 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Lending of Portfolio Securities 2
Corporate Debt Securities 2
Converible Securities 3
Zero Coupon Converible Securities 3
Privately Issued Morgage-Related Securities 3
Resets of Interest 3
Caps and Floors 3
Futures and Options Transactions 4
Warrants 6
Investment Limitations 6
THE BILTMORE FUNDS MANAGEMENT 9
- ---------------------------------------------------------------
Officers and Trustees 9
Fund Ownership 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
- ---------------------------------------------------------------
Adviser to the Fund 10
Advisory Fees 10
ADMINISTRATIVE SERVICES 10
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 10
- ---------------------------------------------------------------
PORTFOLIO TURNOVER 11
- ---------------------------------------------------------------
PURCHASING FUND SHARES 11
- ---------------------------------------------------------------
Conversion to Federal Funds 11
DETERMINING NET ASSET VALUE 11
- ---------------------------------------------------------------
DETERMINING MARKET VALUE OF SECURITIES 12
- ---------------------------------------------------------------
REDEEMING FUND SHARES 12
- ---------------------------------------------------------------
Redemption in Kind 12
TAX STATUS 12
- ---------------------------------------------------------------
The Fund's Tax Status 12
Shareholders' Tax Status 13
Capital Gains 13
TOTAL RETURN 13
- ---------------------------------------------------------------
YIELD 13
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 13
- ---------------------------------------------------------------
APPENDIX 15
- ---------------------------------------------------------------
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 OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to produce a high level of current
income. The Fund will attempt to do so with a minimum of principal volatility.
The investment objective cannot be changed without the approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests primarily in short-term, high-grade, fixed income 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. Listed below are securities in which the
Fund may invest from time to time.
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 Standard &
Poor's Corporation ("S&P"), Prime-1 by Moody's Investors Service Inc.
("Moody's") or F-1 by Fitch Investors Service, Inc. ("Fitch"), and unrated
commercial paper that is deemed by the Fund's investment adviser to be of
comparable quality to securities having such ratings;
time and savings deposits whose accounts are insured by the Bank Insurance Fund
("BIF") which is administered by the Federal Deposit Insurance Corporation
("FDIC") or in institutions whose accounts are insured by the Savings
Association Insurance Fund ("SAIF"), which is also administered by the FDIC,
including certificates of deposit issued by and other time deposits in foreign
branches of BIF-insured banks; or
bankers' acceptances.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term corporate debt instruments that have
variable or floating interest rates and provide the Fund with the right to
tender the security for repurchase at its stated principal amount plus accrued
interest. Such securities typically bear interest at a rate that is intended to
cause the securities to trade at par. The interest rate may float or be adjusted
at regular intervals (ranging from daily to annually), and is normally based on
an interest rate index or a published interest rate. Many variable rate demand
notes allow the Fund to demand the repurchase of the security on not more than
seven days prior notice. Other notes only permit the Fund to tender the security
at the time of each interest rate adjustment or at other fixed intervals.
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 or 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 payments for the
securities to be purchased are segregated on the Fund's records 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 Trustees. The Trustees consider 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 OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not always 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, 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 objective. 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.
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 (as defined in the
prospectus) 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 a 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 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 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.
"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.
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 put options on financial futures,
and put options on portfolio 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 objectives, 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 up to 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 its 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 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 RESTRICTED SECURITIES
The Fund will not invest more than 10% 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.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for purposes of
exercising control or management.
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.
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.
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
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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 Servcies; 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
Treasurer President and Assistant Treasurer of certain investment
companies for which Federated Securities Corp. is the
principal distributor.
Joseph M. Huber Secretary Corporate Counsel, Federated Investors.
</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 shareholder 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 7,927,799.94
shares (50.64%).
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
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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) to November
30, 1993, the Adviser earned $485,212, of which $132,330 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
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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) to November 30, 1993, FAS earned $108,292. In addition, FAS
reimbursed $43,126 of other operating expenses.
BROKERAGE TRANSACTIONS
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When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers 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.
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 $6,201,236 of securities of Merrill
Lynch & Co., one of its regular broker/dealers that derives 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
Adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. It is not anticipated that the portfolio trading engaged in by the
Fund will result in its annual rate of portfolio turnover exceeding 100% under
normal market conditions. For the period from May 10, 1993 (date of initial
public investment) to November 30, 1993, the Fund's portfolio turnover rate was
73%. 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 price.
PURCHASING FUND SHARES
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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."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. The Wachovia Banks act as the
shareholders' agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE]
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
- --------------------------------------------------------------------------------
The market value of the Fund's portfolio securities are determined as follows:
for equity securities, according to the last sale price on a national securities
exchange, if available;
in the absence of recorded sales for listed equity securities, according to the
mean between the last closing bid and asked prices;
for unlisted equity securities, the latest bid prices;
for bonds and other fixed income securities, as determined by an independent
pricing service;
for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service; or
for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
option trading on such exchanges, unless the Trustees determine in good faith
that another method of valuing option positions is necessary.
REDEEMING FUND SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940, which obligates the Fund to redeem shares for any one shareholder
in cash only up to the lesser of $250,000 or 1% of the Fund's net asset value
during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund expects to pay no federal income tax because it intends to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
There are tax uncertainties with respect to whether increasing rate securities
will be treated as having an original issue discount. If it is determined that
the increasing rate securities have original issue discount, a holder will be
required to include as income in each taxable year, in addition to interest paid
on the security for that year, an amount equal to the sum of the daily portions
of original issue discount for each day during the taxable year that such holder
holds the security. There may also be tax uncertainties with respect to whether
an extension of maturity on an increasing rate note will be treated as a taxable
exchange. In the event it is determined that an extension of maturity is a
taxable exchange, a holder will recognize a taxable gain or loss, which will be
a short-term capital gain or loss if he holds the security as a capital asset,
to the extent that the value of the security with an extended maturity differs
from the adjusted basis of the security deemed exchanged therefor.
Federal income tax law requires the holder of a zero coupon convertible security
to recognize income with respect to the security prior to the receipt of cash
payments. To maintain its qualification as a regulated investment company and
avoid liability of federal income taxes, the Fund will be required to distribute
income accrued with respect to zero coupon convertible securities which it owns,
and may have to sell portfolio securities (perhaps at disadvantageous times) in
order to generate cash to satisfy these distribution requirements.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in dividends.
Capital losses could result in a decrease in dividends. When the Fund realizes
long-term capital gains, it will distribute them at least once every 12 months.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's cumulative total return from May 10, 1993 (date of initial public
investment) to November 30, 1993 was (2.88%). Cumulative total return reflects
the Fund's total performance over a specific period of time. This total return
assumes and is reduced by the payment of the maximum sales load.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for the thirty-day period ended November 30, 1993 was 3.30%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month period
and is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments required by
the Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in the Fund's expenses;
the relative amount of Fund cash flow; and
various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
MERRILL LYNCH 1-3 YEAR TREASURY INDEX is an unmanaged index tracking short-term
U.S. government securities with maturities between 1 and 2.99 years. The index
is produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
MERRILL LYNCH CORPORATE MASTER is an unmanaged index comprised of approximately
4,356 corporate debt obligations rated BBB or better. These quality parameters
are based on composites of ratings assigned by S&P and Moody's. Only bonds with
a minimum maturity of one year are included.
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in maximum offering price over a specific period of
time. From time to time, the Fund will quote its Lipper ranking in the short
investment grade debt funds category in advertising sales literature.
LEHMAN BROTHERS GOVERNMENT INDEX is an unmanaged index comprised of all publicly
issued, non-convertible domestic debt of the U.S. government, or any agency
thereof, or any quasi-federal corporation and of corporate debt guaranteed by
the U.S. government. Only notes and bonds with a minimum outstanding principal
of
$1 million and a minimum maturity of one year are included.
LEHMAN BROTHERS AGGREGATE BOND INDEX is a total return index measuring both the
capital price changes and income provided by the underlying universe of
securities, weighted by market value outstanding. The Aggregate Bond Index is
comprised of the Lehman Brothers Government Bond Index, Corporate Bond Index,
Mortgage-Backed Securities Index and the Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Federal Farm Credit Bank, Federal Land Bank
and the Bank for Co-Operatives; foreign obligations, U.S. investment-grade
corporate debt and mortgage-backed obligations. All corporate debt included in
the Aggregate Bond Index has a minimum S&P rating of BBB, a minimum Moody's
rating of Baa, or a Fitch rating of BBB.
MERRILL LYNCH CORPORATE AND GOVERNMENT INDEX includes issues which must be in
the form of publicly placed, nonconvertible, coupon-bearing domestic debt and
must carry a term of maturity of at least one year. Par amounts outstanding
must be no less than $10 million at the start and at the close of the
performance measurement period. Corporate instruments must be rated by S&P or
by Moody's as investment grade issues (i.e., BBB/Baa or better).
MERRILL LYNCH DOMESTIC MASTER INDEX includes issues which must be in the form of
publicly placed, nonconvertible, coupon-bearing domestic debt and must carry a
term to maturity of at least one year. Par amounts outstanding must be no less
than $10 million at the start and at the close of the performance measurement
period. The Domestic Master Index is a broader index than the Merrill Lynch
Corporate and Government Index and includes, for example, mortgage related
securities. The mortgage market is divided by agency, type of mortgage and
coupon and the amount outstanding in each agency/type/coupon subdivision must
be no less than $200 million at the start and at the close of the performance
measurement period. Corporate instruments must be rated by S&P or by Moody's as
investment grade issues (i.e. BBB/Baa or better).
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an unmanaged
index comprised of all the bonds issued by the Lehman Brothers
Government/Corporate Bond Index with maturities between 1 and 9.99 years. Total
return is based on price appreciation/depreciation and income as a percentage
of the original investment. Indices are rebalanced monthly by market
capitalization.
_MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. S&P may apply a plus (+) or
minus (-) to the above rating classifications to show relative standing within
the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (P-1) (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by many of the following
characteristics:
leading market positions in well-established industries;
high rates of return on funds employed;
conservative capitalization structure with moderate reliance on debt and ample
asset protection;
broad margins in earnings coverage of fixed financial charges and high internal
cash generation; or
well-established access to a range of financial markets and assured sources of
alternate liquidity.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
3012916B (1/94)
BILTMORE SPECIAL VALUES FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
PROSPECTUS
The shares of Biltmore Special Values Fund (the "Fund") offered by this
prospectus represent interests in a diversified portfolio of securities, which
is one of a series of investment portfolios in The Biltmore Funds (the "Trust"),
an open-end management investment company (a mutual fund).
The investment objective of the Fund is to produce growth of principal. The Fund
pursues this objective by investing primarily in a portfolio of equity
securities comprising the small capitalization sector of the United States
equity market.
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
(THE "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 an investor should read and know before
investing 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 4
Corporate Obligations 4
Securities of Foreign Issuers 5
Stock Index Futures and Options 5
Put and Call Options 6
Restricted and Illiquid Securities 6
Temporary Investments 7
Repurchase Agreements 7
When-Issued and Delayed
Delivery Transactions 7
Lending of Portfolio Securities 7
Investment Considerations 7
Investment Limitations 8
THE BILTMORE FUNDS INFORMATION 8
- ------------------------------------------------------
Management of the Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 9
Distribution of Shares 9
Administrative Arrangements 9
Shareholder Servicing Arrangements 9
Administration of the Fund 10
Administrative Services 10
Custodian 10
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 10
Legal Services 11
Independent Auditors 11
Brokerage Transactions 11
Expenses of the Fund 11
NET ASSET VALUE 11
- ------------------------------------------------------
INVESTING IN THE FUND 11
- ------------------------------------------------------
Share Purchases 11
Through Wachovia Brokerage Service 12
By Mail 12
By Wire 12
Through the Trust Divisions of the
Wachovia Banks 12
Minimum Investment Required 13
What Shares Cost 13
Purchases at Net Asset Value 13
Sales Charge Reallowance 13
Reducing the Sales Charge 14
Quantity Discounts and Accumulated
Purchases 14
Letter of Intent 14
Reinvestment Privilege 14
Concurrent Purchases 15
Systematic Investment Program 15
Exchanging Securities for Fund Shares 15
Certificates and Confirmations 15
Dividends 16
Capital Gains 16
Exchange Privilege 16
Exchange by Telephone 17
REDEEMING SHARES 17
- ------------------------------------------------------
By Telephone 17
By Mail 18
Signatures 18
Systematic Withdrawal Program 18
Accounts with Low Balances 18
SHAREHOLDER INFORMATION 19
- ------------------------------------------------------
Voting Rights 19
Massachusetts Business Trusts 19
EFFECT OF BANKING LAWS 20
- ------------------------------------------------------
TAX INFORMATION 20
- ------------------------------------------------------
PERFORMANCE INFORMATION 21
- ------------------------------------------------------
FINANCIAL STATEMENTS 22
- ------------------------------------------------------
REPORT OF ERNST & YOUNG,
INDEPENDENT AUDITORS 35
- ------------------------------------------------------
ADDRESSES 36
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..................................................................... None
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)......................................................................... 0.59%
12b-1 Fees................................................................................................ None
Other Expenses (after waiver) (2)......................................................................... 0.66%
Shareholder Servicing Agent Fee (3)................................................................... 0.00%
Total Fund Operating Expenses (after waiver) (4).......................................................... 1.25%
</TABLE>
(1) The management fee was 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 0.80%.
(2) Other Expenses would have been 2.24% absent the voluntary waivers by the
administrator and custodian and the reimbursement by the administrator. The
administrator and custodian may terminate these voluntary waivers at any
time at their sole discretion.
(3) As of the date of this prospectus, the Fund is not paying or accruing
shareholder servicing agent fees. The Fund will not pay or accrue
shareholder servicing agent fees until a separate class of shares has been
created for certain trust and institutional investors, 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".
(4) Total Fund Operating Expenses would have been 3.04%% absent the voluntary
waivers and reimbursement described above in notes 1 and 2.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER 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................................................................................ $13 $40
</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 SPECIAL VALUES FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
35.
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1993*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment loss (0.002 )
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.242
- --------------------------------------------------------------------------------------------- -----------------
Total from investment operations 0.24
- --------------------------------------------------------------------------------------------- -----------------
NET ASSET VALUE, END OF PERIOD $ 10.24
- --------------------------------------------------------------------------------------------- -----------------
TOTAL RETURN** 2.40%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 1.25%(b)
- ---------------------------------------------------------------------------------------------
Net investment (loss) (0.03 )%(b)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 1.79%(b )
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $12,072
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 68%
- ---------------------------------------------------------------------------------------------
</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 Special Values Fund. The shares in any one portfolio may
be offered in separate classes. As of the date of this prospectus, the Board of
Trustees (the "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 investing primarily in common stocks. 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 and
redeemed at net asset value plus a sales charge, if applicable, and are redeemed
at net asset value.
The other portfolios in the Trust are Biltmore Balanced Fund, Biltmore Equity
Fund, Biltmore Equity Index Fund, Biltmore Fixed Income Fund, Biltmore Money
Market Fund (Institutional Shares and Investment Shares), Biltmore Prime Cash
Management Fund (Institutional Shares), Biltmore Quantitative Equity Fund,
Biltmore Short-Term Fixed Income 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 to produce growth of principal. 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
The Fund pursues its investment objective by investing primarily in a portfolio
of equity securities comprising the small capitalization sector of the United
States equity market. In the investment adviser's opinion, small capitalization
stocks have special value in the marketplace and can provide greater growth of
principal than large capitalization stocks. The Fund attempts to select
companies with potential for above-average capital appreciation commensurate
with increased risk. The Fund invests in stocks believed by the investment
adviser to be significantly undervalued. Typical investments by the Fund are in
stocks that have low price-to-earnings ratios, are generally out of favor in the
marketplace,
are selling significantly below their stated or replacement book value or are
undergoing a reorganization or other corporate action that may create
above-average price appreciation. Under normal market conditions, the Fund
intends to invest at least 65% of its total assets in equity securities of
companies that have a market value capitalization of up to $1 billion.
ACCEPTABLE INVESTMENTS. In pursuing its investment objective, the Fund will
employ investment strategies that utilize a value-oriented approach (such as
identifying stocks that have not been widely followed by securities analysts) in
order to select the small capitalization stocks which will comprise the Fund's
investment portfolio.
Acceptable investment include, but are not limited to:
common stocks of U.S. companies which are either listed on the New York
or American Stock Exchange or traded in over-the-counter markets and are
considered by the Fund's investment adviser to have potential for
above-average appreciation;
domestic issues of corporate debt obligations (including convertible
bonds);
securities of foreign issuers;
restricted and illiquid securities;
securities of other investment companies;
master limited partnerships;
demand master notes; and
securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities.
In addition, the Fund may borrow money, lend portfolio securities, and engage in
when-issued and delayed delivery transactions, and may also invest in put and
call options, futures, and options on futures, for hedging purposes.
CORPORATE OBLIGATIONS. The Fund may invest in preferred stocks, bonds,
notes, and debentures of corporate issuers. Domestic issues of corporate
debt obligations will be rated A or better by Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Corporation ("S&P") or Fitch Investors
Service, Inc. ("Fitch"). 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 may consider doing so.
In addition, the Fund may invest in convertible securities, which are fixed
income securities that may be exchanged or converted into a predetermined
number of the issuer's underlying common stock at the option of the holder
during a specified time period. Convertible securities may take the form of
convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features
of several of these securities. 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 are options to buy the common stock, they function as convertible
bonds, except that the warrants generally will expire before the bond's
maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders
of common stock in the case of liquidation. However, convertible securities
are generally subordinated to similar 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 stock in instances in which,
in its 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
investment 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 determination of the issuer's
profits, and the issuer's management capability and practices.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest up to 20% of its assets
in the securities of foreign issuers which are freely traded on United
States securities exchanges or in the over-the-counter market in the form
of depository receipts ("American Depository Receipts" or "ADRs"). In
addition, the Fund may invest up to 10% of its assets in other securities
of foreign issuers ("Non-ADRs"). 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
jurisdictions 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.
STOCK INDEX FUTURES AND OPTIONS. The Fund may utilize stock index futures
contracts, options, and options on futures contracts, subject to the
limitation that the value of these futures contracts and options will not
exceed 20% of the Fund's total assets. Also, the Fund will not purchase
options to the extent that more than 5% of the value of the Fund's total
assets would be invested in premiums on open put option positions. These
futures contracts and options will be used to handle cash flows into and
out of the Fund and to potentially reduce transactional costs,
since transactional costs associated with futures and options contracts can
be lower than costs stemming from direct investment in stocks.
There are several risks accompanying the utilization of futures contracts
to effectively anticipate market movements. First, positions in futures
contracts may be closed only on an exchange or board of trade that
furnishes a secondary market for such contracts. While the Fund plans to
utilize futures contracts only if there exists an active market for such
contracts, there is no guarantee that a liquid market will exist for the
contracts at a specified time. Furthermore, because, by definition, futures
contracts look to projected price levels in the future, and not to current
levels of valuation, market circumstances may result in there being a
discrepancy between the price of the stock index future and the movement in
the corresponding stock index. The absence of a perfect price correlation
between the futures contract and its underlying stock index could stem from
investors choosing to close futures contracts by offsetting transactions
rather than satisfying additional margin requirements. This could result in
a distortion of the relationship between the index and the futures market.
In addition, because the futures market imposes less burdensome margin
requirements than the securities market, an increased amount of
participation by speculators in the futures market could result in price
fluctuations.
The effective use of futures and options as hedging techniques 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.
Please refer to the Statement of Additional Information for a further
discussion of futures and options transactions.
PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio
securities. These options will be used only as a hedge to attempt to
protect securities which the Fund holds against decreases in value. 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. 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. The call options which the Fund writes and
sells must be listed on a recognized options exchange. Writing of calls 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.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. This requires a
secondary market on an exchange which may or may not exist for any
particular call or put option at any specific time. The absence of a liquid
secondary market also may limit the Fund's ability to dispose of the
securities underlying an option. The inability to close options also could
have an adverse impact on the Fund's ability to effectively hedge its
portfolio.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment
objective and policies, but which are subject to restriction on resale
under federal securities law. 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.
TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its
investment adviser, market conditions warrant, during periods of other than
normal market conditions, the Fund may, for temporary defensive purposes,
invest in:
certificates of deposit, demand and time deposits, savings shares,
bankers' acceptances, and other instruments of domestic and foreign banks
and savings and loans, which institutions have capital, surplus, and
undivided profits over $100 million, or if the principal amount of the
instrument is insured in full by the Bank Insurance Fund, or by the
Savings Association Insurance Fund, both of which are administered by the
FDIC;
securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies, or instrumentalities;
commercial paper (including Canadian Commercial Paper and Europaper)
rated A-1 or better by S&P, Prime-1 by Moody's, or F-1 by Fitch, or, if
unrated, of comparable quality as determined by the Fund's investment
adviser; and
repurchase agreements.
REPURCHASE AGREEMENTS. The 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.
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. 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.
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 Trustees and will receive collateral in the
form of cash or U.S. government securities equal to at least 102% of the value
of the securities loaned.
INVESTMENT CONSIDERATIONS
As with other mutual funds that invest primarily 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.
However, because the Fund invests primarily in small capitalization stocks,
there are some additional risk factors associated with investments in the Fund.
In particular, stocks in the small capitalization sector of the United States
equity market have historically been more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500
Composite Stock Price Index ("Standard & Poor's 500 Index"). This is because,
among other things, small companies have less certain growth prospects than
larger companies; have a lower degree of liquidity in the equity market; and
tend to have a greater sensitivity to changing economic conditions. Further, in
addition to exhibiting greater volatility, the stocks of small companies may, to
some degree, fluctuate independently of the stocks of large companies. That is,
the stocks of small companies may decline in price as the prices of large
company stocks rise or vice versa. Therefore, investors should expect that the
Fund will be more volatile than, and may fluctuate independently of, broad stock
market indices such as the Standard & Poor's 500 Index.
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 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 0.80 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 fee paid by the Fund, while higher than the advisory fee paid by
other mutual funds in general, is comparable to fees paid by other mutual
funds with similar objectives and policies. The 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.
Scott C. Satterwhite is the Fund's portfolio manager. Mr. Satterwhite is a
Chartered Financial Analyst and Vice President and Manager of Personal
Trust Portfolio Management in Georgia for the Personal Financial Services
Group. Mr. Satterwhite joined Wachovia Bank of North Carolina, N.A. in 1981
and has held positions as a closely-held business analyst and capital
management counselor. Mr. Satterwhite has a bachelor's degree from the
University of the South and an MBA from Tulane University.
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 TRUST
<S> <C>
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 FUND
<S> <C>
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. However, the Adviser may voluntarily waive and/ or reimburse some
expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
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 Divisions 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 subisidiary of Wachovia Corporation.
BY MAIL. To purchase shares of the Fund by mail, send a check made payable
to Biltmore Special Values 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 Special Values 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 on 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.
The transfer agent provides the Wachovia Banks, as shareholders of record, with
detailed statements that include account balances, information on each purchase
or redemption, and a report of dividends paid. These statements will serve as
confirmations of all transactions in the shareholder's account for the statement
period. Investors purchasing through the Wachovia Banks will receive account
statements from those institutions periodically as required by the relevant
account agreement.
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 or to the Wachovia Banks, dividends are automatically reinvested on
payment dates 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 of 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. 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
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.
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 in person, by
telephone, or by writing to the shareholder's 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.
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.
As of December 31, 1993, Wachovia Bank of North Carolina, N.A., Winston-Salem,
North Carolina, acting in various capacities for numerous accounts, was the
owner of record of 1,004,154.69 shares (82.78%) 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.
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 customer. 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. 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 SPECIAL VALUES FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ --------------
<CAPTION>
COMMON STOCKS--92.4%
<C> <S> <C>
- --------------------------------------------------------------------------------------------------
CAPITAL GOODS--9.5%
------------------------------------------------------------------------------------
3,900 Danaher Corp. $ 144,300
------------------------------------------------------------------------------------
4,600 Harsco Corp. 181,126
------------------------------------------------------------------------------------
8,100* Lindsay Manufacturing Co. 247,050
------------------------------------------------------------------------------------
2,694 Moorco International, Inc. 46,471
------------------------------------------------------------------------------------
10,500 Sealright Co., Inc. 149,625
------------------------------------------------------------------------------------
3,500 Standex International Corp. 86,625
------------------------------------------------------------------------------------
20,000* Tyler Corp. Del 95,000
------------------------------------------------------------------------------------
2,100 Walbro Corp. 55,125
------------------------------------------------------------------------------------
11,500 Wilcox & Gibbs, Inc. 86,250
------------------------------------------------------------------------------------
1,500 York International 50,625
------------------------------------------------------------------------------------ --------------
Total 1,142,197
------------------------------------------------------------------------------------ --------------
CONSUMER DURABLES--9.0%
------------------------------------------------------------------------------------
4,300 Arvin Industries, Inc. 113,412
------------------------------------------------------------------------------------
1,462 Bassett Furniture Industries, Inc. 47,515
------------------------------------------------------------------------------------
11,000 Boston Acoustics, Inc. 181,500
------------------------------------------------------------------------------------
11,400 Gencorp, Inc. 158,175
------------------------------------------------------------------------------------
8,000 Haverty Furniture Co., Inc. 134,000
------------------------------------------------------------------------------------
22,000* Instrument Systems Corp. 187,000
------------------------------------------------------------------------------------
6,300* Ren Corp. USA 58,275
------------------------------------------------------------------------------------
4,600 Standard Products Co. 144,900
------------------------------------------------------------------------------------
2,000 Wabash National Corp. 66,000
------------------------------------------------------------------------------------ --------------
Total 1,090,777
------------------------------------------------------------------------------------ --------------
CONSUMER NON-DURABLES--18.0%
------------------------------------------------------------------------------------
2,000* Allied Clinical Labs, Inc. 29,500
------------------------------------------------------------------------------------
3,500 BIC Corp. 101,937
------------------------------------------------------------------------------------
</TABLE>
BILTMORE SPECIAL VALUES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ --------------
<CAPTION>
COMMON STOCKS--CONTINUED
<C> <S> <C>
- --------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--CONTINUED
------------------------------------------------------------------------------------
12,800 Enquirer/Star Group, Inc., Cl. A $ 230,400
------------------------------------------------------------------------------------
5,406* Ezcorp, Inc., Cl. A 71,629
------------------------------------------------------------------------------------
7,500* Fabric Centers of America, Inc. 121,875
------------------------------------------------------------------------------------
3,000 Golden Poultry, Inc. 22,500
------------------------------------------------------------------------------------
7,100 Hancock Fabrics, Inc. 70,112
------------------------------------------------------------------------------------
3,100 House Fabrics, Inc. 25,187
------------------------------------------------------------------------------------
10,000* International Dairy Queen, Inc., Cl. A 167,500
------------------------------------------------------------------------------------
13,208* Jan Bell Marketing, Inc. 161,798
------------------------------------------------------------------------------------
4,100 Lee Enterprises, Inc. 127,613
------------------------------------------------------------------------------------
11,000 Monk Austin, Inc. 165,000
------------------------------------------------------------------------------------
7,500 Plenum Publishing Corp. 180,000
------------------------------------------------------------------------------------
4,500 Pulitzer Publishing Co. 148,500
------------------------------------------------------------------------------------
2,000* Scandinavian Broadcasting 39,250
------------------------------------------------------------------------------------
1,500* Scotts Co., Cl. A 25,687
------------------------------------------------------------------------------------
4,000* Smithfield Foods, Inc. 62,000
------------------------------------------------------------------------------------
6,700* TPI Enterprises, Inc. 68,676
------------------------------------------------------------------------------------
19,000 Texfi Industries, Inc. 87,875
------------------------------------------------------------------------------------
3,000 Triarc Co., Inc., Cl. A 73,500
------------------------------------------------------------------------------------
5,248* VICORP Restaurants, Inc. 94,464
------------------------------------------------------------------------------------
4,000 WLR Foods, Inc. 73,000
------------------------------------------------------------------------------------
1,000 Weyco Group, Inc. 34,125
------------------------------------------------------------------------------------ --------------
Total 2,182,128
------------------------------------------------------------------------------------ --------------
ENERGY--2.4%
------------------------------------------------------------------------------------
7,000* Castle Energy Corp. 124,250
------------------------------------------------------------------------------------
2,712 Enterra Corp. 48,816
------------------------------------------------------------------------------------
17,973* Pride Petroleum Services, Inc. 112,331
------------------------------------------------------------------------------------ --------------
Total 285,397
------------------------------------------------------------------------------------ --------------
</TABLE>
BILTMORE SPECIAL VALUES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ --------------
<CAPTION>
COMMON STOCKS--CONTINUED
<C> <S> <C>
- --------------------------------------------------------------------------------------------------
FINANCE--14.7%
------------------------------------------------------------------------------------
5,944 American Federal Bank FSB Greenville $ 65,384
------------------------------------------------------------------------------------
7,700 Bank South Corp. 106,837
------------------------------------------------------------------------------------
11,500* Danielson Holding Co. 96,312
------------------------------------------------------------------------------------
2,200 First American Corp. of Tennessee 65,175
------------------------------------------------------------------------------------
1,500 First Financial Funding, Inc. 25,500
------------------------------------------------------------------------------------
800 Fund American Enterprises 70,800
------------------------------------------------------------------------------------
2,000 John Nuveen Co., Cl. A 54,250
------------------------------------------------------------------------------------
2,700* Jupiter National, Inc. 146,475
------------------------------------------------------------------------------------
4,900 Leucadia National Corp. 193,550
------------------------------------------------------------------------------------
4,500* Midland Financial Group 100,687
------------------------------------------------------------------------------------
2,500 NS Bancorp, Inc. 74,687
------------------------------------------------------------------------------------
1,900 Neworld Bancorp, Inc. 63,412
------------------------------------------------------------------------------------
1,000 Peoples Bancorp Worcester 44,750
------------------------------------------------------------------------------------
6,700* Premier Bancorp, Inc. 117,250
------------------------------------------------------------------------------------
700 Southeastern Thrift & Bank 12,250
------------------------------------------------------------------------------------
2,100 UJB Financial Corp. 50,662
------------------------------------------------------------------------------------
9,000 Uslico Corp. 151,875
------------------------------------------------------------------------------------
10,000 Unico American Corp. 75,000
------------------------------------------------------------------------------------
4,500 Unitrin, Inc. 186,750
------------------------------------------------------------------------------------
500 Wesco Financial Corp. 70,125
------------------------------------------------------------------------------------ --------------
Total 1,771,731
------------------------------------------------------------------------------------ --------------
MATERIAL & SERVICES--28.6%
------------------------------------------------------------------------------------
1,000* ALC Communcations Corp. 26,750
------------------------------------------------------------------------------------
4,000 Avemco Corp. 75,000
------------------------------------------------------------------------------------
2,300 Birmingham Steel Corp. 52,325
------------------------------------------------------------------------------------
9,500* Charter Medical Corp. 228,000
------------------------------------------------------------------------------------
6,000 Cleveland Cliffs, Inc. 198,750
------------------------------------------------------------------------------------
</TABLE>
BILTMORE SPECIAL VALUES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ --------------
<CAPTION>
COMMON STOCKS--CONTINUED
<C> <S> <C>
- --------------------------------------------------------------------------------------------------
MATERIAL & SERVICES--CONTINUED
------------------------------------------------------------------------------------
2,500* Coventry Corp. $ 105,000
------------------------------------------------------------------------------------
5,457 Engel Homes, Inc. 70,941
------------------------------------------------------------------------------------
8,500 First Mississippi Corp. 100,937
------------------------------------------------------------------------------------
2,601 Fisher Price, Inc. 101,796
------------------------------------------------------------------------------------
2,450 Forest City Enterprises, Inc., Cl. A 96,775
------------------------------------------------------------------------------------
500 Forest City Enterprises, Inc., Cl. B 20,500
------------------------------------------------------------------------------------
9,300 Furon Co. 134,851
------------------------------------------------------------------------------------
2,266* Galey & Lord, Inc. 27,193
------------------------------------------------------------------------------------
9,000* Grancare, Inc. 141,750
------------------------------------------------------------------------------------
4,500* Gulf States Utilities Co. 85,500
------------------------------------------------------------------------------------
6,000 Insituform Middle America, Inc. 85,500
------------------------------------------------------------------------------------
3,862 Insteel Industries, Inc. 38,620
------------------------------------------------------------------------------------
10,000 Intermet Corp. 80,000
------------------------------------------------------------------------------------
5,400* Lunar Corp. 62,100
------------------------------------------------------------------------------------
4,000 Minerals Technologies, Inc. 104,000
------------------------------------------------------------------------------------
3,600 NCH Corp. 189,450
------------------------------------------------------------------------------------
6,600 New Jersey Steel Corp. 108,900
------------------------------------------------------------------------------------
9,223* Oceaneering International, Inc. 124,510
------------------------------------------------------------------------------------
4,700 Oregon Steel Mills, Inc. 109,275
------------------------------------------------------------------------------------
11,500 Potash Corp. Saskatchewan, Inc. 238,626
------------------------------------------------------------------------------------
5,500* Rehability Corp. 50,875
------------------------------------------------------------------------------------
3,000* Rotech Medical Corp. 39,000
------------------------------------------------------------------------------------
8,201 Ryland Group, Inc. 168,120
------------------------------------------------------------------------------------
1,000 R. P. Scherer Corp. 35,250
------------------------------------------------------------------------------------
18,000* Saatchi & Saatchi 139,500
------------------------------------------------------------------------------------
3,500* Sealed Air Corp. 97,563
------------------------------------------------------------------------------------
1,000* Seattle Filmworks, Inc. 18,000
------------------------------------------------------------------------------------
</TABLE>
BILTMORE SPECIAL VALUES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ --------------
<CAPTION>
COMMON STOCKS--CONTINUED
<C> <S> <C>
- --------------------------------------------------------------------------------------------------
MATERIAL & SERVICES--CONTINUED
------------------------------------------------------------------------------------
3,000* Southeastern Public Service Co. $ 58,125
------------------------------------------------------------------------------------
16,300* Tokos Medical Corp. 97,800
------------------------------------------------------------------------------------
6,000* Triad Systems, Inc. 96,000
------------------------------------------------------------------------------------
1,500* U.S. Home Corp. 40,125
------------------------------------------------------------------------------------ --------------
Total 3,447,407
------------------------------------------------------------------------------------ --------------
TECHNOLOGY--6.9%
------------------------------------------------------------------------------------
5,000* Advance Circuits, Inc. 58,750
------------------------------------------------------------------------------------
4,500* Ceridian Corp. 84,375
------------------------------------------------------------------------------------
12,500* Esco Electronics Corp. 148,437
------------------------------------------------------------------------------------
13,500 Geodynamics Corp. 111,376
------------------------------------------------------------------------------------
1,000 Gerber Scientific, Inc. 14,375
------------------------------------------------------------------------------------
4,523* Input/Output, Inc. 84,807
------------------------------------------------------------------------------------
9,051* Itel Corp. 231,932
------------------------------------------------------------------------------------
17,000 Penril Datacomm Networks 93,500
------------------------------------------------------------------------------------
260* Texas Meridian Resources Corp. 2,177
------------------------------------------------------------------------------------ --------------
Total 829,729
------------------------------------------------------------------------------------ --------------
TRANSPORTATION--2.7%
------------------------------------------------------------------------------------
8,000* Greyhound Lines, Inc. 114,000
------------------------------------------------------------------------------------
2,900* Hornbeck Offshore Services, Inc. 46,400
------------------------------------------------------------------------------------
4,505* KLLM Transportation Services, Inc. 70,953
------------------------------------------------------------------------------------
4,458* M.S. Carriers, Inc. 93,619
------------------------------------------------------------------------------------ --------------
Total 324,972
------------------------------------------------------------------------------------ --------------
UTILITIES--.6%
------------------------------------------------------------------------------------
6,743 Arkla, Inc. 53,102
------------------------------------------------------------------------------------
600* LDDS Communications, Inc. 25,576
------------------------------------------------------------------------------------ --------------
Total 78,678
------------------------------------------------------------------------------------ --------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $11,196,567) 11,153,016
------------------------------------------------------------------------------------ --------------
</TABLE>
BILTMORE SPECIAL VALUES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ --------------
<CAPTION>
COMMON STOCKS--CONTINUED
<C> <S> <C>
- --------------------------------------------------------------------------------------------------
<CAPTION>
PREFERRED STOCKS--1.2%
<C> <S> <C>
- --------------------------------------------------------------------------------------------------
1,800 Catellus Development Corp. $ 103,950
------------------------------------------------------------------------------------
1,500* U.S. Home Corp. 40,125
------------------------------------------------------------------------------------ --------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $137,537) 144,075
------------------------------------------------------------------------------------ --------------
<CAPTION>
**REPURCHASE AGREEMENT--7.0%
<C> <S> <C>
- --------------------------------------------------------------------------------------------------
$ 847,800 PaineWebber Inc., 3.20%, dated 11/30/93, due 12/1/93 (at amortized cost) (Note 2B) 847,800
------------------------------------------------------------------------------------ --------------
TOTAL INVESTMENTS (IDENTIFIED COST, $12,181,904) $ 12,144,891\
------------------------------------------------------------------------------------ --------------
</TABLE>
_*_ Non-income producing securities.
** 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 $12,181,904. The net unrealized
depreciation of investments on a federal tax basis amounts to $37,013, which
is comprised of $614,479 appreciation and $651,492 depreciation at November
30, 1993.
Note: The categories of investments are shown as a percentage of net assets
($12,071,748) at November 30, 1993.
(See Notes which are an integral part of the Financial Statements)
BILTMORE SPECIAL VALUES FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments in securities (Notes 2A and 2B)
(identified and tax cost $12,181,904) $ 12,144,891
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 363,215
- --------------------------------------------------------------------------------------------------
Dividends and interest receivable 10,437
- --------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 6,048
- -------------------------------------------------------------------------------------------------- --------------
Total assets 12,524,591
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------
Payable for investments purchased $ 410,502
- -------------------------------------------------------------------------------------
Accrued expenses and other liabilities 42,341
- ------------------------------------------------------------------------------------- -----------
Total liabilities 452,843
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 1,178,428 shares of beneficial interest outstanding $ 12,071,748
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid-in capital $ 11,776,906
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (37,013)
- --------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 333,969
- --------------------------------------------------------------------------------------------------
Net investment loss (2,114)
- -------------------------------------------------------------------------------------------------- --------------
Total $ 12,071,748
- -------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, and Redemption Price Per Share:
net assets of ($12,071,748 / 1,178,428 shares of beneficial interest outstanding) $10.24
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BILTMORE SPECIAL VALUES FUND
STATEMENT OF OPERATIONS
PERIOD ENDED NOVEMBER 30, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Dividends $ 55,618
- ----------------------------------------------------------------------------------------------------
Interest 26,810
- ---------------------------------------------------------------------------------------------------- -----------
Total investment income (Note 2C) 82,428
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 54,274
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee (Note 5) 75,000
- ---------------------------------------------------------------------------------------
Custodian fees (Note 5) 1,363
- ---------------------------------------------------------------------------------------
Recordkeeper fees (Note 5) 28,399
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 5) 10,650
- ---------------------------------------------------------------------------------------
Legal fees 9,700
- ---------------------------------------------------------------------------------------
Printing and postage 8,712
- ---------------------------------------------------------------------------------------
Insurance premiums 7,900
- ---------------------------------------------------------------------------------------
Miscellaneous 5,232
- ---------------------------------------------------------------------------------------
Trustees' Fees 4,750
- --------------------------------------------------------------------------------------- -----------
Total expenses 205,980
- ---------------------------------------------------------------------------------------
Deduct--
- ---------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 14,352
- ----------------------------------------------------------------------------
Waiver of administrative personnel and services fee (Note 5) 66,674
- ----------------------------------------------------------------------------
Reimbursement of other operating expenses by Administrator (Note 5) 39,049
- ----------------------------------------------------------------------------
Waiver of custodian fees (Note 5) 1,363 121,438
- ---------------------------------------------------------------------------- --------- -----------
Net expenses 84,542
- ---------------------------------------------------------------------------------------------------- -----------
Net investment loss (2,114)
- ---------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain on investment transactions (identified cost basis) 333,969
- ----------------------------------------------------------------------------------------------------
Net change in unrealized depreciation on investments (37,013)
- ---------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments 296,956
- ---------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 294,842
- ---------------------------------------------------------------------------------------------------- -----------
</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 SPECIAL VALUES FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30,
1993*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------------------
Net investment loss $ (2,114)
- -------------------------------------------------------------------------------------------
Net realized gain on investment transactions
($333,969 net gain, as computed for federal tax purposes) (Note 2D) 333,969
- -------------------------------------------------------------------------------------------
Change in unrealized depreciation of investments (37,013)
- ------------------------------------------------------------------------------------------- ---------------------
Change in net assets resulting from operations 294,842
- ------------------------------------------------------------------------------------------- ---------------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -------------------------------------------------------------------------------------------
Proceeds from sale of shares 13,082,211
- -------------------------------------------------------------------------------------------
Cost of shares redeemed (1,305,305)
- ------------------------------------------------------------------------------------------- ---------------------
Change in net assets from Fund share transactions 11,776,906
- ------------------------------------------------------------------------------------------- ---------------------
Change in net assets 12,071,748
- -------------------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------------------
Beginning of period --
- ------------------------------------------------------------------------------------------- ---------------------
End of period $ 12,071,748
- ------------------------------------------------------------------------------------------- ---------------------
</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 SPECIAL VALUES 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
Special Values 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
sales 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 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. All other securities are
appraised at fair value as determined in good faith by the Board of
Trustees ("Trustees").
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 the 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 objectives 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 the
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, 1993*
<S> <C>
Shares outstanding, beginning of period --
- ----------------------------------------------------------------------------------------
Shares sold 1,307,697
- ----------------------------------------------------------------------------------------
Shares redeemed (129,269)
- ---------------------------------------------------------------------------------------- ------------------------
Shares outstanding, end of period 1,178,428
- ---------------------------------------------------------------------------------------- ------------------------
</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 Funds investment adviser ("Adviser"),
is entitled to receive for its services an annual investment advisory fee equal
to .80 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 or reimbursement of expenses at any
time at its sole discretion. For the period ended November 30, 1993, the Adviser
earned an investment advisory fee of $54,274, of which $14,352 was voluntarily
waived.
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services, and receives an annual administrative fee
equal to .145 of 1% on the first $400 million of the Trusts 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.
For the period ended November 30, 1993, FAS earned administrative fees of
$75,000, of which $66,674 was voluntarily waived. In addition, FAS reimbursed
$39,049 of other operating expenses. FAS can modify or terminate the voluntary
waiver and reimbursement at any time at its sole discretion.
Organization expenses of the Fund ($31,492) were borne initially by FAS. The
Fund has agreed to reimburse FAS for the organization expenses initially borne
by FAS during the five year period following the date the Fund's registration
statement first became effective. During the period ended November 30, 1993, the
Fund paid $700 pursuant to this agreement.
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 fees. FSC can modify or terminate the
voluntary waiver at any time at its sole discretion. For the year ended November
30, 1993 FSC earned recordkeeper fees of $28,399 and transfer and dividend
disbursing agent fees of $10,650.
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 $1,363,
all of which was waived.
Certain Officers of the Trust are Officers and Directors of FSC and FAS.
(6) INVESTMENT TRANSACTIONS
Purchases, and sales and maturities of investments, excluding securities subject
to repurchase agreements, for the period from May 10, 1993 (date of initial
public investment) to November 30, 1993, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 18,309,686
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 7,309,551
- -------------------------------------------------------------------------------------------------- --------------
</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 Special Values 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 Special Values 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 Special Values 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 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
- -----------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylania 15219
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
3012918A (1/94)
BILTMORE SPECIAL VALUES FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Biltmore Special Values 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 OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
Obligations of Foreign Issuers 3
Demand Master Notes 3
Repurchase Agreements 3
Reverse Repurchase Agreements 3
When-Issued and Delayed Delivery Transactions 4
Temporary Investments 4
Lending of Portfolio Securities 4
Investment Limitations 5
THE BILTMORE FUNDS MANAGEMENT 7
- ---------------------------------------------------------------
Officers and Trustees 7
Fund Ownership 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
- ---------------------------------------------------------------
Adviser to the Fund 8
Advisory Fees 8
ADMINISTRATIVE SERVICES 9
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 9
- ---------------------------------------------------------------
Portfolio Turnover 9
PURCHASING FUND SHARES 10
- ---------------------------------------------------------------
Conversion to Federal Funds 10
DETERMINING NET ASSET VALUE 10
- ---------------------------------------------------------------
DETERMINING MARKET VALUE OF SECURITIES 10
- ---------------------------------------------------------------
REDEEMING FUND SHARES 10
- ---------------------------------------------------------------
Redemption in Kind 10
TAX STATUS 11
- ---------------------------------------------------------------
The Fund's Tax Status 11
Shareholders' Tax Status 11
Capital Gains 11
TOTAL RETURN 11
- ---------------------------------------------------------------
YIELD 11
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 11
- ---------------------------------------------------------------
APPENDIX 13
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in The Biltmore Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust dated
November 19, 1991.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to produce growth of principal. The
investment objective cannot be changed without the approval of shareholders.
Unless otherwise indicated, the investment policies described below may be
changed by the Board of Trustees (the "Trustees") without shareholder approval.
Shareholders will be notified before any material change in these policies
becomes effective.
TYPES OF INVESTMENTS
The Fund invests primarily in a professionally-managed and diversified portfolio
of equity securities of companies that have a market capitalization of up to $1
billion. The Fund's investment adviser attempts to select companies with
potential for above-average capital appreciation commensurate with increased
risk. Although the Fund may invest in other securities of these companies, in
money market instruments, and in U.S. government obligations in such proportions
as prevailing market conditions warrant in the judgment of the Fund's investment
adviser, it is the Fund's policy under normal market conditions to invest at
least 65% of its total assets in equity securities. For purposes of managing the
Fund's portfolio, the Fund's investment adviser will treat master limited
partnerships and certain other publicly-traded equity interests as common
stocks.
Set forth below are other securities in which the Fund may invest from time to
time:
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 all or a portion of its portfolio
by buying and selling financial futures contracts, buying put options on
portfolio securities and listed put options on futures contracts, and
writing call options on futures contracts. The Fund may also write
covered call options on portfolio securities to attempt to increase its
current income.
The Fund will maintain its positions 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 contracts may be closed out over-the-counter or on a
nationally-recognized exchange which provides a secondary market for
options of the same series.
In addition to purchasing put options and writing call options as
described in the prospectus, the Fund may purchase and write
over-the-counter options on portfolio securities in negotiated
transactions with the buyers or writers of the options when options on
the portfolio securities held by the Fund are not traded on an exchange.
The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and
loan associations) deemed creditworthy by the Fund's investment adviser.
Over-the-counter options are two party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded
options have a continuous liquid market while over-the-counter options
may not.
The Fund may also write call options and purchase put options on
financial futures and stock index futures contracts as a hedge to attempt
to protect securities in its portfolio against decreases in value.
FINANCIAL FUTURES CONTRACTS
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.
A stock index futures contract is a bilateral agreement which obligates
the seller to deliver (and the purchaser to take delivery of) an amount
of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of trading of the
contract and the price at which the agreement is originally made. There
is no physical delivery of the stocks constituting the index, and no
price is paid upon entering into a futures contract. In general,
contracts are closed out prior to their expiration.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts.
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 futures contracts to hedge its portfolio. 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 stock prices fall, causing the
prices of futures to go down, 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 fixed income or
indexed portfolio which is occurring as interest rates rise.
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
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.
"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 option
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.
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 under the Securities
Act of 1933 (the "Rule"). 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.
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 or interest income might 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.
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.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject to
repurchase agreements, and these securities are 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 investment
adviser to be creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are 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 assets are marked to market daily and
are maintained until the transaction has been settled.
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, and 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 the securities
to be purchased are segregated on the Fund's records at the trade date. These
securities are marked to market daily and are 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 total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are
backed by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which are permissible
investments which may not always receive financial support from the U.S.
government are:
Federal Farm Credit Banks;
Federal Home Loan Banks;
Federal National Mortgage Association;
Student Loan Marketing Association; and
Federal Home Loan Mortgage Corporation.
MONEY MARKET INSTRUMENTS
The Fund may invest in the following money market instruments:
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 insured in full by the Bank
Insurance Fund, or by the Savings Association Insurance Fund, both of
which are administered by the Federal Deposit Insurance Corporation; and
commercial paper rated A-1 or better by Standard and Poor's Corporation,
Prime-1 by Moody's Investors Service, Inc., or F-1 by Fitch Investors
Services, or, if unrated, of comparable quality as determined by the
Fund's investment adviser.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. 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.
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 portfolio securities, and writing covered call options, but
may obtain such short-term credits as are necessary for the clearance of
transactions.
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.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its net 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 securities while borrowings in excess of 5% of the value
of the Fund's total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, the Fund may mortgage,
pledge or hypothecate assets to secure such borrowings having a market
value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of total assets at the time of the borrowing. For purposes of
this limitation, the following are not deemed to be pledges: margin
deposits for the purchase and sale of futures contracts and related
options and segregation or collateral arrangements made in connection
with options activities or the purchase of securities on a when-issued
basis.
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.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts. However, the Fund may purchase put options
on stock index futures, put options on financial futures, stock index
futures contracts, and put options on portfolio securities, and may write
covered call options.
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.
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 the Fund's 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 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.
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, demand
master notes, bonds, debentures, notes, certificates of indebtedness, or
other debt securities, entering into repurchase agreements, or engaging
in other transactions where permitted by the Fund's investment objective,
policies, and limitations.
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 customary brokers commissions. However, these limitations are
not applicable if the Fund's securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. While it is the
Fund's policy to waive its investment advisory fees on Fund 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 agent 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 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 its net assets in illiquid
securities, including repurchase agreements providing for settlement in
more than seven days after notice, over-the-counter options, certain
securities not determined under guidelines established by the Trustees to
be liquid, and non-negotiable fixed income time deposits with maturities
over seven days.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except that the Fund 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 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 option positions.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for purposes of
exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its net assets in warrants,
including those acquired in units with or attached to other securities.
To comply with certain state restrictions, the Fund will limit its
investment in such warrants not listed on the New York or American Stock
Exchange to 2% of its net 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 with or attached to securities may be deemed to be without value.
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.
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
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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 hold 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
NAME THE TRUST PRINCIPAL OCCUPATIONS 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 and Vice President, Federated Administrative Services; formerly, Associate
Assistant Treasurer Corporate Counsel, Federated Investors; Vice President and Assistant
Treasurer for 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 Income Plan
(1-1-41), Winston-Salem, North Carolina, owned approximately 724,392.67 shares
(59.72%); Wachovia Bank of North Carolina, N.A., for the account of Employees
BDM Inter. Inc., Winston-Salem, North Carolina, owned approximately 130,926.61
shares (10.79%), and Wachovia Bank of North Carolina, N.A., for the account of
Del Monte Tropical Fruit Incentive Savings & Security, Winston-Salem, North
Carolina, owned approximately 148,835.41 shares (12.27%).
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
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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 $54,274, of which $14,352 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.
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 $75,000, of which
$66,674 was voluntarily waived.
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.
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.
For the period from May 10, 1993 (date of initial public investment) to November
30, 1993, the Fund paid $26,369 in commissions on brokerage transactions.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. Securities in its portfolio will be sold
whenever the 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. The Adviser does not anticipate that the Fund's annual
portfolio turnover rate will exceed 100% under normal market conditions. A
portfolio turnover rate of 100% would occur, for example, if all the securities
in the Fund's portfolio were replaced once in a period of one year. Transactions
for the Fund's portfolio will be based only upon investment considerations and
will not be limited by any other considerations when the Adviser deems it
appropriate to make changes in the Fund's portfolio.
For the period from May 10, 1993 (date of initial public investment) through
November 30, 1993, the Fund's portfolio turnover rate was 68%. 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 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."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. The Wachovia Banks act as the
shareholders' agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
- --------------------------------------------------------------------------------
The market value of the Fund's portfolio securities are determined as follows:
for equity securities, according to the last sale price on a national securities
exchange, if available;
in the absence of recorded sales for listed equity securities, according to the
mean between the last closing bid and asked prices;
for unlisted equity securities, the latest bid prices;
for bonds and other fixed income securities, as determined by an independent
pricing service;
for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service; or
for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
option trading on such exchanges, unless the Trustees determine in good faith
that another method of valuing option positions is necessary.
REDEEMING FUND SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940, which obligates the Fund to redeem shares for any one shareholder
in cash only up to the lesser of $250,000 or 1% of the Fund's net asset value
during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund expects to pay no federal income tax because it intends to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. The dividends received deduction for corporations will apply
to ordinary income distributions to the extent the distribution represents
amounts that would qualify for the dividends received deduction to the Fund if
the Fund were a regular corporation, and to the extent designated by the Fund as
so qualifying. These dividends, and any short-term capital gains, are taxable as
ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as long-term
capital gains regardless of how long shareholders have held shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's cumulative total return from May 10, 1993 (date of initial public
investment) to November 30, 1993 was 2.40%. Cumulative total return reflects the
Fund's total performance over a specific period of time. This total return
assumes and is reduced by the payment of the maximum sales load.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the reinvestment of all
dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for the thirty-day period ended November 30, 1993 was 0.19%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month period
and is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments required by
the Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
stock market fluctuation;
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in the Fund's expenses;
the relative amount of Fund cash flow; and
various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
RUSSELL 2000 INDEX is a broadly diversified index consisting of approximately
2,000 small capitalization common stocks that can be used to compare the total
returns of funds whose portfolios are invested primarily in small capitalization
common stocks.
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in maximum offering price over a specific period of
time.
DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for the
stock market as a whole.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (THE "S&P
INDEX"), is a composite index of common stocks in industry, transportation, and
financial and public utility companies. In addition, the S&P Index assumes
reinvestment of all dividends paid by stocks listed on the S&P Index. Taxes due
on any of these distributions are not included, nor are brokerage or other fees
calculated in the S&P's Index figures.
MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
quarterly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. S&P may apply a plus (+) or
minus (-) to the above rating classifications to show relative standing within
the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING DEFINITIONS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future. Baa--Bonds which
are rated Baa are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that Fitch does not rate the specific issue.
STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus (+) sign.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
P-1--Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior
capacity for repayment of senior short-term promissory obligations. P-1
repayment capacity will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; or
well-established access to a range of financial markets and assured sources of
alternate liquidity.
P-2--Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
capacity for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issuers assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
3012918B (1/94)
BILTMORE TAX-FREE MONEY MARKET FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Biltmore Tax-Free Money Market Fund (the "Fund")
offered by this prospectus represent interests in a diversified portfolio of
securities which is one of a series of investment portfolios of The Biltmore
Funds (the "Trust"), an open-end management investment company (a mutual fund).
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
The investment objective of the Fund is to provide current income exempt from
federal regular income tax consistent with stability of principal and liquidity.
The Fund pursues this investment objective by investing in a diversified
portfolio of short-term municipal securities.
THE SHARES OFFERED BY THIS PROSPECTUS 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.
This prospectus contains the information you should read and know before you
invest in Institutional Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Shares and Investment Shares, dated January 31, 1994, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge, purchase Institutional Shares, or obtain other
information about the Fund by writing to the Fund or calling your Wachovia Bank
(as defined herein) account officer.
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--
INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 4
Municipal Securities 4
Variable Rate Demand Notes 4
Participation Interests 5
Municipal Leases 5
Ratings 5
Investing in Securities of
Other Investment Companies 5
Credit Enhancement 5
Demand Features 6
Restricted and Illiquid Securities 6
When-Issued and Delayed Delivery
Transactions 6
Temporary Investments 6
Investment Risks 7
Investment Limitations 7
Regulatory Compliance 7
THE BILTMORE FUNDS INFORMATION 8
- ------------------------------------------------------
Management of the Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Institutional Shares 9
Administration of the Fund 9
Administrative Services 9
Custodian 9
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 9
Legal Services 10
Independent Auditors 10
Expenses of the Fund
and Institutional Shares 10
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 11
- ------------------------------------------------------
Share Purchases 11
Through the Wachovia Banks 11
Via a Sweep Account 11
Minimum Investment Required 11
What Shares Cost 11
Certificates and Confirmations 11
Dividends 12
Capital Gains 12
EXCHANGES 12
- ------------------------------------------------------
Exchanges by Telephone 13
REDEEMING INSTITUTIONAL SHARES 13
- ------------------------------------------------------
By Telephone 13
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
Massachusetts Business Trusts 14
EFFECT OF BANKING LAWS 14
- ------------------------------------------------------
TAX INFORMATION 15
- ------------------------------------------------------
State and Local Taxes 16
PERFORMANCE INFORMATION 16
- ------------------------------------------------------
OTHER CLASSES OF SHARES 17
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 18
- ------------------------------------------------------
FINANCIAL STATEMENTS 19
- ------------------------------------------------------
REPORT OF ERNST & YOUNG,
INDEPENDENT AUDITORS 35
- ------------------------------------------------------
ADDRESSES 36
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................. None
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
<CAPTION>
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C>
Management Fee (after waiver)(1)................................................................... 0.00%
12b-1 Fees.............................................................................................. None
Other Expenses (after waiver & reimbursement) (2)....................................................... 0.31%
Total Institutional Shares Operating Expenses (after waiver & reimbursement) (3).................... 0.31%
</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 0.50%.
(2) Other Expenses are estimated to be 0.37% absent the voluntary waiver by the
administrator and voluntary reimbursement by the investment adviser. The
administrator and adviser may terminate the voluntary waiver and
reimbursement, respectively, at any time at their sole discretion.
(3) The Annual Institutional Shares Operating Expenses were 0.29% for the fiscal
year ended November 30, 1993. The Annual Institutional Shares Operating
Expenses in the table above reflect a reduction in the voluntary waivers of
the administrative fee and the custodian fee for the fiscal year ending
November 30, 1994. The Annual Institutional Shares Operating Expenses are
expected to be 0.87% absent the voluntary waivers and reimbursement
described above in notes 1 and 2.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE INSTITUTIONAL SHARES 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 TRUST."
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <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. The
Fund charges no redemption fees for Institutional Shares................. $3 $10 $17 $39
</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.
The information set forth in the foregoing table and example relates only to
Institutional Shares of the Fund. The Fund also offers another class of shares
called Investment Shares. Investment Shares are subject to certain of the same
expenses with the addition of a maximum 12b-1 of 0.40% of the Investment Shares'
average net assets. See "Other Classes of Shares."
BILTMORE TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
35.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S> <C> <C>
1993 1992*
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income 0.02 0.01
- ----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.01)
- ---------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN** 2.30% 1.49%
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 0.29% 0.16%(a)
- ----------------------------------------------------------------------------------------------
Net investment income 2.28% 2.71%(a)
- ----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.60% 0.78%(a)
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $59,269 $61,632
- ----------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 14, 1992 (date of initial
public investment) to November 30, 1992.
** Based on net asset value, which does not reflect the sales load or
redemption fee, if applicable.
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expenses and net investment
income ratios shown above (Note 5).
(See Notes, which are an integral part of the Financial Statements).
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Biltmore Funds (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 separate series of shares of beneficial
interest representing interests in separate portfolios of securities. The shares
in any one portfolio may be offered in separate classes. As of the date of this
prospectus, the Board of Trustees (the "Trustees") has established two classes
of shares of Biltmore Tax-Free Money Market Fund (the "Fund"), Institutional
Shares and Investment Shares. This prospectus relates only to Institutional
Shares of the Fund.
Institutional Shares are offered only for purchase through the bank subsidiaries
of Wachovia Corporation: 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"). Institutional Shares are offered only to
accounts held by the Wachovia Banks in a fiduciary, agency, custodial, or
similar capacity. The Fund offers a convenient means of accumulating an interest
in a professionally-managed, diversified portfolio limited to short-term
municipal securities. Investors should consult their account agreement with the
Wachovia Banks for any applicable minimum investment.
The Fund attempts to stabilize the value of a share at $1.00. Institutional
Shares are currently sold and redeemed at that price.
The other portfolios in the Trust are Biltmore Balanced Fund, Biltmore Equity
Fund, Biltmore Equity Index Fund, Biltmore Fixed Income Fund, Biltmore Money
Market Fund (Institutional Shares and Investment Shares), Biltmore Prime Cash
Management Fund (Institutional Shares), Biltmore Quantitative Equity Fund,
Biltmore Short-Term Fixed Income Fund, Biltmore Special Values Fund, and
Biltmore U.S. Treasury Money Market Fund (Institutional Shares and Investment
Shares).
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt from
federal regular income tax consistent with stability of principal and liquidity.
Interest income of the Fund that is exempt from federal regular income tax
retains its tax-free status when distributed to the Fund's shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. The investment objective cannot be changed without approval of
shareholders.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a
diversified portfolio of municipal securities maturing in 397 days or less. The
average maturity of money market instruments in the Fund's portfolio, computed
on a dollar weighted basis, will be 90 days or less. Unless indicated otherwise,
the investment policies of the Fund may be changed by the Trustees without the
approval of shareholders. Shareholders will be notified before any material
change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax ("Municipal Securities").
Examples of Municipal Securities include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
For further discussion of the instruments described above and rating categories,
consult the Fund's Combined Statement of Additional Information.
MUNICIPAL SECURITIES. Municipal Securities are generally issued to finance
public works such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
Municipal Securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
Municipal Securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
municipal interest rate index or a published interest rate. Most variable
rate demand notes allow the Fund to demand the repurchase of the security
on not more than seven days' prior notice. Other notes only permit the Fund
to tender the security at the time of each interest rate adjustment or at
other fixed intervals. See "Demand Features." The Fund treats variable rate
demand notes as maturing on the later of the date of the next interest rate
adjustment or the date on which the Fund may next tender the security for
repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in Municipal
Securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying Municipal Securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract
or a participation interest in any of the above.
RATINGS. The Municipal Securities in which the Fund invests must be rated in
the highest short-term rating category by one or more nationally recognized
statistical rating organizations ("NRSROs") or be of comparable quality to
securities having such ratings. An NRSRO's highest rating category is determined
without regard for sub-categories and gradations. For example, securities rated
SP-1+, SP-1, A-1K, or A-1 by Standard & Poor's Corporation ("S&P"), MIG-1,
P-1 or VMIG-1 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+ or
FIN-1 by Fitch Investors Service, Inc. ("Fitch") are all considered rated in
the highest short-term rating category. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in the highest short-term rating category; currently, such
securities must be rated by two NRSROs in their highest rating category.
See "Regulatory Compliance."
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3%
of the total outstanding voting stock of any investment company, invest more
than 5% of its total assets in any one investment company, or invest more than
10% of its total assets in investment companies in general. The Fund will only
invest in other investment companies that are money market funds having
investment objectives and policies similar to its own and primarily for the
purpose of investing short-term cash which has not yet been invested in other
portfolio instruments. The adviser to the Fund will waive its investment
advisory fee on assets invested in securities of open-end investment companies.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. Generally, the Fund
will not treat credit enhanced securities as having been issued by the credit
enhancer for diversification purposes. However, under certain circumstances,
applicable regulations may require the Fund to treat the securities as having
been issued by both the issuer and the credit enhancer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
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.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions 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, and repurchase
agreements providing for settlement in more than seven days after notice, to 10%
of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase short-term
Municipal Securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The 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. 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.
TEMPORARY INVESTMENTS. As a matter of fundamental investment policy, which
cannot be changed without approval of shareholders, the Fund invests its assets
so that at least 80% of its annual interest income is exempt from federal
regular income tax. However, from time to time when the investment adviser
determines that market conditions call for a temporary defensive posture, the
Fund may invest in short-term temporary investments. Interest income from
temporary investments may be taxable to shareholders as ordinary income. These
temporary investments include: obligations issued by or on behalf of municipal
or corporate issuers having the same quality characteristics as Municipal
Securities purchased by the Fund; marketable obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities; instruments issued by
banks or other depository institutions which have capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment and if
their deposits are insured by the Bank Insurance Fund or Savings Association
Insurance Fund (which are administered by the FDIC); repurchase agreements
(arrangements in which the organization is selling the Fund a temporary
investment and agrees at the time of sale to repurchase it at a mutually agreed
upon time and price); and prime commercial paper rated A-1 by S&P, Prime-1 by
Moody's, or F-1 by Fitch and other short-term credit instruments.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.
However, the Fund may purchase Municipal Securities, the interest on which is
subject to the federal alternative minimum tax, in an amount not to exceed 20%
of the total net assets of the Fund.
INVESTMENT RISKS
Yields on Municipal Securities depend on a variety of factors, including: the
general conditions of the short-term municipal note market and of the municipal
bond market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Fund to achieve its
investment objective also depends on the continuing ability of the issuers of
Municipal Securities and demand features, or the guarantors of either, to meet
their obligations for the payment of interest and principal when due.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) except, under certain circumstances, the Fund may borrow up to one-
third of the value of its total assets; nor
with respect to 75% of the value of its total assets, invest more than 5%
of its total assets in securities of one issuer (except cash, cash items,
repurchase agreements collateralized by U.S. government securities and
U.S. government obligations). The remaining 25% of its total assets may
be invested in a single issuer if the investment adviser believes such a
strategy is prudent.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, can be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not:
invest more than 5% of the value of its total assets in industrial
revenue bonds where the payment of principal and interest is the
responsibility of companies (or guarantors, if applicable) that have
records of less than three years of continuous operations, including the
operation of any predecessor.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and the Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which regulates
money market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
THE BILTMORE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Board of Trustees is 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,
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 0.50 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 Funds 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. is a national banking association,
which offers a broad range of financial services, including commercial and
consumer loans, corporate, institutional and personal trust services,
demand and time deposit accounts, letters of credit and international
financial services.
Wachovia Investment Management Group 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., together with its affiliates, Wachovia Bank of Georgia,
N.A. and The South Carolina National Bank, 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 for The Biltmore Funds since March 9, 1992.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is 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.
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 and the separate classes. 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 transfer agent, dividend disbursing agent, and
portfolio accounting services:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<C> <S>
.145 of 1% of the first $400 million
.120 of 1% of the next $300 million
.095 of 1% of the next $300 million
.070 of 1% in excess of $1 billion
</TABLE>
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 for the securities and cash of the Fund. Under the
Custodian Agreement, Wachovia Bank of North Carolina, N.A. 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 Wachovia Bank of North
Carolina, N.A. 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, Pittsburgh, PA, a subsidiary of Federated
Investors, is 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 of 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 disinterested Trustees.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND AND INSTITUTIONAL SHARES
Holders of Institutional Shares pay their allocable portion of Fund and Trust
expenses. The Trust expenses for which holders of Institutional Shares pay their
allocable portion include, but are not limited to: the cost of organizing the
Trust and continuing its existence; registering the Trust; Trustees' fees;
auditors' fees; the cost of meetings of Trustees; legal fees of the Trust;
association membership dues; and such non-recurring and extraordinary items as
may arise.
Each Fund's expenses for which holders of shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund
under state and federal law; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise.
At present, no expenses are allocated to Institutional Shares as a class.
However, the Trustees reserve the right to allocate certain other expenses to
the shareholders of a particular class as they deem appropriate ("Class
Expenses"). In any case, Class Expenses would be limited to: transfer agent fees
as identified by the transfer agent as attributable to holders of Institutional
Shares; printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders; registration fees paid to the Securities and Exchange Commission
and registration fees paid to states; expenses related to administrative
personnel and services as required to support holders of Institutional Shares;
legal fees relating solely to Institutional Shares; and Trustees' fees incurred
as a result of issues relating solely to Institutional Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Institutional Shares at
$1.00 by valuing the portfolio securities using the amortized cost method. The
net asset value per share is determined by adding the interest of the
Institutional Shares in the value of all securities and other assets of the
Fund, subtracting the interest of the Institutional Shares in the liabilities of
the Fund and those attributable to Institutional Shares, and dividing the
remainder by the total number of Institutional Shares outstanding. The Fund, of
course, cannot guarantee that its net asset value will always remain at $1.00
per share.
INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Institutional Shares are sold on days on which the New York Stock Exchange and
Federal Reserve Wire System are open for business. Institutional Shares may be
purchased by or through the Wachovia Banks. Texas residents must purchase,
exchange, and redeem shares through Federated Securities Corp. at
1-800-618-8573. The Fund and the distributor reserve the right to reject any
purchase request.
THROUGH THE WACHOVIA BANKS. To place an order to purchase Institutional Shares
of the Fund, customers of the Wachovia Banks may telephone, send written
instructions, or place 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, 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, 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 communicated to the Wachovia Banks by 11:00 a.m. (Eastern Time) and
payment by federal funds must be received by the Wachovia Banks before 4:00 p.m.
(Eastern time) on the same day as the order to earn dividends for that day.
Shares cannot be purchased on days 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.
VIA A SWEEP ACCOUNT. If you are investing in the Fund as part of a Wachovia
Bank sweep account program, automatic purchases and redemptions will be made by
the Wachovia Banks on your behalf pursuant to the sweep agreement you signed as
part of your trust account with the Wachovia Banks.
MINIMUM INVESTMENT REQUIRED
Investors should consult their account agreement with the Wachovia Banks for any
applicable minimum investment. Minimum investment requirements may vary under
different sweep agreements.
WHAT SHARES COST
Institutional Shares are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Fund.
The net asset value is determined at 12:00 noon and 4:00 p.m. (Eastern time),
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) on 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.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued.
Federated Services Company provides the Wachovia Banks, as shareholders of
record, with detailed statements on a monthly basis that include account
balances, information on each purchase or redemption, and a report of dividends
paid during the month. These statements will serve as confirmations of all
transactions in the shareholders' account for the statement period.
Investors purchasing through the Wachovia Banks will receive account statements
from those institutions periodically as required by the relevant account
agreement.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested on
payment dates in additional Institutional Shares of the Fund unless cash
payments are requested by writing to the Wachovia Banks.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If for some extraordinary reason the
Fund realizes net long-term capital gains, it will distribute them at least once
every 12 months.
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder may exchange Institutional Shares of one fund for Institutional
Shares of any other fund that does not assess a sales charge on the basis of
their respective net asset values by calling or writing to his account officer
at the Wachovia Banks. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. Institutional Shares
purchased by check are eligible for exchange after the purchase check has
cleared, which could take up to ten calendar days. The exchange feature applies
to Institutional Shares of each fund that does not assess a sales charge as of
the effective offering date of each fund's Institutional Shares.
Orders to exchange Institutional Shares of one fund for Institutional Shares of
any of the other Biltmore Funds that do not assess a sales charge will be
executed by redeeming the Institutional Shares owned at net asset value next
determined after receipt of the order and purchasing Institutional Shares of any
such other Biltmore Funds at the net asset value determined after the proceeds
from such redemption become available. Orders for exchanges received by the Fund
after 12:00 noon but prior to 4:00 p.m. become available. Orders for exchanges
received by the Fund after 12:00 noon but prior to 4:00 p.m. (Eastern time) on
any day the Trust is open for business will be executed at the price determined
at 4:00 p.m. (Eastern time) that day. Orders for exchanges received after 4:00
p.m. (Eastern time) on any business day will be executed at the price determined
at 12:00 noon (Eastern time) on the next business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege of any shareholder, provided the
shareholder is given 60 days' written notice.
An exchange order must comply with the requirements for a redemption and
purchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial investment requirement
imposed by the relevant account agreement. An exchange constitutes a sale for
federal income tax purposes.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Before the exchange, a shareholder
should review a prospectus of the fund for which the exchange is being made.
REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The Fund redeems Institutional Shares at their net asset value next determined
after the Wachovia Banks receive the redemption request. Redemptions will be
made on days on which the Fund computes its net asset value. Requests for
redemption can be made in person, by telephone or by writing to your account
officer. If at any time the Fund shall deem it necessary to terminate or modify
these methods of redemption, shareholders would be promptly notified.
BY TELEPHONE. A shareholder who is a customer of the Wachovia Banks and whose
account agreement with the Wachovia Banks permits telephone redemption may
redeem Institutional Shares by telephoning his account officer. For calls
received by the Wachovia Banks before 11:00 a.m. (Eastern time), proceeds will
normally be wired the same day to the shareholder's account at the Wachovia
Banks or a check will be sent to the address of record. Those Institutional
Shares will not be entitled to the dividend declared that day. For calls
received by the Wachovia Banks after 11:00 a.m. (Eastern time) proceeds will
normally be wired or a check mailed the following business day. Those
Institutional Shares will be entitled to the dividend declared on the day the
redemption request was received. In no event will proceeds be wired or a check
mailed more than seven days after a proper request for redemption has been
received. In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered.
An authorization permitting the Wachovia Banks to accept telephone requests is
included as part of your account agreement. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Institutional Share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All shares of
all classes of each fund in the Trust have equal voting rights, except that in
matters affecting only a particular fund or class, only shares of that fund or
class are entitled to vote. As of January 7, 1994, Wachovia Trust Services,
Winston-Salem, North Carolina, acting in various capacities for numerous
accounts, was the owner of record of approximately 60,522,500 Institutional
Shares (100%) 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.
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.
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 the 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 prohibits 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 customer. The
Fund's investment adviser 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 and custody
agreements 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.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from intepretations 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 will 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.
Shareholders will be subject to the federal regular income tax on any dividends
received from the Fund that represent net interest on tax-exempt municipal
bonds. However, under the Tax Reform Act of 1986, dividends representing net
interest earned on some municipal bonds may be included in calculating the
federal individual alternative minimum tax or the federal alternative minimum
tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, while the Fund
has no present intention of purchasing any private activity bonds, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds will be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate minimum tax treats 75% of the excess
of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's
alternative minimum taxable income as a tax preference item. "Adjusted current
earnings" is based upon the concept of a corporation's "earnings and profits."
Since "earnings and profits" generally includes the full amount of any Fund
dividend, and alternative minimum taxable income does not include the portion of
the Fund's dividend attributable to municipal bonds which are not private
activity bonds, the 75% difference will be included in the calculation of the
corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged to
consult their own tax advisers.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield, effective yield and
tax-equivalent yield for Institutional Shares.
The yield of Institutional Shares represents the annualized rate of income
earned on an investment in Institutional Shares over a seven-day period. It is
the annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment in Institutional
Shares is assumed to be reinvested daily. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield of the Institutional Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that the
Institutional Shares would have had to earn to equal its actual yield, assuming
a specific tax rate. The yield and the tax-equivalent yield do not necessarily
reflect income actually earned by Institutional Shares and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Shares after reinvesting all distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
Yield, effective yield and tax-equivalent yield will be calculated separately
for Institutional Shares and Investment Shares. Because Investment Shares are
subject to a 12b-1 fee, the yield and effective yield for Institutional Shares,
for the same period, will exceed that of Investment Shares.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Investment Shares are sold to customers of the Wachovia Banks who are not
eligible to purchase Institutional Shares and customers of Wachovia Securities,
Inc. Investment Shares are subject to a minimum initial investment of $1,000.
Investment Shares are sold at net asset value and are distributed pursuant to a
Rule 12b-1 Plan adopted by The Biltmore Funds, whereby the distributor is paid a
maximum fee of 0.40 of 1% of the Investment Shares' average daily net assets of
a Fund. Institutional Shares are distributed without a 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares than from
another class of shares.
The amount of dividends payable to Investment Shares will be less than those
payable to Institutional Shares by the difference between class expenses and
distribution expenses borne by shares of each respective class. The stated
advisory fee is the same for both classes of shares.
BILTMORE TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
35.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S> <C> <C>
1993 1992*
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.02 0.01
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.01)
- -------------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN** 1.99% 1.29%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 0.59% 0.50%(a)
- --------------------------------------------------------------------------------------------
Net investment income 1.98% 2.37%(a)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.70% 0.88%(a)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $23,976 $5,338
- --------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 20, 1992 (date of initial
public investment) to November 30, 1992.
** Based on net asset value, which does not reflect the sales load or
redemption fee, if applicable.
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expense and net investment
income ratios shown above (Note 5).
(See Notes, which are an integral part of the Financial Statements).
BILTMORE TAX-FREE MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P**
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- ----------------------------------------------------------------------- ---------- --------------
SHORT-TERM MUNICIPAL SECURITIES--94.9%
- --------------------------------------------------------------------------------------
ALABAMA--12.1%
-----------------------------------------------------------------------
$ 2,085,000 Alabama HFA Weekly VRDNs (SouthTrust Bank of Alabama LOC) A-1 $ 2,085,000
-----------------------------------------------------------------------
4,000,000 Birmingham City, AL, Weekly VRDNs (First Alabama Bank LOC) A-1+ 4,000,000
-----------------------------------------------------------------------
2,500,000 Huntsville, AL, Health Care Authority, Weekly VRDNs
(Amsouth Bank LOC) VMIG-1 2,500,000
-----------------------------------------------------------------------
1,500,000 Mobile, AL, IDB Weekly VRDNs (Swiss Bank LOC) A-1+ 1,500,000
----------------------------------------------------------------------- --------------
Total 10,085,000
----------------------------------------------------------------------- --------------
ARKANSAS--4.8%
-----------------------------------------------------------------------
425,000 Arkansas Hospital Equipment Finance Authority Weekly VRDNs (Credit
Suisse LOC) A-1+ 425,000
-----------------------------------------------------------------------
750,000 Fayetteville, AR, Weekly VRDNs (Public Facility)/(Mitsubishi Bank LTD
LOC) VMIG-1 750,000
-----------------------------------------------------------------------
2,800,000 University of Arkansas Weekly VRDNs (Board of Trustees)/
(First Union LOC) A-1+ 2,800,000
----------------------------------------------------------------------- --------------
Total 3,975,000
----------------------------------------------------------------------- --------------
CALIFORNIA--3.7%
-----------------------------------------------------------------------
1,100,000 Irvine Ranch, CA, Water District Weekly VRDNs (Morgan Guaranty LOC) VMIG-1 1,100,000
-----------------------------------------------------------------------
1,000,000 San Francisco Unified School District, CA, 3.50%, 8/12/94 SP-1+ 1,003,035
-----------------------------------------------------------------------
1,000,000 Visalia, CA, Weekly VRDNs (Convention Central Project)/ Mitsubishi LTD
LOC) A-1+ 1,000,000
----------------------------------------------------------------------- --------------
Total 3,103,035
----------------------------------------------------------------------- --------------
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P**
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- ----------------------------------------------------------------------- ---------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------------------------
CONNECTICUT--0.8%
-----------------------------------------------------------------------
$ 700,000 Connecticut State Economic Recovery Notes Weekly VRDNs (Series B) VMIG-1 $ 700,000
----------------------------------------------------------------------- --------------
DISTRICT OF COLUMBIA--1.2%
-----------------------------------------------------------------------
1,000,000 District of Columbia Hospital Revenue Weekly VRDNs
(Columbia Hospital For Women 1988A)/(Mitsubishi
International LOC) VMIG-1 1,000,000
----------------------------------------------------------------------- --------------
FLORIDA--8.5%
-----------------------------------------------------------------------
2,200,000 Broward County, FL, HFA Weekly VRDNs (Welleby Apt. Project)/(Bank of
America N.T. & S.A. LOC) VMIG-1 2,200,000
-----------------------------------------------------------------------
2,100,000 Collier County, FL, HFA Monthly VRDNs (River Beach
Project)/(Morgan Guaranty LOC) VMIG-1 2,100,000
-----------------------------------------------------------------------
900,000 Florida Escambia County Facility Authority Weekly VRDNs (Florida
Convalescent Centers Project)/(Toronto Dominion LOC) P-1 900,000
-----------------------------------------------------------------------
900,000 Polk County, FL, IDA Weekly VRDNs (Florida Convalescent Center
Project)/(Toronto Dominion LOC) P-1 900,000
-----------------------------------------------------------------------
1,000,000 St. Lucie County, FL, Weekly VRDNs (Florida Power & Light Project) P-1 1,000,000
----------------------------------------------------------------------- --------------
Total 7,100,000
----------------------------------------------------------------------- --------------
GEORGIA--4.8%
-----------------------------------------------------------------------
2,000,000 Burke County, GA, Development Pollution Authority, 2.50%, 1/6/94
(Credit Suisse LOC) P-1 2,000,000
-----------------------------------------------------------------------
1,000,000 Housing Authority of Fulton County, GA, 3.10%, 8/1/94, (First Mutual
Savings--Florida LOC) A-1+ 1,000,000
-----------------------------------------------------------------------
</TABLE>
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P**
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- ----------------------------------------------------------------------- ---------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------------------------
GEORGIA--CONTINUED
-----------------------------------------------------------------------
$ 1,000,000 Development Authority of Walton County, GA, Weekly VRDNs (Trust Company
Bank LOC) Aa3 $ 1,000,000
----------------------------------------------------------------------- --------------
Total 4,000,000
----------------------------------------------------------------------- --------------
ILLINOIS--13.7%
-----------------------------------------------------------------------
1,000,000 Chicago, IL, GO Weekly VRDNs (Canadian Imperial Bank LOC) VMIG-1 1,000,000
-----------------------------------------------------------------------
2,875,000 Cook County, IL, 3.20%, 4/1/94 MIG-1 2,881,536
-----------------------------------------------------------------------
1,500,000 Illinois Cook County Township District, 4.625%, 12/1/93 AA-1 1,500,000
-----------------------------------------------------------------------
1,000,000 Illinois Development Finance Authority Revenue Weekly VRDNs (National
Westminster Bank LOC) VMIG-1 1,000,000
-----------------------------------------------------------------------
2,000,000 Illinois State, 3.25%, 5/16/94 MIG-1 2,003,123
-----------------------------------------------------------------------
3,000,000 Illinois State, Weekly VRDNs (Toll Highway Authority)/
(Societe Generale LOC) VMIG-1 3,000,000
----------------------------------------------------------------------- --------------
Total 11,384,659
----------------------------------------------------------------------- --------------
INDIANA--2.5%
-----------------------------------------------------------------------
2,100,000 Indianapolis, IN, Weekly VRDNs (Canal Square Project)/
(Societe Generale LOC) VMIG-1 2,100,000
----------------------------------------------------------------------- --------------
IOWA--3.8%
-----------------------------------------------------------------------
600,000 Indianola, Iowa, IDR Monthly VRDNs (HY-VEE Foods)/ (Swiss Bank LOC) A-1+ 600,000
-----------------------------------------------------------------------
2,500,000 Iowa State, 3.25%, 6/30/94 (Union Bank of Switzerland LOC) MIG-1 2,505,611
----------------------------------------------------------------------- --------------
Total 3,105,611
----------------------------------------------------------------------- --------------
</TABLE>
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P**
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- ----------------------------------------------------------------------- ---------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------------------------
KENTUCKY--1.2%
-----------------------------------------------------------------------
$ 1,000,000 City of Georgetown, KY, Educational Institution Weekly VRDNs (PNC Bank,
Kentucky, Inc. LOC) VMIG-1 $ 1,000,000
----------------------------------------------------------------------- --------------
LOUISIANA--2.9%
-----------------------------------------------------------------------
1,500,000 Calcasieu Parrish, LA, IDR Pollution Control Weekly VRDNs (National
Westminster Bank LOC) P-1 1,500,000
-----------------------------------------------------------------------
900,000 Lake Charles Harbor & Terminal District, LA, Weekly VRDNs (National
Westminster Bank LOC) P-1 900,000
----------------------------------------------------------------------- --------------
Total 2,400,000
----------------------------------------------------------------------- --------------
MARYLAND--2.4%
-----------------------------------------------------------------------
2,000,000 Maryland Health Higher Education Facility Anne Arumdel Hospital Weekly
VRDNs (Mellon Bank LOC) VMIG-1 2,000,000
----------------------------------------------------------------------- --------------
MASSACHUSETTS--2.4%
-----------------------------------------------------------------------
2,000,000 Massachusetts State, Daily VRDNs (Series E) (ABN--AMRO LOC) VMIG-1 2,000,000
----------------------------------------------------------------------- --------------
MICHIGAN--5.9%
-----------------------------------------------------------------------
4,600,000 Michigan State Hospital Finance Authority Revenue, 11.25%, 6/1/94
(Prerefunded) AAA 4,885,662
----------------------------------------------------------------------- --------------
MISSOURI--1.8%
-----------------------------------------------------------------------
1,500,000 Missouri Planned Industry Expansion Authority of St. Louis Weekly VRDNs
(PNC Bank, N.A. LOC) AA3 1,500,000
----------------------------------------------------------------------- --------------
NORTH CAROLINA--6.6%
-----------------------------------------------------------------------
2,500,000 North Carolina Eastern Municipal Power, 2.40%, 3/9/94 (UBS & Morgan
Guaranty LOC) A-1+ 2,500,000
-----------------------------------------------------------------------
3,000,000 Wake County, NC, 4.00%, 4/1/94 AAA 3,014,256
----------------------------------------------------------------------- --------------
Total 5,514,256
----------------------------------------------------------------------- --------------
</TABLE>
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P**
OR SHARES (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- ----------------------------------------------------------------------- ---------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- --------------------------------------------------------------------------------------
PENNSYLVANIA--2.4%
-----------------------------------------------------------------------
$ 2,000,000 Pennsylvania State University, 3.00%, 12/5/94 SP-1+ $ 2,005,240
----------------------------------------------------------------------- --------------
TENNESSEE--1.3%
-----------------------------------------------------------------------
1,000,000 Shelby County, TN, 6.25%, 8/1/94 (Prerefunded) AAA 1,032,280
----------------------------------------------------------------------- --------------
TEXAS--4.9%
-----------------------------------------------------------------------
1,000,000 Dallas, TX, 9.50%, 6/1/94 (Prerefunded) AAA 1,033,827
-----------------------------------------------------------------------
1,000,000 Houston, TX, 9.75%, 5/1/94 (Prerefunded) AAA 1,029,340
-----------------------------------------------------------------------
1,000,000 Lower Neches Valley Authority Texan Monthly VRDNs, (Chevron Guaranty) A-1+ 1,000,000
-----------------------------------------------------------------------
1,000,000 San Antonio, TX, Electric & Gas Revenue, 8.00%, 2/1/94 (Prerefunded) AAA 1,024,154
----------------------------------------------------------------------- --------------
Total 4,087,321
----------------------------------------------------------------------- --------------
WASHINGTON--3.6%
-----------------------------------------------------------------------
3,000,000 Port Anacortes, WA, IDA, 2.63%, 2/10/94 P-1 3,000,000
----------------------------------------------------------------------- --------------
WYOMING--3.6%
-----------------------------------------------------------------------
3,000,000 Uinta County, WY, Pollution Control Revenue Weekly VRDNs (Chevron
Guaranty) P-1 3,000,000
----------------------------------------------------------------------- --------------
TOTAL SHORT-TERM MUNICIPAL BONDS 78,978,064
----------------------------------------------------------------------- --------------
REGULATED INVESTMENT COMPANIES--6.9%
- --------------------------------------------------------------------------------------
1,864,700 AIM Management Co. 1,864,700
-----------------------------------------------------------------------
3,840,233 Fidelity Tax-Exempt Money Market Fund Instruments
Portfolio 3,840,233
----------------------------------------------------------------------- --------------
TOTAL REGULATED INVESTMENT COMPANIES 5,704,933
----------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 84,682,997\
----------------------------------------------------------------------- --------------
</TABLE>
\ Also represents cost for federal tax purposes.
** See Notes to Portfolio of Investments on Page 25.
Note: The categories of investments are shown as a percentage of net assets
($83,244,579) at November 30, 1993.
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
The following abbreviations are used throughout this portfolio:
GO--General Obligation
HFA--Housing Finance Authority
IDA--Industrial Development Authority
IDB--Industrial Development Board
IDR--Industrial Development Revenue
LOC--Letter(s) of Credit
VRDNs--Variable Rate Demand Notes
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG
(see below)). The purpose of the MIG or VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG-1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2 This designation denotes high quality. Margins of protection are ample,
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1K, A/A-1. (The
definitions for the short-term ratings are provided above.)
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
In this case, two ratings are usually assigned (for example, Aaa/VMIG-1), with
the first representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the second representing an
evaluation of the degree of risk associated with the demand feature. The VMIG
rating can be assigned a 1 or 2 designation using the same definitions described
above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
LONG-TERM DEBT RATINGS
S&P
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rating
categories.
MOODY'S
Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large margin and principal
is secure. While the various protective elements are likely to change,
such changes which can be foreseen are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment some time in the future.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by Standard & Poor's or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable quality
to the above mentioned quality ratings.
NR (1) The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by Standard & Poor's or Aaa by Moody's.
NR (2) The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by Standard & Poor's or Aa by Moody's.
NR (3) The underlying issuer/obligor/guarantor has other outstanding debt rated
A by Standard & Poor's or by Moody's.
(See Notes, which are an integral part of the Financial Statements)
BILTMORE TAX-FREE MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 84,682,997
- --------------------------------------------------------------------------------------------------
Cash 8,699
- --------------------------------------------------------------------------------------------------
Interest receivable 672,096
- --------------------------------------------------------------------------------------------------
Deferred expenses (Note 2E) 32,048
- -------------------------------------------------------------------------------------------------- --------------
Total assets 85,395,840
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased $ 2,005,240
- -----------------------------------------------------------------------------------
Dividends payable 144,190
- -----------------------------------------------------------------------------------
Accrued expenses 1,831
- ----------------------------------------------------------------------------------- -------------
Total liabilities 2,151,261
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 83,244,579 shares of beneficial interest outstanding $ 83,244,579
- -------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- --------------------------------------------------------------------------------------------------
Institutional Shares ($59,268,563 / 59,268,563 shares of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------------------------- --------------
Investment Shares ($23,976,016 / 23,976,016 shares of beneficial interest outstanding)
$1.00
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes, which are an integral part of the Financial Statements).
BILTMORE TAX-FREE MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest income (Note 2B) $ 1,948,752
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 380,443
- ----------------------------------------------------------------------------------------
Administrative personnel and services fee (Note 5) 100,161
- ----------------------------------------------------------------------------------------
Trustees' fees 9,465
- ----------------------------------------------------------------------------------------
Custodian fees (Note 5) 15,218
- ----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 5) 23,759
- ----------------------------------------------------------------------------------------
Recordkeeper fees (Note 5) 37,320
- ----------------------------------------------------------------------------------------
Legal fees 6,951
- ----------------------------------------------------------------------------------------
Printing and postage 21,396
- ----------------------------------------------------------------------------------------
Auditing fees 19,175
- ----------------------------------------------------------------------------------------
Insurance premiums 1,744
- ----------------------------------------------------------------------------------------
Registration fees 22,383
- ----------------------------------------------------------------------------------------
Distribution fees (Note 5) 59,172
- ----------------------------------------------------------------------------------------
Miscellaneous 32,359
- ---------------------------------------------------------------------------------------- ----------
Total expenses 729,546
- ----------------------------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 297,388
- ----------------------------------------------------------------------------
Waiver of administrative personnel and services fee (Note 5) 79,813
- ----------------------------------------------------------------------------
Reimbursement of other operating expenses by Administrator (Note 5) 61,079
- ----------------------------------------------------------------------------
Waiver of custodian fees (Note 5) 15,218
- ----------------------------------------------------------------------------
Waiver of distribution fees (Note 5) 14,792 468,290
- ---------------------------------------------------------------------------- ---------- ----------
Net expenses 261,256
- ---------------------------------------------------------------------------------------------------- -----------
Net investment income $ 1,687,496
- ---------------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes, which are an integral part of the Financial Statements)
BILTMORE TAX-FREE MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------
1993 1992*
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 1,687,496 $ 800,075
- -----------------------------------------------------------------------------
Net realized gain (loss) on investments ($5,343 net gain and
$5,749 net loss, respectively, as computed for federal tax purposes)
(Note 2D) -- (5,749)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 1,687,496 794,326
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------
Institutional Shares (1,400,375) (761,917)
- -----------------------------------------------------------------------------
Investment Shares (287,121) (32,409)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to
shareholders (1,687,496) (794,326)
- ----------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------
Proceeds from sale of shares 202,842,602 178,065,356
- -----------------------------------------------------------------------------
Cost of shares redeemed (186,567,848) (111,095,531)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from fund share transactions 16,274,754 66,969,825
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets 16,274,754 66,969,825
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 66,969,825 --
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period (including undistributed net investment income of $0 and
$5,749, respectively) $ 83,244,579 $ 66,969,825
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
*For the period from May 14, 1992 (date of initial public investment) to
November 30, 1992.
(See Notes, which are an integral part of the Financial Statements)
BILTMORE TAX-FREE MONEY MARKET 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 Biltmore Tax-Free
Money Market Fund (the "Fund"). The financial statements of the other portfolios
are presented separately. The assets of each portfolio of the Trust are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
Biltmore Tax-Free Money Market Fund offers two classes of shares ("Institutional
Shares" and "Investment Shares"). Investment Shares are identical in all
respects to Institutional Shares, except that Investment Shares are sold
pursuant to a distribution plan (the "Plan") adopted in accordance with Rule
12b-1 under the Investment Company Act of 1940, as amended. Under the Plan, the
Fund may pay Federated Securities Corp. a fee at an annual rate up to 0.40 of 1%
of the average aggregate daily net asset value of Investment Shares to finance
any activity which is principally intended to result in the sale of Investment
Shares.
(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--The Board of Trustees ("Trustees") has determined
that the best method currently available for valuing portfolio securities
is amortized cost. The Fund's use of the amortized cost method to value its
portfolio securities is conditioned on its compliance with Rule 2a-7 under
the Investment Company Act of 1940. Investments in other regulated
investment companies are valued at net asset value.
B. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest earned net of premium, and original issue discount as
required by the Internal Revenue Code.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code (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 or excise tax is necessary. At November 30, 1993 the Fund, for
federal
tax purposes, had a capital loss carryforward of $406, which will reduce
the
Fund's taxable income arising from future net realized gain on
investments, if
any, to the extent permitted by the Code, and thus will reduce the
amount of the
distributions to shareholders which would otherwise be necessary to
relieve the
Fund of any liability for federal tax. Pursuant to the Code, such capital
loss
carryover will expire in 2000. Dividends paid by the Fund representing net
interest received on tax-exempt municipal securities are not includable by
shareholders as gross income for federal income tax purposes because the
Fund
intends to meet certain requirements of the Code applicable to regulated
investment companies which will enable the Fund to pay tax-exempt interest
dividends. The portion of such interest, if any, earned on private activity
municipal bonds issued after August 7, 1986 may be considered a tax
preference
item to shareholders.
D. 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.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to the
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.
F. EXPENSES--Expenses of the Fund (other than distribution services fees) and
waivers and reimbursements, if any, are allocated to each class of shares
based on its relative daily average net assets for the period. Expenses
incurred by the Trust which do not specifically relate to an individual
Fund are allocated among all Funds based on a Fund's relative net asset
value size or as deemed appropriate by the administrator.
G. OTHER--Investment transactions are accounted for as of the trade date of
the transaction.
(3) DIVIDENDS
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash or in additional
shares at the net asset value on the payable date.
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
(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>
YEAR ENDED NOVEMBER 30,
<S> <C> <C>
INVESTMENT SHARES 1993 1992*
- ------------------------------------------------------------------------------- --------------- ----------------
Shares outstanding, beginning of period 5,337,645 --
- --------------------------------------------------------------------------------
Shares sold 45,044,796 8,205,295
- --------------------------------------------------------------------------------
Shares redeemed (26,406,425) (2,867,650)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 23,976,016 5,337,645
- -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
*For the period from May 20, 1992 (date of initial public investment) to
November 30, 1992.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------
INSTITUTIONAL SHARES 1993 1992**
<S> <C> <C>
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, beginning of period 61,632,180 --
- --------------------------------------------------------------------------------
Shares sold 157,797,806 169,860,061
- --------------------------------------------------------------------------------
Shares redeemed (160,161,423) (108,227,881)
- -------------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 59,268,563 61,632,180
- -------------------------------------------------------------------------------- --------------- ---------------
**For the period from May 14, 1992 (date of initial public investment) to November 30, 1992.
</TABLE>
(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 .50 of 1%
of the Fund's average aggregate 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 or reimbursement at any time at its
sole discretion. For the year ended November 30, 1993, the Adviser earned an
investment advisory fee of $380,443, of which $297,388 was voluntarily waived.
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services, and receives an annual administrative fee
equal to .145 of 1% on the first $400 million of average aggregate daily net
assets of the Trust; .120 of 1% of the next $300 million; 0.095 of 1% of the
next $300 million; and 0.070 of 1% on average daily net assets 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 from the Fund of $100,161, of which $79,813 was
voluntarily waived. In addition, FAS reimbursed $61,079 of other operating
expenses. FAS can modify or terminate the voluntary waiver and reimbursement at
any time at its sole discretion.
Organization expenses of the Fund ($59,661) were borne initially by FAS. The
Fund has agreed to reimburse FAS for the organization expenses initially borne
by FAS during the five year period following the date the Fund's registration
statement first became effective. During the period ended November 30, 1993, the
Fund paid $7,842 pursuant to this agreement.
For the services provided to the Fund pursuant to the Custodian Agreement, the
Trust 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 Trust; .015 of 1% of average aggregate daily net assets from $250
million to $500 million; and .01 of 1% of average aggregate daily net assets
over $500 million. The Custodian may voluntarily waive a portion of its fees.
The Custodian can modify or terminate the waiver at any time at its sole
discretion. For the year ended November 30, 1993, the Custodian earned $15,218,
all of which was voluntarily waived.
Federated Services Company ("FSC") is transfer agent for the shares of the Fund
and dividend disbursing agent for the Fund. It also provides certain accounting
and recordkeeping services with respect to the Fund's portfolios of investments.
FSC may voluntarily waive a portion of its fees. FSC can modify or terminate the
voluntary waiver at any time at its sole discretion. For the year ended November
30, 1993, FSC earned transfer and dividend disbursing agent fees of $23,759. For
the year ended November 30, 1993, FSC earned recordkeeper fees of $37,320.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. The Fund will compensate
Federated Securities Corp., the principal distributor, from the assets of
Investment Shares of the Fund, to finance any activity which is principally
intended to result in the sale of Investment Shares. The Plan provides that the
Fund may incur distribution expenses up to 0.40 of 1% of the average daily net
assets of the Investment Shares, annually, to pay commissions, maintenance fees
and to compensate Federated Securities Corp. During the year ended November 30,
1993, Federated Securities Corp. earned $59,172 in distribution fees, of which
$14,792 was voluntarily waived.
Certain Officers of the Trust are Officers and Directors of Federated Securities
Corp., FAS and FSC.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related footnotes are unaudited.
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 Tax-Free Money Market Fund (one of the
portfolios comprising The Biltmore Funds), as of November 30, 1993, and the
related statement of operations for the year then ended and the statement of
changes in net assets for the year then ended and for the period from May 14,
1992 (date of initial public investment) to November 30, 1992 and financial
highlights (see pages 2 and 18 of this prospectus) for the periods presented
therein. 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
audits.
We conducted our audits 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 broker. 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 audits provide 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 Tax-Free Money Market Fund of The Biltmore Funds at November 30, 1993,
and the results of its operations for the year then ended, changes in its net
assets for the year then ended and for the period from May 14, 1992 to November
30, 1992, and financial highlights for the periods presented therein, in
conformity with generally accepted accounting principles.
ERNST & YOUNG
Pittsburgh, Pennsylvania
January 14, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Biltmore Tax-Free Money Market Fund
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Wachovia Investment Management Group 301 North Main Street
Winston-Salem, N.C. 27150
- ---------------------------------------------------------------------------------------------------------------------
Custodian
Wachovia Bank of North Carolina, N.A. Wachovia Trust Operations
301 North Main Street
Winston-Salem, N.C. 27150
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Kirkpatrick & Lockhart 1800 M Street, N.W.
Washington, D.C. 20036-5891
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Piper & Marbury 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
2020206A-I&R (1/94)
BILTMORE TAX-FREE MONEY MARKET FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
INVESTMENT SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectus for Institutional Shares and Investment
Shares of Biltmore Tax-Free Money Market Fund (the "Fund"), dated
January 31, 1994. This Combined Statement is not a prospectus itself.
To receive a copy of either prospectus, write to Biltmore Tax-Free
Money Market Fund or contact your Wachovia Bank account officer.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1994
FEDERATED SECURITIES CORP.
--------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Aceptable Investments 1
When-Issued and Delayed
Delivery Transactions 1
Reverse Repurchase Agreements 2
Temporary Investments 2
INVESTMENT RISKS 2
- ---------------------------------------------------------------
INVESTMENT LIMITATIONS 2
- ---------------------------------------------------------------
THE BILTMORE FUNDS MANAGEMENT 4
- ---------------------------------------------------------------
Officers and Trustees 4
Fund Ownership 5
Trustee Liability 5
INVESTMENT ADVISORY SERVICES 6
- ---------------------------------------------------------------
Adviser to the Fund 6
Advisory Fees 6
ADMINISTRATIVE SERVICES 6
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 6
- ---------------------------------------------------------------
PURCHASING SHARES 7
- ---------------------------------------------------------------
Distribution Plan--(Investment Shares Only) 7
Conversion to Federal Funds 7
EXCHANGING SECURITIES FOR FUND SHARES 8
- ---------------------------------------------------------------
DETERMINING NET ASSET VALUE 8
- ---------------------------------------------------------------
Use of the Amortized Cost Method 8
REDEEMING SHARES 9
- ---------------------------------------------------------------
Redemption in Kind 9
TAX STATUS 9
- ---------------------------------------------------------------
The Fund's Tax Status 9
YIELD 9
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 10
- ---------------------------------------------------------------
Tax-Equivalency Table 10
EFFECTIVE YIELD 10
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 11
- ---------------------------------------------------------------
APPENDIX 12
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in The Biltmore Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust dated
November 19, 1991.
Shares of the Fund are offered in two classes, Institutional Shares and
Investment Shares (individually and collectively referred to as "Shares" as the
context may require). This Combined Statement of Additional Information relates
to both classes of the above-mentioned Shares.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income exempt from federal
regular income tax consistent with stability of principal and liquidity. The
investment objective cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of states,
territories and possessions of the United States, including the District of
Columbia, and any political subdivisions or financing authority of any of these,
the income from which is, in the opinion of qualified legal counsel, exempt from
federal regular income tax ("Municipal Securities"). The Fund invests primarily
in Municipal Securities maturing in 397 days or less.
CHARACTERISTICS
When determining whether a Municipal Security presents minimal credit
risks, the investment adviser considers the creditworthiness of 1) the
issuer of a Municipal Security, 2) the issuer of a demand feature if the
Fund has the unconditional right to demand payment for the Municipal
Securities, or 3) any guarantor of payment by either of those issuers.
The Fund is not required to sell a Municipal Security if the security's rating
is reduced below the required minimum subsequent to the Fund's purchase of the
security. The Board of Trustees (the "Trustees") and the investment adviser
consider this event, however, in their determination of whether the Fund should
continue to hold the security in its portfolio. If ratings made by Moody's
Investor's Service, Standard & Poor's Corporation or Fitch Investor's Service,
Inc. change because of changes in those organizations or in their rating
systems, the Fund will try to use comparable ratings as standards in accordance
with the investment policies described in the Fund's prospectus.
MUNICIPAL LEASES
The Fund may purchase Municipal Securities in the form of participation
interests that represent an undivided proportional interest in lease
payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit-enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. 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 the securities
to be purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and maintained until the transaction is
settled.
The Fund may also sell Municipal Securities on a delayed delivery basis with
settlement taking place more than five days after the sale as a normal form of
portfolio transaction. It is the investment adviser's experience that it is not
unusual in the municipal securities market for settlement periods to be slightly
longer than this period.
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
more than 20% of the total value of its assets.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are 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 assets are marked to market daily and
are maintained until the transaction has been settled.
TEMPORARY INVESTMENTS
The Fund may also invest in high quality temporary investments or cash from time
to time for temporary defensive purposes. Any portion of the Fund's assets
maintained in cash will reduce the amount of assets in Municipal Securities and
thereby reduce the Fund's yield.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Fund and agree at the time
of sale to repurchase them at a mutually agreed upon time and price
within one year from the date of acquisition. The Fund or its custodian
will take possession of the securities subject to repurchase agreements
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 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.
From time to time, such as when suitable Municipal Securities are not available,
the Fund may invest a portion of its assets in cash. Any portion of the Fund's
assets maintained in cash will reduce the amounts of assets in Municipal
Securities and thereby reduce the Fund's yield.
INVESTMENT RISKS
- --------------------------------------------------------------------------------
Litigation or legislation could affect the validity of certain Municipal
Securities or their tax-free interest. For example, litigation challenging the
validity of systems of financing public education has been initiated or
adjudicated in a number of states. The Fund will not investigate such
legislation or litigation unless it deems it necessary to do so. To the extent
that litigation or legislation has an adverse effect on the ratings as ascribed
to a particular Municipal Security, there is some protection to the Fund's
shareholders from the Fund's policy of buying only highly-rated securities.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of its total assets including the amount
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 or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in securities secured by
real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or non-publicly issued municipal securities or temporary
investments or enter into repurchase agreements, in accordance with its
investment objective, policies and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase 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 and 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.")
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar type projects.
However, the Fund may invest, as temporary investments, more than 25% of
the value of its assets in cash or certain money market instruments
(including time and demand deposits of U.S. branches of domestic banks,
such as certificates of deposit), securities issued or guaranteed by the
U.S. government, its agencies, or instrumentalities or instruments
secured by these money market instruments, such as repurchase agreements.
Except as noted, the above limitations cannot be changed without shareholder
approval. The Fund does not consider the issuance of separate classes of shares
to involve the issuance of "senior securities" within the meaning of the
investment limitation set forth above. The following investment limitations may
be changed by Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for
clearance of transactions.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of its total assets in any one investment
company, or invest more than 10% of its total assets in investment
companies in general. The Fund will limit its investments in the
securities of other investment companies to those of money market funds
having investment objectives and policies similar to its own. The Fund
will purchase securities of closed-end investment companies only in open
market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, reorganization or acquisition of
assets. While it is the Fund's investment adviser's policy to waive its
investment advisory fee on assets invested in securities of open-end
investment companies, it should be noted that investment companies incur
certain expenses such as custodian and transfer agent fees, and therefore
any investment by the Fund in shares of another investment company would
be subject to such duplicate expenses.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under federal securities law, except
for restricted securities determined to be liquid under criteria
established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, and restricted
securities which have not been determined to be liquid under criteria
established by the Trustees.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds where payment of principal and interest is
the responsibility of companies (or, in the alternative, guarantors,
where applicable) which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN MINERALS
The Fund will not purchase oil, gas, or other mineral exploration or
development programs or leases, although it may invest in the securities
of issuers which invest in or sponsor such programs.
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 .5 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund will not purchase any securities while borrowings in excess of 5% of
the value of its total assets are outstanding.
The Fund does not expect to borrow money in excess of 5% of the value of its net
assets or invest in securities of closed-end investment companies during the
coming fiscal year.
THE BILTMORE FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, 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
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATIONS 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.; 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 & Co., Inc.; Director, Atlantic Ameri-
can 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 Vice President, Secretary, General Counsel, and Trustee, Federated
and 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; Vice President and
and Assistant Assistant Treasurer of certain investment companies for which Federated
Treasurer Securities Corp. is the principal distributor; formerly, Associate
Corporate Counsel, Federated
Investors.
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 January 7, 1994, the following shareholder of record owned 5% or more of
the outstanding Institutional Shares of the Fund: Wachovia Trust Services,
Winston-Salem, North Carolina, owned approximately 60,522,500 Institutional
Shares (100%).
As of January 7, 1994, the following shareholders of record owned 5% or more of
the outstanding Investment Shares of the Fund: The South Carolina National Bank,
Winston-Salem, North Carolina, owned approximately 13,337,356 Investment Shares
(58%); and Wachovia Brokerage Service, Winston-Salem, North Carolina, owned
approximately 9,090,337 Investment Shares (39%).
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not be 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 year ended November 30, 1993, and for the period from May 14, 1992 (date
of initial public investment) to November 30, 1992, the Fund's adviser earned
$380,443 and $148,370, respectively, of which $297,388 and $148,370 were
voluntarily waived. In addition, for the period from May 14, 1992 (date of
initial public investment) to November 30, 1992, the Fund's adviser reimbursed
$21,924 of other operating expenses.
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.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectuses.
For the fiscal year ended November 30, 1993, and for the period from May 14,
1992 (date of initial public investment) to November 30, 1992, Federated
Administrative Services earned $100,161 and $20,406, respectively, of which
$79,813 and $20,406 were voluntarily waived. In addition, for the year ended
November 30, 1993 and for the period from May 14, 1992 (date of initial public
investment) to November 30, 1992 the Fund's administrator reimbursed $61,079 and
$22,621, of other operating expenses.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. The
Adviser determines in good faith that commissions charged by such persons are
reasonable in relation to the value of the brokerage and research services
provided.
Research services provided by brokers 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 might otherwise have paid, it would tend
to reduce its expenses. The Fund has no obligation to deal with any broker or
group of brokers in the execution of portfolio 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.
The Fund will not purchase securities that are offered in underwritings in which
the Adviser or any of its affiliates is a member of the underwriting or selling
group, except pursuant to procedures adopted by the Fund's Board of Trustees
pursuant to Rule 10f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"). Among other things, these procedures require that the commission or
spread paid in connection with such a purchase be reasonable and fair, that the
purchase be at not more than the public offering price prior to the end of the
first business day after the date of the public offering and that the Adviser or
any affiliate thereof not participate in or benefit from the sale to the Fund.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days Wachovia
Bank of North Carolina, N.A., the New York Stock Exchange and the Federal
Reserve Wire System are open for business. The procedure for purchasing Shares
is explained in the respective prospectus under "Investing in Institutional
Shares" and "Investing in Investment Shares."
DISTRIBUTION PLAN (INVESTMENT SHARES ONLY)
With respect to the Investment Shares class of the Fund, the Trust has adopted a
plan (the "Plan") pursuant to Rule 12b-1 which was promulgated by the Securities
and Exchange Commission pursuant to the 1940 Act. The Plan provides for payment
of fees to Federated Securities Corp. to finance any activity which is
principally intended to result in the sale of the Fund's Investment Shares
subject to the Plan. Such activities may include the advertising and marketing
of Investment Shares; preparing, printing, and distributing prospectuses and
sales literature to prospective shareholders, brokers, or administrators; and
implementing and operating the Plan. Pursuant to the Plan, Federated Securities
Corp. may pay fees to brokers for distribution and administrative services and
to administrators for administrative services as to Investment Shares. The
administrative services are provided by a representative who has knowledge of
the shareholder's particular circumstances and goals, and include, but are not
limited to: communicating account openings; communicating account closings;
entering purchase transactions; entering redemption transactions; providing or
arranging to provide accounting support for all transactions, wiring funds and
receiving funds for share purchases and redemptions, confirming and reconciling
all transactions, reviewing the activity in Fund accounts, and providing
training and supervision of broker personnel; posting and reinvesting dividends
to Fund accounts or arranging for this service to be performed by the Fund's
transfer agent; and maintaining and distributing current copies of prospectuses
and shareholder reports to the beneficial owners of Investment Shares and
prospective shareholders.
The Trustees expect that the adoption of the Plan will result in the sale of
sufficient number of Investment Shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
For the year ended November 30, 1993 and for the period from May 20, 1992 (date
of initial public investment) to November 30, 1992, brokers and administrators
(financial institutions) received fees in the amount of $59,172 and $5,513,
respectively, pursuant to the Plan of which $14,792 and $1,380 were voluntarily
waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. The Wachovia Banks (as defined
in the prospectus) act as the shareholder's agent in depositing checks and
converting them to federal funds.
EXCHANGING SECURITIES FOR FUND SHARES
- --------------------------------------------------------------------------------
The Fund has no present intention of accepting securities in exchange for
Shares. However, if the Fund should allow such exchanges, it will do so only
upon the prior approval of the Fund and only upon a determination by the Fund
and its investment 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 requirement of 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 Shares on the day the securities are valued. One Share 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.
TAX CONSEQUENCES
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.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the respective
prospectus of Institutional Shares and Investment Shares.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under the amortized cost method,
portfolio instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with the provisions of Rule 2a-7 (the
"Rule") promulgated by the Securities and Exchange Commission under the 1940
Act. Under the Rule, the Trustees must establish procedures reasonably designed
to stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding 397 days on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
The Fund acquires instruments subject to demand features and standby commitments
to enhance the instrument's liquidity. The Fund treats demand features and
standby commitments as a part of the underlying instruments, because the Fund
does not acquire them for speculative purposes and cannot transfer them
separately from the underlying instruments. Therefore, although the Rule defines
demand features and standby commitments as "puts," the Fund does not consider
them to be separate investments for the purposes of its investment policies.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Board of Trustees, present minimal credit
risks and have received the requisite rating from one or more NRSROs (as
defined in the prospectus). If the instruments are not rated, the
Trustees must determine that they are of comparable quality.
The Rule also requires the Fund to maintain a dollar-weighted average
portfolio maturity (not more than 90 days) appropriate to the objective
of maintaining a stable net asset value of $1.00 per share. In addition,
no instrument with a remaining maturity of more than 397 days can be
purchased by the Fund. Should the disposition of a portfolio security
result in a dollar-weighted average portfolio maturity of more than 90
days, the Fund will invest its available cash to reduce the average
maturity to 90 days or less as soon as possible. Shares of investment
companies purchased by the Fund will meet these same criteria and will
have investment policies consistent with the Rule.
The Fund may attempt to increase yield by trading portfolio securities to
take advantage of short-term market variations. This policy may, from
time to time, result in high portfolio turnover. Under the amortized cost
method of valuation, neither the amount of daily income nor the net asset
value is affected by any unrealized appreciation or depreciation of the
portfolio. In periods of declining interest rates, the indicated daily
yield on shares of the Fund, computed by dividing the annualized daily
income on the Fund's portfolio by the net asset value computed as above,
may tend to be higher than a similar computation made by using a method
of valuation based upon market prices and estimates. In periods of rising
interest rates, the indicated daily yield on shares of the Fund computed
the same way may tend to be lower than a similar computation made by
using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectus under "Redeeming Institutional Shares" and "Redeeming
Investment Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Trust to redeem Shares for any one shareholder in cash only up to
the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day
period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that payments should be in kind. In such a case, the Fund
will pay all or a portion of the remainder of the redemption in portfolio
instruments, valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for Institutional Shares for the seven-day period ended
November 30, 1993 was 2.18%. The yield for the Investment Shares was 1.88% for
the same period.
The Fund calculates its yield for both classes of Shares daily, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased with dividends earned from the original one share and all dividends
declared on the original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of Shares, the performance will be reduced for those shareholders paying
those fees.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Fund's tax-equivlaent yield for Institutional Shares for the seven-day
period ended November 30, 1993 was 3.16%. The Fund's tax-equivalent yield for
the Investment Shares was 2.72% for the same period.
The tax-equivalent yield for both classes of Shares is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that the Fund would have
had to earn to equal its actual yield, assuming a 31% tax rate (the maximum
effective federal rate for individuals) and assuming that income is 100%
tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's portfolio
generally remains free from federal regular income tax,* and is often free from
state and local taxes as well. As the table below indicates, a "tax-free"
investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
<TABLE>
<CAPTION>
TAX-FREE YIELD* VS. TAXABLE YIELD
FEDERAL INCOME TAX BRACKET
<S> <C> <C> <C>
15.00% 28.00% 31.00%
- -----------------------------------------------------------------------
JOINT RETURN: $1-38,000 $38,001-91,850 $91,851-140,000
SINGLE RETURN: $1-22,750 $22,751-55,100 $55,101-115,000
- -----------------------------------------------------------------------
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C>
- -----------------------------------------------------------------------
2.50% 2.94% 3.47% 3.62%
3.00 3.53 4.17 4.35
3.50 4.12 4.86 5.07
4.00 4.71 5.56 5.80
4.50 5.29 6.25 6.52
5.00 5.88 6.94 7.25
5.50 6.47 7.64 7.97
6.00 7.06 8.33 8.70
6.50 7.65 9.03 9.42
- -----------------------------------------------------------------------
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent.
</TABLE>
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
*Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield for the Institutional Shares for the seven-day period
ended November 30, 1993 was 2.20%. The effective yield for the Investment Shares
was 1.90% for the same period.
The Fund's effective yield for both classes of Shares is computed by compounding
the unannualized base period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of both classes of Shares depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in the expenses of the Fund of either class of Shares; and
the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute net asset value. The financial
publications and/or indices which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "Tax-Free
Money Market Funds" category in advertising and sale literature.
SALOMON BROTHERS SIX-MONTH PRIME MUNI NOTES is an index of selected municipal
notes, maturing in six months, whose yields are chosen as representative of
this market. Calculations are made weekly and monthly.
SALOMON BROTHERS ONE-MONTH TAX-EXEMPT COMMERCIAL PAPER is an index of selected
tax-exempt commercial paper issues, maturing in one month, whose yields are
chosen as representative of this particular market. Calculations are made
weekly and monthly. Ehrlich-Bober & Co., Inc. also tracks this Salomon Brothers
index.
MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day compound (effective) yield.
From time to time, the Fund will quote its Money ranking in advertising and
sales literature.
IBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of
money market funds on a weekly basis and, through its Money Market Insight
publication, reports monthly and 12-month-to-date investment results for the
same money funds.
Advertisements and other sales literature for either class of Shares may quote
total returns, which are calculated on standardized base periods. These total
returns also represent the historic change in the value of an investment in
either class of Shares based on the monthly reinvestment of dividends over a
specified period of time.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION, MUNICIPAL BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings of AA may be modified by the addition of a
plus or minus sign to show relative standing within the rating category.
MOODY'S INVESTORS SERVICE, MUNICIPAL BOND RATINGS
Aaa--bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in AAA securities.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in the generic rating
classification of "AA" in its corporate or municipal bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position
of a credit within the rating category. Plus and minus signs, however, are not
used in the AAA category.
STANDARD & POOR'S CORPORATION, MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1 and F-1+ categories.
STANDARD & POOR'S CORPORATION, COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
Conservative capitalization structures with moderate reliance on debt and ample
asset protection; Broad margins in earning coverage of fixed financial charges
and high internal cash generation; Well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
2020206B-IS (1/94)
BILTMORE MONEY MARKET FUND
BILTMORE TAX-FREE MONEY MARKET FUND
BILTMORE U.S. TREASURY MONEY MARKET FUND
(PORTFOLIOS OF THE BILTMORE FUNDS)
INVESTMENT SHARES
COMBINED PROSPECTUS
The Investment Shares of Biltmore Money Market Fund (the "Money Market Fund"),
Biltmore Tax-Free Money Market Fund (the "Tax-Free Fund"), and Biltmore U.S.
Treasury Money Market Fund (the "U.S. Treasury Fund") (individually referred to
as a "Fund" and collectively as the "Funds") offered by this Prospectus
represent interests in three separate diversified portfolios of securities with
distinct investment objectives and policies. The Funds are three of a series of
investment portfolios comprising The Biltmore Funds (the "Trust"), an open-end
management investment company (a mutual fund).
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUNDS ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO DO SO.
The investment objective of the Money Market Fund is to provide current income
consistent with stability of principal and liquidity. The Money Market Fund
pursues this investment objective by investing exclusively in money market
instruments maturing in 397 days or less.
The investment objective of the Tax-Free Fund is to provide current income
exempt from federal regular income tax consistent with stability of principal
and liquidity. The Tax-Free Fund pursues this investment objective by investing
in a diversified portfolio of short-term municipal securities.
The investment objective of the U.S. Treasury Fund is to provide current income
consistent with stability of principal and liquidity. The U.S. Treasury Fund
seeks to achieve its objective by investing in a portfolio of short-term U.S.
government securities with an average maturity of 90 days or less.
THE SHARES OFFERED BY THIS PROSPECTUS 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.
This Prospectus contains the information you should read and know before you
invest in Investment Shares of the Funds. Keep this Prospectus for future
reference.
Each Fund has also filed a Combined Statement of Additional Information for
Investment Shares and Institutional Shares, dated January 31, 1994, with the
Securities and Exchange Commission. The information contained in the Combined
Statements of Additional Information is incorporated by reference into this
Prospectus. You may request a copy of any of the Combined Statements of
Additional Information free of charge by calling 1-800-358-2801. To obtain other
information, or make inquiries about the Funds, call or write Wachovia Brokerage
Service or SCN Brokerage Service (collectively, "Wachovia Brokerage Service"),
divisions of Wachovia Securities, Inc., 1-800-462-7538, P.O. Box 110, MC 32022,
Winston-Salem, N.C. 27102, or contact your Wachovia Bank (as defined herein)
account representative.
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
- --------------------------------------------------------------------------------
BILTMORE MONEY MARKET FUND
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
BILTMORE TAX-FREE MONEY MARKET FUND
SUMMARY OF FUND EXPENSES 2
- ------------------------------------------------------
BILTMORE U.S. TREASURY MONEY MARKET FUND
SUMMARY OF FUND EXPENSES 3
- ------------------------------------------------------
BILTMORE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--
INVESTMENT SHARES 4
- ------------------------------------------------------
BILTMORE TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--
INVESTMENT SHARES 5
- ------------------------------------------------------
BILTMORE U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--
INVESTMENT SHARES 6
- ------------------------------------------------------
GENERAL INFORMATION 7
- ------------------------------------------------------
INVESTMENT INFORMATION 7
- ------------------------------------------------------
Money Market Fund 7
Investment Objective 7
Investment Policies 8
Acceptable Investments 8
U.S. Government Obligations 8
Variable Rate Demand Notes 9
Bank Instruments 9
Short-Term Credit Facilities 9
Ratings 9
Restricted and Illiquid Securities 9
Investment Risks 10
Tax-Free Fund 10
Investment Objective 10
Investment Policies 10
Acceptable Investments 11
Municipal Securities 11
Variable Rate Demand Notes 11
Participation Interests 12
Municipal Leases 12
Ratings 12
Restricted and Illiquid Securities 12
Temporary Investments 12
Investment Risks 13
U.S. Treasury Fund 13
Investment Objective 13
Investment Policies 13
Acceptable Investments 13
All Funds 13
Investing in Securities of Other
Investment Companies 13
When-Issued and Delayed Delivery Transactions 14
Repurchase Agreements 14
Money Market and Tax-Free Funds 14
Concentration of Investments 14
Demand Features 14
Credit Enhancement 15
Money Market and U.S. Treasury Funds 15
Lending of Portfolio Securities 15
Money Market Fund 15
Investment Limitations 15
Tax-Free Fund 16
Investment Limitations 16
U.S. Treasury Fund 16
Investment Limitations 16
Regulatory Compliance (All Funds) 16
THE BILTMORE FUNDS INFORMATION 17
- ------------------------------------------------------
Management of the Trust 17
Board of Trustees 17
Investment Adviser 17
Advisory Fees 17
Adviser's Background 17
Distribution of Investment Shares 17
Distribution Plan 18
Administrative Arrangements 18
Administration of the Funds 19
Administrative Services 19
Custodian 19
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services 19
Legal Services 19
Independent Auditors 20
Expenses of the Funds and Investment Shares 20
NET ASSET VALUE 20
- ------------------------------------------------------
INVESTING IN INVESTMENT SHARES 20
- ------------------------------------------------------
Share Purchases 20
Through Wachovia Brokerage Service 21
By Mail 21
By Wire 21
Through the Wachovia Banks or
Other Service Organizations 21
Minimum Investment Required 22
What Shares Cost 22
Certificates and Confirmations 22
Dividends 23
Capital Gains 23
EXCHANGES 23
- ------------------------------------------------------
REDEEMING INVESTMENT SHARES 24
- ------------------------------------------------------
Through Wachovia Brokerage Service 24
By Telephone 24
By Mail 24
Through the Wachovia Banks 25
By Telephone 25
Via Sweep Agreement 25
Through Service Organizations 25
By Telephone 25
Accounts with Low Balances 26
SHAREHOLDER INFORMATION 26
- ------------------------------------------------------
Voting Rights 26
Massachusetts Business Trusts 26
EFFECT OF BANKING LAWS 27
- ------------------------------------------------------
TAX INFORMATION 27
- ------------------------------------------------------
Money Market and U.S. Treasury Funds 28
Tax-Free Fund 28
State and Local Taxes 29
PERFORMANCE INFORMATION 29
- ------------------------------------------------------
OTHER CLASSES OF SHARES 29
- ------------------------------------------------------
BILTMORE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 31
- ------------------------------------------------------
BILTMORE TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 32
- ------------------------------------------------------
BILTMORE U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 33
- ------------------------------------------------------
FINANCIAL STATEMENTS--BILTMORE MONEY MARKET FUND 34
- ------------------------------------------------------
BILTMORE TAX-FREE MONEY MARKET FUND 39
- ------------------------------------------------------
BILTMORE U.S. TREASURY MONEY MARKET FUND 51
- ------------------------------------------------------
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS 60
- ------------------------------------------------------
ADDRESSES 61
- ------------------------------------------------------
BILTMORE MONEY MARKET FUND
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................. None
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
<CAPTION>
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C>
Management Fee (after waiver) (1)....................................................................... 0.00%
12b-1 Fees (after waiver) (2)........................................................................... 0.30%
Other Expenses (after waiver & reimbursement) (3)....................................................... 0.27%
Total Investment Shares Operating Expenses (after waiver & reimbursement) (4)....................... 0.57%
</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 0.50%.
(2)The Fund can pay up to 0.40% of average daily net assets of Investment Shares
as a 12b-1 fee. For the foreseeable future, the Fund plans to limit 12b-1
payments to 0.30% of average daily net assets.
(3)Other Expenses are estimated to be 0.33% absent the voluntary waiver by the
administrator and the voluntary reimbursement by the investment adviser. The
administrator and adviser may terminate the voluntary waiver and
reimbursement, respectively, at any time at their sole discretion.
(4)The Annual Investment Shares Operating Expenses were 0.55% for the fiscal
year ended November 30, 1993. The Annual Investment Shares Operating Expenses
in the table above reflect a reduction in the voluntary waiver of the
administrative fee and the custodian fee for the fiscal year ending November
30, 1994. The Annual Investment Shares Operating Expenses are expected to be
1.23% absent the voluntary waiver described above in notes 1, 2, and 3.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INVESTMENT SHARES OF THE MONEY
MARKET 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 INVESTMENT SHARES."
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc. However, in order for a Fund investor to
exceed the NASD's maximum front-end sales charge of 6.25%, a continuous
investment in the Fund for 125 years would be required.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <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. The
Fund charges no redemption fees for Investment Shares.................... $6 $18 $32 $71
</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.
The information set forth in the foregoing table and example relates only to
Investment Shares of the Money Market Fund. The Fund also offers another class
of shares called Institutional Shares. Investment Shares and Institutional
Shares are subject to certain of the same expenses, however, Institutional
Shares are not subject to a 12b-1 fee. See "Other Classes of Shares."
BILTMORE TAX-FREE MONEY MARKET FUND
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................. None
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 INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)....................................................................... 0.00%
12b-1 Fees (after waiver) (2)........................................................................... 0.30%
Other Expenses (after waiver & reimbursement) (3)....................................................... 0.31%
Total Investment Shares Operating Expenses (after waiver & reimbursement) (4)....................... 0.61%
</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 0.50%.
(2)The Fund can pay up to 0.40% of average daily net assets of Investment Shares
as a 12b-1 fee. For the foreseeable future the Fund plans to limit 12b-1
payments to 0.30% of average daily net assets.
(3)Other Expenses are estimated to be 0.37% absent the voluntary waiver by the
administrator and voluntary reimbursement by the adviser. The administrator
and adviser may terminate the voluntary waiver and reimbursement,
respectively, at any time at their sole discretion.
(4)The Annual Investment Shares Operating Expenses were 0.59% for the fiscal
year ended November 30, 1993. The Annual Investment Shares Operating Expenses
in the table above reflect a reduction in the voluntary waiver of the
administrative fee and the custodian fee for the fiscal year ending November
30, 1994. The Annual Investment Shares Operating Expenses are expected to be
1.27% absent the voluntary waivers described above in notes 1, 2, and 3.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE INVESTMENT SHARES OF THE
TAX-FREE 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 INVESTMENT SHARES."
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc. However, in order for a Fund investor to
exceed the NASD's maximum front-end sales charge of 6.25%, a continuous
investment in the Fund for 125 years would be required.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <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. The
Fund charges no redemption fees for Investment Shares.................... $6 $20 $34 $76
</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.
The information set forth in the foregoing table and example relates only to
Investment Shares of the Tax-Free Fund. The Fund also offers another class of
shares called Institutional Shares. Investment Shares and Institutional Shares
are subject to certain of the same expenses, however, Institutional Shares are
not subject to a 12b-1 fee. See "Other Classes of Shares."
BILTMORE U.S. TREASURY MONEY MARKET FUND
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................. None
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 INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)....................................................................... 0.00%
12b-1 Fees (after waiver) (2)........................................................................... 0.30%
Other Expenses (after waiver & reimbursement) (3)....................................................... 0.37%
Total Investment Shares Operating Expenses (after waiver & reimbursement) (4)....................... 0.67%
</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 0.50%.
(2)The Fund can pay up to 0.40% of average daily net assets of Investment Shares
as a 12b-1 fee. For the foreseeable future, the Fund plans to limit 12b-1
payments to 0.30% of average daily net assets.
(3)Other Expenses are estimated to be 0.41% absent the voluntary waiver by the
administrator and the voluntary reimbursement by the investment adviser. The
administrator and adviser may terminate the voluntary waiver and
reimbursement, respectively, at any time at their sole discretion.
(4)The Annual Investment Shares Operating Expenses were 0.65% for the fiscal
year-ended November 30, 1993. The Annual Investment Shares Operating Expenses
in the table above reflect a reduction in the voluntary waivers of the
administrative fee and the custodian fee for the fiscal year ending November
30, 1994. The Annual Investment Shares Fund Operating Expenses are expected
to be 1.31% absent the voluntary waivers described above in notes 1, 2, and
3.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INVESTMENT SHARES OF THE U.S.
TREASURY 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 INVESTMENT SHARES".
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc. However, in order for a Fund investor to
exceed the NASD's maximum front-end sales charge of 6.25%, a continuous
investment in the Fund for 125 years would be required.
<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. The Fund charges no redemption fees for
Investment Shares.............................................................................. $7 $21
</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.
The information set forth in the foregoing table and example relates only to
Investment Shares of the U.S. Treasury Fund. The Fund also offers another class
of shares called Institutional Shares. Investment Shares and Institutional
Shares are subject to certain of the same expenses, however, Institutional
Shares are not subject to a 12b-1 fee. See "Other Classes of Shares."
BILTMORE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
60.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1993 1992*
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.03 0.01
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.01)
- --------------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN** 2.74% 1.48%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 0.55% 0.48%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 2.70% 3.44%(a)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.66% 0.75%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 9,842 $ 3,106
- ---------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from June 9, 1992 (date of initial public
investment) to
November 30, 1992.
** Based on net asset value, which does not reflect the sales load or
redemption fee, if applicable.
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expenses and net investment
income ratios shown above (Note 5).
(See Notes, which are an integral part of the Financial Statements)
BILTMORE TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
60.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1993 1992*
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.02 0.01
- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.01)
- ------------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN** 1.99% 1.29%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 0.59% 0.50%(a)
- -------------------------------------------------------------------------------------------
Net investment income 1.98% 2.37%(a)
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.70% 0.88%(a)
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $23,976 $5,338
- -------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 20, 1992 (date of initial public
investment) to November 30, 1992.
** Based on net asset value, which does not reflect the sales load or
redemption fee, if applicable.
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expense and net investment
income ratios shown above (Note 5).
(See Notes, which are an integral part of the Financial Statements)
BILTMORE U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
60.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1993*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.01
- -----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.01)
- ----------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $1.00
- ----------------------------------------------------------------------------------------------- -------
TOTAL RETURN** 1.42%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses 0.65%(a)
- -----------------------------------------------------------------------------------------------
Net investment income 2.50%(a)
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.73%(a)
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $16,941
- -----------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 12, 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) Computed on an annualized basis.
(b) The expense decrease is reflected in both the expenses and net investment
income ratios shown above (Note 5).
(See Notes, which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Biltmore Funds (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 separate series of shares of beneficial
interest representing interests in separate portfolios of securities. The shares
in any one portfolio may be offered in separate classes. As of the date of this
Prospectus, the Board of Trustees (the "Trustees") has established two classes
of shares of the Money Market Fund, the Tax-Free Fund and the U.S. Treasury
Fund: Investment Shares and Institutional Shares. This Prospectus relates only
to Investment Shares of the Funds.
Investment Shares of the Money Market and the U.S. Treasury Funds are designed
primarily for individual investors, corporations, or partnerships as a
convenient means of participating in a professionally-managed, diversified
portfolio limited to money market instruments maturing in 397 days or less.
Investment Shares of the Tax-Free Fund are designed primarily for individual
investors, corporations, or partnerships as a convenient means of participating
in a professionally-managed, diversified portfolio limited to short-term
municipal securities.
Investment Shares of each of the Funds may be purchased through Wachovia
Brokerage Service, through 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"), or through other Service Organizations (as
hereinafter defined). A minimum initial investment of $1,000 in Investment
Shares of any of the Funds is required, except that for investors purchasing
Investment Shares in any of the Funds via a sweep account program, initial
investment minimums may be modified under the applicable account agreement.
Each Fund attempts to stabilize the value of its shares at $1.00. Investment
Shares are currently sold and redeemed at that price.
The other portfolios in the Trust are Biltmore Balanced Fund, Biltmore Equity
Fund, Biltmore Equity Index Fund, Biltmore Fixed Income Fund, Biltmore Prime
Cash Management Fund (Institutional Shares), Biltmore Quantitative Equity Fund,
Biltmore Short-Term Fixed Income Fund, and Biltmore Special Values Fund.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
MONEY MARKET FUND
INVESTMENT OBJECTIVE
The investment objective of the Money Market Fund is to provide current income
consistent with stability of principal and liquidity. The investment objective
cannot be changed without approval of shareholders. While there is no assurance
that the Money Market Fund will achieve its investment objective, it endeavors
to do so by following the investment policies described in this Prospectus.
INVESTMENT POLICIES
The Money Market Fund pursues its investment objective by investing exclusively
in a portfolio of money market instruments maturing in 397 days or less. The
average maturity of money market instruments in the Money Market Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
Unless indicated otherwise, the investment policies of the Money Market Fund may
be changed by the Trustees without the approval of shareholders. Shareholders
will be notified before any material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Money Market Fund invests in high quality money
market instruments that are rated in the highest short-term rating categories by
one or more nationally recognized statistical rating organizations ("NRSROs") or
are of comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
commercial paper (including Canadian Commercial Paper and Europaper);
certificates of deposit, demand and time deposits, saving shares,
bankers' acceptances, and other instruments of domestic and foreign banks
and other deposit institutions;
corporate debt obligations, including variable rate demand notes;
obligations of the U.S. government, its agencies and instrumentalities;
and
repurchase agreements.
The Money Market Fund invests only in instruments denominated and payable in
U.S. dollars.
For further discussion of the instruments described above and rating categories,
consult the Money Market Fund's Combined Statement of Additional Information.
U.S. GOVERNMENT OBLIGATIONS. The types of U.S. government obligations in
which the Money Market Fund may invest generally include direct obligations
of the U.S. Treasury (such as U.S. Treasury bills, notes, and bonds) and
obligations issued or guaranteed by U.S. government agencies or
instrumentalities. These securities are backed by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
Federal Farm Credit Banks;
Federal Home Loan Banks;
Federal National Mortgage Association;
Student Loan Marketing Association; and
Federal Home Loan Mortgage Corporation.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
corporate debt instruments that have variable or floating interest rates
and provide the Money Market Fund with the right to tender the security for
repurchase at its stated principal amount plus accrued interest. Such
securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based
on an interest rate index or a published interest rate. Most variable rate
demand notes allow the Money Market Fund to demand the repurchase of the
security on not more than seven days prior notice. Other notes only permit
the Money Market Fund to tender the security at the time of each interest
rate adjustment or at other fixed intervals. See "Demand Features" in this
Prospectus. The Money Market Fund treats variable rate demand notes as
maturing on the later of the date of the next interest rate adjustment or
the date on which the Money Market Fund may next tender the security for
repurchase.
BANK INSTRUMENTS. The Money Market Fund only invests in U.S. and foreign
bank instruments either issued by an institution having capital, surplus
and undivided profits over $100 million, or insured by the Bank Insurance
Fund ("BIF"), which is administered by the FDIC. Bank instruments may
include Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of
Deposit ("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The Money
Market Fund will treat securities credit enhanced with a bank's irrevocable
letter of credit or unconditional guaranty as bank instruments.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as the
Money Market 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. The Money Market Fund may also enter into,
or acquire participations in, short-term revolving credit facilities with
corporate borrowers. Demand notes and other short-term credit arrangements
usually provide for floating or variable rates of interest.
RATINGS. An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1+ or A-1 by
Standard & Poor's Corporation ("S&P"), Prime-1 by Moody's Investors Service,
Inc. ("Moody's"), or F-1 (+ or -) by Fitch Investors Service, Inc. ("Fitch") are
all considered rated in the highest short-term rating category. The Money Market
Fund will follow applicable regulations in determining whether a security rated
by more than one NRSRO can be treated as being in the highest short-term rating
category; currently, such securities must be rated by two NRSROs in their
highest rating categories. See "Regulatory Compliance" on page 16 of this
Prospectus.
RESTRICTED AND ILLIQUID SECURITIES. The Money Market Fund may invest in
restricted securities. Restricted securities are any securities in which the
Money Market Fund may otherwise invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. However, the Money Market Fund will limit investments in
illiquid securities, including certain restricted securities not determined by
the Trustees to be liquid, non-negotiable time deposits, and repurchase
agreements providing for settlement in more than seven days after notice, to 10%
of its net assets.
The Money Market 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 Money Market 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 Money Market 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 Money
Market 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 Money Market 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 Money Market Fund's investment adviser, as liquid and not
subject to the investment limitation applicable to illiquid securities. In
addition, because Section 4(2) commercial paper is liquid, the Money Market Fund
intends to not subject such paper to the limitation applicable to restricted
securities.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, and Europaper are subject to somewhat different risks
than domestic obligations of domestic issuers. Examples of these risks include
international economic and political developments, foreign governmental
restrictions that may adversely affect the payment of principal or interest,
foreign withholding or other taxes on interest income, difficulties in obtaining
or enforcing a judgment against the issuing bank, and the possible impact of
interruptions in the flow of international currency transactions. Different
risks may also exist for ECDs, ETDs, and Yankee CDs because the banks issuing
these instruments, or their domestic or foreign branches, are not necessarily
subject to the same regulatory requirements that apply to domestic banks, such
as reserve requirements, loan limitations, examinations, accounting, auditing,
and recordkeeping, and the public availability of information. These factors
will be carefully considered by the Money Market Fund's investment adviser in
selecting investments for the Money Market Fund.
TAX-FREE FUND
INVESTMENT OBJECTIVE
The investment objective of the Tax-Free Fund is to provide current income
exempt from federal regular income tax consistent with stability of principal
and liquidity. Interest income of the Tax-Free Fund that is exempt from federal
regular income tax retains its tax-free status when distributed to the Tax-Free
Fund's shareholders. While there is no assurance that the Tax-Free Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this Prospectus. The investment objective
cannot be changed without approval of shareholders.
INVESTMENT POLICIES
The Tax-Free Fund pursues its investment objective by investing primarily in a
diversified portfolio of short-term municipal securities maturing in 397 days or
less. The average maturity of money market instruments in the Tax-Free Fund's
portfolio, computed on a dollar weighted basis, will be 90 days or less. Unless
indicated otherwise, the investment policies of the Tax-Free Fund may be changed
by the
Trustees without the approval of shareholders. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Tax-Free Fund invests primarily in debt obligations
issued by or on behalf of states, territories and possessions of the United
States, including the District of Columbia, and any political subdivision or
financing authority of any of these, the income from which is, in the opinion of
qualified legal counsel, exempt from federal regular income tax ("Municipal
Securities"). Examples of Municipal Securities include, but are not limited to:
tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
municipal commercial paper and other short-term notes;
variable rate demand notes;
municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases; and
participation, trust and partnership interests in any of the foregoing
obligations.
For further discussion of the instruments described above and rating categories,
consult the Tax-Free Fund's Combined Statement of Additional Information.
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Municipal Securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
Municipal Securities that have variable or floating interest rates and
provide the Tax-Free Fund with the right to tender the security for
repurchase at its stated principal amount plus accrued interest. Such
securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally
based on a municipal interest rate index or a published interest rate. Most
variable rate demand notes allow the Tax-Free Fund to demand the repurchase
of the security on not more than seven days' prior notice. Other notes only
permit the Tax-Free Fund to tender the security at the time of each
interest rate adjustment or at other fixed intervals. See "Demand Features"
on page 14 of this Prospectus. The Tax-Free Fund treats variable rate
demand notes as maturing on the later of the date of the next interest
adjustment or the date on which the Tax-Free Fund may next tender the
security for repurchase.
PARTICIPATION INTERESTS. The Tax-Free Fund may purchase interests in
Municipal Securities from financial institutions such as commercial and
investment banks, savings and loan associations and insurance companies.
These interests may take the form of participations, beneficial interests
in a trust, partnership interests or any other form of indirect ownership
that allows the Tax-Free Fund to treat the income from the investment as
exempt from federal income tax. The Tax-Free Fund invests in these
participation interests in order to obtain credit enhancement or demand
features that would not be available through direct ownership of the
underlying Municipal Securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract
or a participation interest in any of the above.
RATINGS. The Municipal Securities in which the Tax-Free Fund invests must be
rated in the highest short-term rating category by one or more NRSRO or be of
comparable quality to securities having such ratings. An NRSRO's highest rating
category is determined without regard for sub-categories and gradations. For
example, securities rated SP-1+, SP-1, A-1K, or A-1 by S&P, MIG-1, P-1, or
VMIG-1 by Moody's, or FIN-1+ or FIN-1 by Fitch are all considered rated in the
highest short-term rating category. The Tax-Free Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in the highest short-term rating category; currently, such
securities must be rated by two NRSROs in their highest rating category. See
"Regulatory Compliance" on page 16 of this Prospectus.
RESTRICTED AND ILLIQUID SECURITIES. The Tax-Free Fund may invest in restricted
securities. Restricted securities are any securities in which the Tax-Free Fund
may invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Tax-Free Fund will limit investments in illiquid securities, including certain
restricted securities not determined by the Trustees to be liquid, and
repurchase agreements providing for settlement in more than seven days after
notice, to 10% of its net assets.
TEMPORARY INVESTMENTS. As a matter of fundamental investment policy, which
cannot be changed without approval of shareholders, the Tax-Free Fund invests
its assets so that at least 80% of its annual interest income is exempt from
federal regular income tax. However, from time to time when the Tax-Free Fund's
investment adviser determines that market conditions call for a temporary
defensive posture, the Tax-Free Fund may invest in short-term temporary
investments. Interest income from temporary investments may be taxable to
shareholders as ordinary income. These temporary investments include:
obligations issued by or on behalf of municipal or corporate issuers having the
same
quality characteristics as Municipal Securities purchased by the Tax-Free Fund;
marketable obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities; instruments issued by banks or other depository
institutions which have capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment and if their deposits are insured by BIF
or the Savings Association Insurance Fund (which are administered by the FDIC);
repurchase agreements (arrangements in which the organization is selling the
Tax-Free Fund a temporary investment and agrees at the time of sale to
repurchase it at a mutually agreed upon time and price); and prime commercial
paper rated A-1 by S&P, Prime-1 by Moody's, or F-1 by Fitch and other short-term
credit instruments.
Although the Tax-Free Fund is permitted to make taxable, temporary investments,
there is no current intention of generating income subject to federal regular
income tax. However, the Tax-Free Fund may purchase Municipal Securities, the
interest on which is subject to the federal alternative minimum tax, in an
amount not to exceed 20% of the total net assets of the Tax-Free Fund.
INVESTMENT RISKS
Yields on Municipal Securities depend on a variety of factors, including: the
general conditions of the short-term municipal note market and of the municipal
bond market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Tax-Free Fund to
achieve its investment objective also depends on the continuing ability of the
issuers of Municipal Securities and demand features, or the guarantors of
either, to meet their obligations for the payment of interest and principal when
due.
U.S. TREASURY FUND
INVESTMENT OBJECTIVE
The investment objective of the U.S. Treasury Fund is to provide current income
consistent with stability of principal and liquidity. This investment objective
cannot be changed without approval of shareholders. While there is no assurance
that the U.S. Treasury Fund will achieve its investment objective, it endeavors
to do so by following the investment policies described in this Prospectus.
INVESTMENT POLICIES
The U.S. Treasury Fund pursues its investment objective by investing in a
portfolio of short-term U.S. Treasury obligations which are issued by the U.S.
government, and are fully guaranteed as to payment of principal and interest by
the United States. Unless indicated otherwise, the investment policies of the
U.S. Treasury Fund may be changed by the Trustees without approval of
shareholders. Shareholders will be notified before any material changes in these
policies become effective.
ACCEPTABLE INVESTMENTS. The U.S. Treasury Fund invests only in U.S. Treasury
obligations maturing in 397 days or less. The average maturity of the U.S.
Treasury obligations in the U.S. Treasury Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less.
ALL FUNDS
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Funds may invest in
the securities of other investment companies, but they will not own more than 3%
of the total outstanding voting stock of any investment company, invest more
than 5% of their respective total assets in any one
investment company, or invest more than 10% of their respective total assets in
investment companies in general. The Funds will only invest in other investment
companies that are money market funds having investment objectives and policies
similar to their own and primarily for the purpose of investing short-term cash
which has not yet been invested in other portfolio instruments. The investment
adviser to the Funds will waive its investment advisory fee on assets invested
in securities of open-end investment companies.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Funds may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. The Funds engage in when-issued and delayed
delivery transactions only for the purpose of acquiring portfolio securities
consistent with their investment objectives and policies, not for investment
leverage. In when-issued and delayed delivery transactions, a Fund rely on the
seller to complete the transaction. The seller's failure to complete the
transaction may cause the Funds to miss a price or yield considered to be
advantageous.
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 a Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. The Funds or their
custodian will 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 a Fund, that
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 a Fund might be delayed
pending court action. The Funds believe that under the regular procedures
normally in effect for custody of the Funds' portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Funds and allow retention or disposition of such securities. The Funds will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Funds' investment
adviser to be creditworthy pursuant to guidelines established by the Trustees.
As a matter of investment practice, which can be changed without shareholder
approval, repurchase agreements providing for settlement in more than seven days
after notice, along with illiquid obligations, will be limited to not more than
10% of each Fund's respective net assets.
MONEY MARKET AND TAX-FREE FUNDS
CONCENTRATION OF INVESTMENTS. The Money Market and Tax-Free Funds may invest
more than 25% of the value of their respective total assets in cash or certain
money market instruments (including 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), securities issued or guaranteed by the
U.S. government, its agencies, or instrumentalities, or instruments secured by
these money market instruments, such as repurchase agreements.
DEMAND FEATURES. The Money Market and Tax-Free Funds 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 Funds. 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 Money Market and Tax-Free Funds use these arrangements to provide
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.
CREDIT ENHANCEMENT. Certain of the Money Market and Tax-Free Funds' acceptable
investments may have been credit enhanced by a guaranty, letter of credit or
insurance. The Money Market and Tax-Free Funds typically evaluate the credit
quality and ratings of credit enhanced securities based upon the financial
condition and ratings of the party providing the credit enhancement (the "credit
enhancer"), rather than the issuer. Generally, the Money Market and Tax-Free
Funds will not treat credit enhanced securities as having been issued by the
credit enhancer for diversification purposes. However, under certain
circumstances, applicable regulations may require the Money Market and Tax-Free
Funds to treat the securities as having been issued both by the issuer and the
credit enhancer. The bankruptcy, receivership or default of the credit enhancer
will adversely affect the quality and marketability of the underlying security.
The Tax-Free Fund may have more than 25% of its total assets invested in
securities credit enhanced by banks.
MONEY MARKET AND U.S. TREASURY FUNDS
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Money Market and U.S. Treasury Funds may lend their portfolio securities on a
short-term basis to broker/dealers, banks, or other institutional borrowers of
securities. The Funds will only enter into loan arrangements with
broker/dealers, banks, or other institutions which the Funds' investment adviser
has determined are creditworthy under guidelines established by the Trustees,
and will receive collateral in the form of cash or U.S. Treasury securities
equal to at least 100% of the value of the securities loaned at all times. The
Money Market and U.S. Treasury Funds will limit the amount of portfolio
securities they may lend to not more than one-third of their respective total
assets.
MONEY MARKET FUND
INVESTMENT LIMITATIONS
The Money Market Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Money Market Fund sells a money market
instrument for a percentage of its cash value with an agreement to buy it
back on a set date) except, under certain circumstances, the Money Market
Fund may borrow up to one-third of the value of its total assets; 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 U.S. government securities).
The above investment limitations cannot be changed without shareholder approval.
TAX-FREE FUND
INVESTMENT LIMITATIONS
The Tax-Free Fund will not:
borrow money directly or through reverse repurchase agreements except,
under certain circumstances, the Tax-Free Fund may borrow up to one-third
of the value of its total assets; nor
with respect to 75% of the value of its total assets, invest more than 5%
of its total assets in securities of one issuer (except cash, cash items,
repurchase agreements collateralized by U.S. government securities and
U.S. government obligations). The remaining 25% of its total assets may
be invested in a single issuer if the Fund's investment adviser believes
such a strategy is prudent.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, can be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Tax-Free Fund will not:
invest more than 5% of the value of its total assets in industrial
revenue bonds where the payment of principal and interest is the
responsibility of companies (or guarantors, if applicable) that have
records of less than three years of continuous operations, including the
operation of any predecessor.
U.S. TREASURY FUND
INVESTMENT LIMITATIONS
The U.S. Treasury Fund will not borrow money directly or through reverse
repurchase agreements except, under certain circumstances, the U.S. Treasury
Fund may borrow up to one-third of the value of its total assets. This
limitation cannot be changed without shareholder approval.
REGULATORY COMPLIANCE (ALL FUNDS)
The Funds may follow non-fundamental operational policies that are more
restrictive than their fundamental investment limitations, as set forth in this
Prospectus and the Funds' Combined Statements of Additional Information, in
order to comply with applicable laws and regulations, including the provisions
of and regulations under the Investment Company Act of 1940, as amended. In
particular, the Funds will comply with the various requirements of Rule 2a-7,
which regulates money market mutual funds. The Tax-Free and U.S. Treasury Funds
will determine the effective maturity of their investments, as well as their
ability to consider a security as having received the requisite short-term
ratings by NRSROs, according to Rule 2a-7. The Funds may change these
operational policies to reflect changes in the laws and regulations without the
approval of their shareholders.
THE BILTMORE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Board of Trustees is 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,
investment decisions for the Funds 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 Funds and is
responsible for the purchase or sale of portfolio instruments, for which it
receives annual fees from the assets of the Funds.
ADVISORY FEES. The Funds' Adviser receives an annual investment advisory
fee equal to 0.50 of 1% of each Fund's average daily net assets. The
investment advisory contract provides that such fees shall be accrued and
paid daily. The Adviser has undertaken to reimburse the Funds for operating
expenses in excess of limitations established by certain states. The
Adviser may voluntarily choose to waive a portion of its fees or reimburse
the Funds for certain other expenses of the Funds, 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. is a national banking association,
which offers a broad range of financial services, including commercial and
consumer loans, corporate, institutional and personal trust services,
demand and time deposit accounts, letters of credit and international
financial services.
Wachovia Investment Management Group employs an experienced staff of
professional investment analysts, portfolio managers and traders. The
Adviser uses fundamental analysis and other investment management
disciplines to identify investment opportunities. The 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 for The Biltmore Funds
since March 9, 1992.
DISTRIBUTION OF INVESTMENT SHARES
Federated Securities Corp. is the distributor for Investment Shares of the
Funds. 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.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with Rule 12b-1 under the Investment Company Act of 1940 (the
"Plan"), the Funds will pay Federated Securities Corp. an amount computed at an
annual rate of 0.40 of 1% of the average daily net asset value of the Investment
Shares of each Fund to finance any activity which is principally intended to
result in the sale of Investment Shares.
The distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the Investment Shares exceed such lower expense
limitation as the distributor may, by notice to the Trust, voluntarily declare
to be effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("Service
Organizations") to provide sales and/or administrative services as agent for
their clients or customers who beneficially own Investment Shares.
Administrative services may include, but are not limited to, the following
functions: communicating Fund account openings and closings; entering share
purchase and redemption transactions; electronically transferring and receiving
funds for those transactions; confirming and reconciling all such transactions
and reviewing activity in Fund accounts; posting and reinvesting dividends and
other distributions to Fund accounts; maintaining and distributing current
copies of prospectuses, statements of additional information, and shareholder
reports of the Funds; advertising and marketing assistance; responding to
clients' and potential clients' questions about the Funds; and other sales and
administrative support services to the Funds and their shareholders.
Service Organizations, including the Wachovia Banks, will receive fees from the
distributor based upon Investment Shares owned by their clients or customers.
The schedules of such fees and the basis upon which such fees will be paid will
be determined from time to time by the distributor.
The Funds' Plan is a compensation type plan. As such, the Funds make no payments
to the distributor except as described above. Therefore, the Funds do not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Funds, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Funds
under the Plan.
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 service providers.
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.
ADMINISTRATIVE ARRANGEMENTS. The distributor may also pay Service Organizations
a fee based upon the average net asset value of Investment Shares of their
customers for providing administrative
services. This fee is in addition to the amounts paid under the Plan for
administrative services, and if paid, will be reimbursed by the Adviser and not
the Funds.
ADMINISTRATION OF THE FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative personnel
and services necessary to operate the Funds and the separate classes. 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 transfer agent, dividend disbursing agent, and
portfolio accounting services:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<S> <C>
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>
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 for the securities and cash of the Funds. Under the
Custodian Agreement, Wachovia Bank of North Carolina, N.A. holds the Funds'
portfolio securities in safekeeping and keeps all necessary records and
documents relating to its duties. For the services provided to the Trust
pursuant to the Custodian Agreement, the Trust pays Wachovia Bank of North
Carolina, N.A. 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 EACH FUND
<S> <C>
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, Pittsburgh, PA, a subsidiary of Federated
Investors, is transfer agent for the shares of the Funds, and dividend
disbursing agent for the Funds. Federated Services Company also provides certain
accounting and recordkeeping services with respect to the Funds' portfolio of
investments.
LEGAL SERVICES. Legal services for the Funds are provided by Kirkpatrick &
Lockhart, Washington, D.C. Piper & Marbury, Washington, D.C. serves as counsel
to the disinterested Trustees.
INDEPENDENT AUDITORS. The independent auditors for the Funds are Ernst & Young,
Pittsburgh, Pennsylvania.
EXPENSES OF THE FUNDS AND INVESTMENT SHARES
Holders of Investment Shares pay their allocable portion of Fund and Trust
expenses. The Trust expenses for which holders of Investment Shares pay their
allocable portion include, but are not limited to: the cost of organizing the
Trust and continuing its existence; registering the Trust; Trustees' fees;
auditors' fees; the cost of meetings of Trustees; legal fees of the Trust;
association membership dues; and such non-recurring and extraordinary items as
may arise.
Each Fund's expenses for which holders of shares pay their allocable portion
include, but are not limited to: registering the Funds and shares of the Funds
under state and federal law; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise.
At present, the only expenses allocated to Investment Shares as a class are
expenses under the Funds' Rule 12b-1 Plan. However, the Trustees reserve the
right to allocate certain other expenses to the shareholders of a particular
class as they deem appropriate ("Class Expenses"). In any case, Class Expenses
would be limited to: transfer agent fees as identified by the transfer agent as
attributable to holders of Investment Shares; printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to the
Securities and Exchange Commission and registration fees paid to states;
expenses related to administrative personnel and services as required to support
holders of Investment Shares; legal fees relating solely to Investment Shares;
and Trustees' fees incurred as a result of issues relating solely to Investment
Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Funds attempt to stabilize the net asset value of Investment Shares at $1.00
by valuing the portfolio securities using the amortized cost method. The net
asset value per share of each Fund is determined by adding the interest of the
Investment Shares in the value of all securities and other assets of that Fund,
subtracting the interest of the Investment Shares in the liabilities of that
Fund and those attributable to that Fund's Investment Shares, and dividing the
remainder by the total number of that Fund's Investment Shares outstanding. The
Funds, of course, cannot guarantee that their net asset values will always
remain at $1.00 per share.
INVESTING IN INVESTMENT SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Investment Shares are sold on days on which Wachovia Bank of North Carolina,
N.A., the New York Stock Exchange and the Federal Reserve Wire System are open
for business. Investment Shares may be purchased through Wachovia Brokerage
Service, the Wachovia Banks or other Service Organizations. Texas residents must
purchase, exchange, and redeem shares through Federated Securities Corp. at 1-
800-618-8573. In connection with the sale of Investment Shares, the distributor
may from time to time offer certain items of nominal value to any shareholder or
investor. The Funds and the distributor reserve the right to reject any purchase
request.
THROUGH WACHOVIA BROKERAGE SERVICE. To place an order to purchase Investment
Shares, customers of Wachovia Brokerage Service may telephone (1-800-462-7538),
send written instructions or place an order in person. Payment may be made
either by check, wire of federal funds or by debiting a customer's account at
Wachovia Brokerage Service. Purchase orders must be communicated to Wachovia
Brokerage Service before 11:00 a.m. (Eastern time) and payment by federal funds
must be received by Wachovia Brokerage Service before 4:00 p.m. (Eastern time)
on the same day as the order to earn dividends that day. 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 Investment Shares of a Fund by mail, send a check
made payable to the appropriate 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 Investment Shares of a Fund by wire, wire funds as
follows:
Wachovia Securities, Inc.
ABA Number 0531-00494
Credit: 8735-001342
Further credit to: (name of appropriate Fund)
Re: (Customer name and brokerage account number)
When payment is made by wire, the order must be placed by 11:00 a.m.
(Eastern time) and the wire must be received by Wachovia Brokerage Service
before 4:00 p.m. (Eastern time) on the same day to earn dividends that day.
Shares of a Fund cannot be purchased on days 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 WACHOVIA BANKS OR OTHER SERVICE ORGANIZATIONS. Investors may
purchase Investment Shares of the Funds through one of the Wachovia Banks or
through another Service Organization, which will place share purchase orders as
agent for the account of the investor. The Wachovia Banks and other Service
Organizations maintain omnibus accounts with the Funds for shares of the Funds
that are purchased for their clients and customers. The Wachovia Bank or other
Service Organization will take all information from the investor necessary to
the purchase of Investment Shares and is responsible for the prompt transmission
of investor orders to the Funds.
The Wachovia Banks or other Service Organizations may assess fees to their
customers for services or in connection with the accounts through which
Investment Shares are purchased. This Prospectus and the Combined Statements of
Additional Information should be read together with any applicable account
agreement with regard to the services provided, the fees charged for those
services, and any restrictions and limitations imposed.
For investors who purchase Investment Shares of the Funds as part of a sweep
account program with one of the Wachovia Banks or another Service Organization,
automatic purchases and redemptions of Investment Shares will be made on behalf
of the investor pursuant to the investor's sweep account agreement.
Other investors who are customers of the Wachovia Banks may place orders to
purchase Investment Shares of the Funds by telephone, through written
instructions, or in person with their account officer in accordance with the
procedures established by the Wachovia Banks pursuant to the relevant account
agreement. Unless otherwise specified by the account agreement, payment may be
made to the Wachovia Banks by check, federal funds, or by debiting a customer's
Wachovia Bank account. Orders are considered received after payment by check is
converted into federal funds and received by the Wachovia Banks, 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 communicated to the
Wachovia Banks by 11:00 a.m. (Eastern time) and payment by federal funds must be
received by the Wachovia Banks before 4:00 p.m. (Eastern time) on the same day
as the order to earn dividends for that day. Investment Shares cannot be
purchased on days on which Wachovia Bank of North Carolina, N.A., the New York
Stock Exchange or the Federal Reserve Wire System are not open for business.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Investment Shares in each Fund is $1,000,
except that, with respect to investments made through a sweep account program
with a Wachovia Bank or another Service Organization, initial investment
minimums may be modified under the relevant account agreement.
WHAT SHARES COST
Investment Shares are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Funds.
The net asset value for each Fund is determined at 12:00 (Eastern time) noon and
4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which
there are not sufficient changes in the value of a Fund's portfolio securities
that its net asset value might be materially affected; (ii) days during which no
Investment Shares are tendered for redemption and no orders to purchase
Investment 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.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Funds, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued.
Federated Services Company provides Wachovia Brokerage Service, the Wachovia
Banks and other Service Organizations, as shareholders of record, with detailed
statements on a monthly basis that include account balances, information on each
purchase or redemption, and a report of dividends paid during the month.
Wachovia Brokerage Service, the Wachovia Banks and other Service Organizations
maintain omnibus accounts for beneficial owners who are their clients or
customers and will provide
such owners with statements on a monthly basis that reflect account activity
during the month. These statements will serve as confirmations of all
transactions in the shareholder's account for the statement period.
DIVIDENDS
Dividends are declared daily and paid monthly. Ordinarily, dividends will be
reinvested on payment dates in additional Investment Shares of the Funds unless
cash payments are requested by writing to Wachovia Brokerage Service, the
Wachovia Banks or other Service Organization through which the shareholder
invested. Those investors who purchase Investment Shares through the Wachovia
Banks or another Service Organization should consult their account agreement for
any special provisions with respect to the receipt of dividends or available
reinvestment options.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If for some extraordinary reason the
Funds realize net long-term capital gains, they will distribute them at least
once every 12 months.
EXCHANGES
- --------------------------------------------------------------------------------
Unless otherwise limited in the shareholder's account agreement with a Wachovia
Bank or the relevant Service Organization, a shareholder may exchange Investment
Shares of one Fund for Investment Shares of any other Fund on the basis of their
respective net asset values by calling or writing the shareholder's account
representative at the Wachovia Bank or other Service Organization, or by calling
1-800-462-7538, or by writing to Wachovia Securities, Inc. at P.O. Box 110, MC
32022, Winston-Salem, NC 27102. Telephone exchange instructions may be recorded.
If reasonable procedures are not followed by the Funds, they may be liable for
losses due to unauthorized or fraudulent telephone instructions. Investment
Shares purchased by check are eligible for exchange after the purchase check has
cleared, which can take up to ten calendar days. The exchange feature applies to
the Investment Shares of each Fund that does not assess a sales charge as of the
effective offering date of each Fund's Investment Shares.
Orders to exchange Investment Shares of one Fund for Investment Shares of any of
the other Biltmore Funds that do not assess a sales charge will be executed by
redeeming the Investment Shares owned at net asset value next determined after
receipt of the order, and purchasing Investment Shares of any such other
Biltmore Funds at the net asset value determined after the proceeds from such
redemption become available. Orders for exchanges received by any of the Funds
after 12:00 noon (Eastern time) but prior to 4:00 p.m. (Eastern time) on any day
that the Trust is open for business will be executed at the price determined at
4:00 p.m. (Eastern time) that day. Orders for exchanges received after 4:00 p.m.
(Eastern time) on any business day will be executed at the price determined at
12:00 noon (Eastern time) the next business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange
privilege of any shareholder who makes more than five exchanges of shares of any
of The Biltmore Funds in a year or three in a calendar quarter.
An exchange order must comply with the requirements for a redemption and
purchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial investment requirement
of the fund being acquired. An exchange constitutes a sale for federal income
tax purposes.
This exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may be sold. Before the exchange, a
shareholder should review a prospectus of the fund for which the exchange is
being made.
REDEEMING INVESTMENT SHARES
- --------------------------------------------------------------------------------
THROUGH WACHOVIA BROKERAGE SERVICE
Investment Shares are redeemed at their net asset value next determined after
Wachovia Brokerage Service receives the redemption request. Redemptions will be
made on days on which the Funds compute their net asset values. Requests for
redemption can be made in person, by telephone, or by writing to Wachovia
Brokerage Service. Telephone or written requests for redemption must be received
in proper form by Wachovia Brokerage Service. If at any time the Funds shall
determine it necessary to terminate or modify these methods of redemption,
shareholders would be promptly notified.
BY TELEPHONE. A shareholder who is a customer of Wachovia Brokerage Service may
redeem Investment Shares by telephoning Wachovia Brokerage Service at
1-800-462-7538. Shareholders wishing to redeem by telephone will be required to
complete a telephone redemption authorization form available through Wachovia
Brokerage Service. For calls received by Wachovia Brokerage Service before 11:00
a.m. (Eastern time), proceeds will normally be credited the same day to the
shareholder's brokerage account at Wachovia Brokerage Service. Those Investment
Shares will not be entitled to the dividend declared that day. For calls
received by Wachovia Brokerage Service after 11:00 a.m. (Eastern time) proceeds
will normally be credited to the brokerage account the following business day.
Those Investment Shares will be entitled to the dividend declared on the day the
redemption request was received. In no event will proceeds be credited or paid
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.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Funds, they 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 Investment Shares by sending a written request to Wachovia Brokerage
Service. The written request should include the shareholder's name, the Fund
name and class of shares, the brokerage account number, and the share or dollar
amount requested. Shareholders should call Wachovia Brokerage Service for
assistance in redeeming by mail.
THROUGH THE WACHOVIA BANKS
The Funds redeem Investment Shares at their net asset value next determined
after the Wachovia Banks receive the redemption request. Redemptions will be
made on days on which the Funds compute their net asset values. Requests for
redemption can be made in person, by telephone or by writing to the
shareholder's account officer. If at any time the Funds shall deem it necessary
to terminate or modify these methods of redemption, shareholders would be
promptly notified.
BY TELEPHONE. A shareholder who is a customer of the Wachovia Banks and whose
account agreement with the Wachovia Banks permits telephone redemption may
redeem Investment Shares by telephoning the shareholder's account officer. For
calls received by the Wachovia Banks before
11:00 a.m. (Eastern time), proceeds will normally be wired the same day to the
shareholder's account at the Wachovia Banks or a check will be sent to the
address of record. Those Investment Shares will not be entitled to the dividend
declared that day. For calls received by the Wachovia Banks after 11:00 a.m.
(Eastern time), proceeds will normally be wired or a check mailed the following
business day. Those Investment Shares will be entitled to the dividend declared
on the day the redemption request was received. In no event will proceeds be
wired or a check mailed more than seven days after a proper request for
redemption has been received. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
such a case should occur, another method of redemption should be considered.
An authorization permitting the Wachovia Banks to accept telephone requests is
included as part of the shareholder's account agreement. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Funds, they may be liable for losses due to unauthorized or fraudulent telephone
instructions.
VIA SWEEP AGREEMENT. Redemptions of Investment Shares held through a sweep
program will be effected through, and in accordance with, the related account
agreement.
THROUGH SERVICE ORGANIZATIONS
The Funds redeem Investment Shares at their net asset value next determined
after the Funds receive the redemption request from the Service Organization.
Redemptions will be made on days on which the Funds compute their net asset
value. Requests for redemption can be made in person, by telephone or by writing
to the customer's account representative who, in turn, will place share
redemption orders as agent for the account of the customer, through the relevant
Service Organization. Service Organizations may charge their customers for their
services. Therefore, this Prospectus and the Combined Statements of Additional
Information should be read together with any applicable account agreement with
regard to the services provided, the fees charged for those services, and any
restrictions and limitations imposed. If at any time, the Funds shall determine
it necessary to terminate or modify this method of redemption, shareholders will
be promptly notified.
BY TELEPHONE. Shareholders who are customers of Service Organizations, and
whose account agreement with the Service Organization permits telephone
redemption, may redeem shares of the Funds by telephoning their account
representative. The account representative will, in turn, contact the Funds. The
Service Organization is responsible for promptly submitting redemption requests
and providing proper redemption instructions to the Funds. Redemption requests
received by a Service Organization
before 11:00 a.m. (Eastern time) will normally be paid the same day but will not
earn that day's dividend. Redemption requests received by a Service Organization
after 11:00 a.m. (Eastern time) will receive that day's dividend but the monies
will not be credited to the shareholder's account until the following day. In
the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Funds, they may be liable for losses due to unauthorized or
fraudulent telephone instructions.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Funds may
redeem Investment Shares in any account and pay the proceeds to the shareholder
if the account balance falls below a required minimum value of $1,000 due to
shareholder redemptions.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Investment Share of a Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All shares of
all classes of each fund in the Trust have equal voting rights, except that in
matters affecting only a particular fund or class, only shares of that fund or
class are entitled to vote. As of January 7, 1994, Wachovia Brokerage Service
Winston-Salem, North Carolina, acting in various capacities for numerous
accounts, was the owner of record of approximately 7,317,606 (82%) and
16,150,263 (94%) Investment Shares of the Money Market Fund and U.S. Treasury
Fund, respectively, and therefore may, for certain purposes, be deemed to
control the Funds and be able to affect the outcome of certain matters presented
for a vote of shareholders. As of January 7, 1994, The South Carolina National
Bank, Winston-Salem, North Carolina, and Wachovia Brokerage Service,
Winston-Salem, North Carolina, acting in various capacities for numerous
accounts, were the owners of record of approximately 13,337,356 (58%) and
9,090,337 (39%) Investment Shares of the Tax-Free Fund, respectively, and
therefore may, for certain purposes, be deemed to control the Tax-Free Fund and
be able to affect the outcome of certain matters presented for a vote of
shareholders.
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 Funds' operations and for the election of Trustees
under certain circumstances.
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 Funds.
In the unlikely event a shareholder of a Fund is held personally liable for the
Trust's obligations on behalf of that Fund, the Trust is required by the
Declaration of Trust to use the property of that Fund to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of a Fund for any act or obligation of the Trust
on behalf of that Fund. Therefore, financial loss resulting from liability as a
shareholder of a Fund will occur only if the Trust cannot meet its obligations
to indemnify shareholders and pay judgments against them from the assets of that
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 prohibits 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 customer. The
Funds' investment adviser 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 Funds contemplated by its investment advisory and custody
agreements 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 Funds. 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 Funds 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.
TAX INFORMATION
- --------------------------------------------------------------------------------
The Funds expect to pay no federal income tax because they will meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Each 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
other Funds and other portfolios in the Trust will not be combined for tax
purposes with those realized by each Fund.
Dividends of the Funds representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
MONEY MARKET AND U.S. TREASURY FUNDS
Unless otherwise exempt, shareholders of the Money Market and U.S. Treasury
Funds will be subject to federal income tax on any dividends and other
distributions received. This applies whether dividends and distributions are
received in cash or as additional shares. Shareholders of the Money Market and
U.S. Treasury Funds are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
TAX-FREE FUND
Shareholders of the Tax-Free Fund will not be subject to the federal regular
income tax on any dividends received from the Tax-Free Fund that represent net
interest on tax-exempt municipal bonds. However, under the Tax Reform Act of
1986, dividends representing net interest earned on some municipal bonds may be
included in calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. The Tax-Free Fund may
purchase all types of municipal bonds, including "private activity" bonds. Thus,
while the Tax-Free Fund has no present intention of purchasing any private
activity bonds, should it purchase any such bonds, a portion of the Tax-Free
Fund's dividends may be treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Tax-Free
Fund which represent interest on municipal bonds will be subject to the 20%
corporate alternative minimum tax because the dividends are included in
corporation's "adjusted current earnings." The corporate minimum tax treats 75%
of the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any fund dividend, and alternative minimum taxable income does not
include the portion of the Tax-Free Fund's dividend attributable to municipal
bonds which are not private activity
bonds, the 75% difference will be included in the calculation of the
corporation's alternative minimum tax.
STATE AND LOCAL TAXES (TAX-FREE FUND ONLY)
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged to
consult their own tax advisers.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Funds advertise their yield, effective yield and
tax-equivalent yield (for the Tax-Free Fund only) for Investment Shares.
The yield of Investment Shares represents the annualized rate of income earned
on an investment in Investment Shares over a seven-day period. It is the
annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment in Investment
Shares is assumed to be reinvested daily. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield of the Tax-Free Fund's Investment Shares
is calculated similarly to the yield, but is adjusted to reflect the taxable
yield that the Tax-Free Fund's Investment Shares would have had to earn to equal
its actual yield, assuming a specific tax rate. The yield and the tax-equivalent
yield do not necessarily reflect income actually earned by Investment Shares
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Investment Shares after reinvesting all distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
Yield, effective yield, and tax-equivalent yield (for the Tax-Free Fund only)
will be calculated separately for Investment Shares and Institutional Shares.
Because Investment Shares are subject to a Rule 12b-1 fee, the yield and
effective yield for Institutional Shares, for the same period, will exceed that
of Investment Shares.
From time to time, the Funds may advertise their performances using certain
financial publications and/or compare their performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Shares are offered only to accounts held by the Wachovia Banks in
a fiduciary, agency, custodial, or similar capacity and are subject to a minimum
initial investment as provided in the Wachovia Banks' customer's relevant
account agreement. Institutional Shares are sold at net asset value and are
distributed without a Rule 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares than from
another class of shares.
The amount of dividends payable to Institutional Shares of a Fund will be
greater than those payable to Investment Shares of the same Fund by the
difference between class expenses and distribution expenses borne by shares of
each respective class. The stated advisory fee is the same for both classes of
shares.
BILTMORE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
60.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1993 1992*
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.03 0.02
- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.02)
- ------------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN** 3.05% 1.71%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 0.25% 0.14%(a)
- -------------------------------------------------------------------------------------------
Net investment income 3.00% 3.38%(a)
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.56% 0.65%(a)
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $177,090 $84,698
- -------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from June 2, 1992 (date of initial public
investment) to
November 30, 1992.
** Based on net asset value, which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expenses and net investment
income ratios shown above (Note 5).
(See Notes, which are an integral part of the Financial Statements)
BILTMORE TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
60.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1993 1992*
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.02 0.01
- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02) (0.01)
- ------------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN** 2.30% 1.49%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 0.29% 0.16%(a)
- -------------------------------------------------------------------------------------------
Net investment income 2.28% 2.71%(a)
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.60% 0.78%(a)
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $59,269 $61,632
- -------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 14, 1992 (date of initial public
investment) to November 30, 1992.
** Based on net asset value, which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expenses and net investment
income ratios shown above (Note 5).
(See Notes, which are an integral part of the Financial Statements)
BILTMORE U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
60.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1993 1992*
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.03 0.02
- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.02)
- ------------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN** 2.91% 1.90%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 0.28% 0.17%(a)
- -------------------------------------------------------------------------------------------
Net investment income 2.87% 3.24%(a)
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.63% 0.71%(a)
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $65,353 $55,408
- -------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 7, 1992 (the date of initial
public investment) to November 30, 1992. During the period from February 19,
1992 (start of business) to May 7, 1992, net investment income aggregating
$0.00806 per share ($806) was distributed to Federated Administrative
Services.
** Based on net asset value, which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expenses and net investment
income ratios shown above (Note 5).
(See Notes, which are an integral part of the Financial Statements)
BILTMORE MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
*COMMERCIAL PAPER--52.1%
- ------------------------------------------------------------------------------------------------
FINANCE--AUTOMOTIVE--4.0%
--------------------------------------------------------------------------------
$ 7,500,000 Ford Motor Credit Co., 3.11%-3.33%, 12/2/93-4/15/94 $ 7,500,000
-------------------------------------------------------------------------------- ---------------
FINANCE--COMMERCIAL--8.6%
--------------------------------------------------------------------------------
8,000,000 CIT Group Holdings, Inc., 3.10%-3.18%, 12/2/93-2/4/94 7,977,033
--------------------------------------------------------------------------------
8,000,000 General Electric Capital Corp., 3.10%-3.48%, 12/2/93-3/31/94 8,000,000
-------------------------------------------------------------------------------- ---------------
Total 15,977,033
-------------------------------------------------------------------------------- ---------------
FINANCE--COMPUTERS--4.0%
--------------------------------------------------------------------------------
7,500,000 Xerox Credit Corp., 3.20%-3.30%, 12/1/93-4/8/94 7,441,333
-------------------------------------------------------------------------------- ---------------
FINANCE--FOOD & BEVERAGE--2.1%
--------------------------------------------------------------------------------
4,000,000 Bass Finance, 3.32%, 1/28/94 3,978,604
-------------------------------------------------------------------------------- ---------------
FINANCE--RETAIL--8.3%
--------------------------------------------------------------------------------
7,500,000 Associate Corp. of North America, 3.10%, 12/2/93 7,500,000
--------------------------------------------------------------------------------
8,000,000 Commercial Credit Corp., 3.10%-3.33%, 12/2/93-1/27/94 8,000,000
-------------------------------------------------------------------------------- ---------------
Total 15,500,000
-------------------------------------------------------------------------------- ---------------
FINANCE--TELECOMMUNICATIONS--2.7%
--------------------------------------------------------------------------------
5,000,000 Bell Atlantic Financial Services, 3.11%, 12/2/93 4,999,568
-------------------------------------------------------------------------------- ---------------
FOOD & BEVERAGE--2.1%
--------------------------------------------------------------------------------
4,000,000 Pepsico Inc., 3.08%, 12/3/93 3,999,316
-------------------------------------------------------------------------------- ---------------
OIL & OIL FINANCE--20.3%
--------------------------------------------------------------------------------
7,500,000 Chevron Oil Finance Co., 3.10%, 12/2/93 7,500,000
--------------------------------------------------------------------------------
7,500,000 Cooper Industries, Inc., 3.05%-3.35%, 12/2/93-2/1/94 7,473,495
--------------------------------------------------------------------------------
7,500,000 Cortez Capital, 3.09%, 12/2/93 7,499,356
--------------------------------------------------------------------------------
7,500,000 Exxon Imperial U.S., Inc., 3.06%, 12/2/93 7,499,363
--------------------------------------------------------------------------------
</TABLE>
BILTMORE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
*COMMERCIAL PAPER--CONTINUED
- ------------------------------------------------------------------------------------------------
OIL & OIL FINANCE--CONTINUED
--------------------------------------------------------------------------------
$ 8,000,000 Texaco, Inc., 3.10%, 12/2/93 $ 8,000,000
-------------------------------------------------------------------------------- ---------------
Total 37,972,214
-------------------------------------------------------------------------------- ---------------
TOTAL COMMERCIAL PAPER 97,368,068
-------------------------------------------------------------------------------- ---------------
TIME DEPOSITS--16.6%
- ------------------------------------------------------------------------------------------------
6,500,000 Barclays Bank, Canada, 3.38%-3.44%, 1/4/94-4/14/94 6,500,000
--------------------------------------------------------------------------------
7,500,000 Commonwealth Bank of Australia, 3.31%-3.38%, 1/5/94-3/9/94 7,500,000
--------------------------------------------------------------------------------
2,500,000 NationsBank, London, 3.31%, 1/10/94 2,500,000
--------------------------------------------------------------------------------
5,000,000 NBD Bank, Canada, 3.09%, 12/2/93 5,000,000
--------------------------------------------------------------------------------
4,500,000 Mitsubishi Bank, Ltd., London, 3.50%, 12/14/93 4,500,000
--------------------------------------------------------------------------------
2,500,000 Royal Bank of Scotland, 3.63%, 6/1/94 2,500,000
--------------------------------------------------------------------------------
2,500,000 SouthTrust Bank of Alabama, 3.31%, 1/25/94 2,500,000
-------------------------------------------------------------------------------- ---------------
TOTAL TIME DEPOSITS 31,000,000
-------------------------------------------------------------------------------- ---------------
**REPURCHASE AGREEMENTS--31.2%
- ------------------------------------------------------------------------------------------------
38,370,076 Daiwa Securities America, Inc., 3.22%, dated 11/30/93, due 12/1/93 38,370,076
--------------------------------------------------------------------------------
20,000,000 PaineWebber, Inc., 3.20%, dated 11/30/93, due 12/1/93 20,000,000
-------------------------------------------------------------------------------- ---------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 58,370,076
-------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 186,738,144\
-------------------------------------------------------------------------------- ---------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
** The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
\ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($186,932,159) at
November 30, 1993.
(See Notes, which are an integral part of the Financial Statements)
BILTMORE MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 58,370,076
- -------------------------------------------------------------------------------
Investments in securities 128,368,068
- ------------------------------------------------------------------------------- ---------------
Total investments, at amortized cost and value
(Notes 2A and 2B) $ 186,738,144
- ------------------------------------------------------------------------------------------------
Interest receivable 565,057
- ------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 35,132
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 187,338,333
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Dividends payable 398,412
- -------------------------------------------------------------------------------
Accrued expenses 7,762
- ------------------------------------------------------------------------------- ---------------
Total liabilities 406,174
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 186,932,159 shares of beneficial interest outstanding $ 186,932,159
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- ------------------------------------------------------------------------------------------------
Institutional Shares ($177,090,062 / 177,090,062 shares of beneficial interest outstanding)
$1.00
- ------------------------------------------------------------------------------------------------ ---------------
Investment Shares ($9,842,097 / 9,842,097 shares of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
(See Notes, which are an integral part of the Financial Statements)
BILTMORE MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 4,572,488
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 703,812
- ------------------------------------------------------------------------------------
Administrative personnel and services fee (Note 5) 183,805
- ------------------------------------------------------------------------------------
Trustees' fees 36,195
- ------------------------------------------------------------------------------------
Custodian fees (Note 5) 28,152
- ------------------------------------------------------------------------------------
Recordkeeper fees (Note 5) 43,796
- ------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 5) 23,666
- ------------------------------------------------------------------------------------
Legal fees 12,809
- ------------------------------------------------------------------------------------
Printing and postage 29,319
- ------------------------------------------------------------------------------------
Insurance premiums 2,248
- ------------------------------------------------------------------------------------
Fund share registration costs 24,492
- ------------------------------------------------------------------------------------
Distribution fees (Note 5) 20,582
- ------------------------------------------------------------------------------------
Auditing fees 19,175
- ------------------------------------------------------------------------------------
Miscellaneous 29,783
- ------------------------------------------------------------------------------------ -------------
Total expenses 1,157,834
- ------------------------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 549,233
- -----------------------------------------------------------------------
Waiver of administrative personnel and services fee (Note 5) 142,842
- -----------------------------------------------------------------------
Waiver of custodian fees (Note 5) 28,152
- -----------------------------------------------------------------------
Waiver of distribution fees (Note 5) 5,145
- -----------------------------------------------------------------------
Reimbursement of other operating expenses by Administrator (Note 5) 67,462 792,834
- ----------------------------------------------------------------------- ----------- -------------
Net expenses 365,000
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 4,207,488
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes, which are an integral part of the Financial Statements)
BILTMORE MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1993 1992*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------
Net investment income $ 4,207,488 $ 1,432,694
- ---------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ----------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ----------------------------------------------------------------------------
Institutional Shares (4,068,438) (1,413,297)
- ----------------------------------------------------------------------------
Investment Shares (139,050) (19,397)
- ---------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to
shareholders (4,207,488) (1,432,694)
- ---------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ----------------------------------------------------------------------------
Proceeds from sales of shares 523,338,578 358,902,598
- ----------------------------------------------------------------------------
Cost of shares redeemed (424,210,993) (271,098,024)
- ---------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from fund share transactions 99,127,585 87,804,574
- ---------------------------------------------------------------------------- ---------------- ----------------
Change in net assets 99,127,585 87,804,574
- ----------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------
Beginning of period 87,804,574 --
- ---------------------------------------------------------------------------- ---------------- ----------------
End of period $ 186,932,159 $ 87,804,574
- ---------------------------------------------------------------------------- ---------------- ----------------
*For the period from June 2, 1992 (date of initial public investment) to November 30, 1992.
(See Notes, which are an integral part of the Financial Statements)
</TABLE>
BILTMORE TAX-FREE MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- ---------------------------------------------------------------------- ---------- --------------
SHORT-TERM MUNICIPAL SECURITIES--94.7%
- -------------------------------------------------------------------------------------
ALABAMA--12.1%
----------------------------------------------------------------------
$ 2,085,000 Alabama HFA Weekly VRDNs (SouthTrust Bank of Alabama LOC) A-1 $ 2,085,000
----------------------------------------------------------------------
4,000,000 Birmingham City, AL, Weekly VRDNs (First Alabama Bank LOC) A-1+ 4,000,000
----------------------------------------------------------------------
2,500,000 Huntsville, AL Health Care Authority, Weekly VRDNs (Amsouth Bank LOC) VMIG-1 2,500,000
----------------------------------------------------------------------
1,500,000 Mobile, AL, IDB Weekly VRDNs (Swiss Bank LOC) A-1+ 1,500,000
---------------------------------------------------------------------- --------------
Total 10,085,000
---------------------------------------------------------------------- --------------
ARKANSAS--4.8%
----------------------------------------------------------------------
425,000 Arkansas Hospital Equipment Finance Authority Weekly VRDNs (Credit
Suisse LOC) A-1+ 425,000
----------------------------------------------------------------------
750,000 Fayetteville, AR, Weekly VRDNs (Public Facility)/(Mitsubishi Bank LTD
LOC) VMIG-1 750,000
----------------------------------------------------------------------
2,800,000 University of Arkansas Weekly VRDNs (Board of Trustees)/
(First Union LOC) A-1+ 2,800,000
---------------------------------------------------------------------- --------------
Total 3,975,000
---------------------------------------------------------------------- --------------
CALIFORNIA--3.7%
----------------------------------------------------------------------
1,100,000 Irvine Ranch, CA, Water District Weekly VRDNs (Morgan Guaranty LOC) VMIG-1 1,100,000
----------------------------------------------------------------------
1,000,000 San Francisco Unified School District, CA, 3.50%, 8/12/94 SP-1+ 1,003,035
----------------------------------------------------------------------
1,000,000 Visalia, CA, Weekly VRDNs (Convention Central Project)/ Mitsubishi LTD
LOC) A-1+ 1,000,000
---------------------------------------------------------------------- --------------
Total 3,103,035
---------------------------------------------------------------------- --------------
</TABLE>
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- ---------------------------------------------------------------------- ---------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
CONNECTICUT--.8%
----------------------------------------------------------------------
$ 700,000 Connecticut State Economic Recovery Notes Weekly VRDNs (Series B) VMIG-1 $ 700,000
---------------------------------------------------------------------- --------------
DISTRICT OF COLUMBIA--1.2%
----------------------------------------------------------------------
1,000,000 District of Columbia Hospital Revenue Weekly VRDNs
(Columbia Hospital For Women 1988A)/(Mitsubishi
International LOC) VMIG-1 1,000,000
---------------------------------------------------------------------- --------------
FLORIDA--8.5%
----------------------------------------------------------------------
2,200,000 Broward County, FL, HFA Weekly VRDNs (Welleby Apt. Project)/(Bank of
America N.T. & S.A. LOC) VMIG-1 2,200,000
----------------------------------------------------------------------
2,100,000 Collier County, FL, HFA Monthly VRDNs (River Beach
Project)/(Morgan Guaranty LOC) VMIG-1 2,100,000
----------------------------------------------------------------------
900,000 Florida Escambia County Facility Authority Weekly VRDNs (Florida
Convalescent Centers Project)/(Toronto Dominion LOC) P-1 900,000
----------------------------------------------------------------------
900,000 Polk County, FL, IDA Weekly VRDNs (Florida Convalescent Center
Project)/(Toronto Dominion LOC) P-1 900,000
----------------------------------------------------------------------
1,000,000 St. Lucie County, FL, Weekly VRDNs (Florida Power & Light project) P-1 1,000,000
---------------------------------------------------------------------- --------------
Total 7,100,000
---------------------------------------------------------------------- --------------
GEORGIA--4.8%
----------------------------------------------------------------------
2,000,000 Burke County, GA, Development Pollution Authority, 2.50%, 1/6/94
(Credit Suisse LOC) P-1 2,000,000
----------------------------------------------------------------------
1,000,000 Housing Authority of Fulton County, GA, 3.10%, 8/1/94 (First Mutual
Savings--Florida LOC) A-1+ 1,000,000
----------------------------------------------------------------------
</TABLE>
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- ---------------------------------------------------------------------- ---------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
GEORGIA--CONTINUED
----------------------------------------------------------------------
$ 1,000,000 Development Authority of Walton County, GA, Weekly VRDNs (Trust
Company Bank LOC) Aa3 $ 1,000,000
---------------------------------------------------------------------- --------------
Total 4,000,000
---------------------------------------------------------------------- --------------
ILLINOIS--13.7%
----------------------------------------------------------------------
1,000,000 Chicago, IL, GO Weekly VRDNs (Canadian Imperial Bank LOC) VMIG-1 1,000,000
----------------------------------------------------------------------
2,875,000 Cook County, IL, 3.20%, 4/1/94 MIG-1 2,881,536
----------------------------------------------------------------------
1,500,000 Illinois Cook County Township District, 4.625%, 12/1/93 AA1 1,500,000
----------------------------------------------------------------------
1,000,000 Illinois Development Finance Authority Revenue Weekly VRDNs (National
Westminster Bank LOC) VMIG-1 1,000,000
----------------------------------------------------------------------
2,000,000 Illinois State, 3.25%, 5/16/94 MIG-1 2,003,123
----------------------------------------------------------------------
3,000,000 Illinois State, Weekly VRDNs (Toll Highway Authority)/
(Societe Generale LOC) VMIG-1 3,000,000
---------------------------------------------------------------------- --------------
Total 11,384,659
---------------------------------------------------------------------- --------------
INDIANA--2.5%
----------------------------------------------------------------------
2,100,000 Indianapolis, IN, Weekly VRDNs (Canal Square Project)/ (Societe
Generale LOC) VMIG-1 2,100,000
---------------------------------------------------------------------- --------------
IOWA--3.8%
----------------------------------------------------------------------
600,000 Indianola, Iowa, IDR Monthly VRDNs (HY-VEE Foods)/ (Swiss Bank LOC) A-1+ 600,000
----------------------------------------------------------------------
2,500,000 Iowa State, 3.25%, 6/30/94 (Union Bank of Switzerland LOC) MIG-1 2,505,611
---------------------------------------------------------------------- --------------
Total 3,105,611
---------------------------------------------------------------------- --------------
</TABLE>
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
MOODY'S
PRINCIPAL OR S&P*
AMOUNT (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- ---------------------------------------------------------------------- ---------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
KENTUCKY--1.2%
----------------------------------------------------------------------
$ 1,000,000 City of Georgetown, KY, Educational Institution Weekly VRDNs (PNC
Bank, Kentucky, Inc. LOC) VMIG-1 $ 1,000,000
---------------------------------------------------------------------- --------------
LOUISIANA--2.9%
----------------------------------------------------------------------
1,500,000 Calcasieu Parrish, LA, IDR Pollution Control Weekly VRDNs (National
Westminster Bank LOC) P-1 1,500,000
----------------------------------------------------------------------
900,000 Lake Charles Harbor & Terminal District, LA, Weekly VRDNs (National
Westminster Bank LOC) P-1 900,000
---------------------------------------------------------------------- --------------
Total 2,400,000
---------------------------------------------------------------------- --------------
MARYLAND--2.4%
----------------------------------------------------------------------
2,000,000 Maryland Health Higher Education Facility Anne Arumdel Hospital Weekly
VRDNs (Mellon Bank LOC) VMIG-1 2,000,000
---------------------------------------------------------------------- --------------
MASSACHUSETTS--2.4%
----------------------------------------------------------------------
2,000,000 Massachusetts State, Daily VRDNs (Series E) (ABN--AMRO LOC) VMIG-1 2,000,000
---------------------------------------------------------------------- --------------
MICHIGAN--5.9%
----------------------------------------------------------------------
4,600,000 Michigan State Hospital Finance Authority Revenue, 11.25%, 6/1/94
(Prerefunded) AAA 4,885,662
---------------------------------------------------------------------- --------------
MISSOURI--1.8%
----------------------------------------------------------------------
1,500,000 Missouri Planned Industry Expansion Authority of St. Louis Weekly
VRDNs (PNC Bank, N.A. LOC) AA3 1,500,000
---------------------------------------------------------------------- --------------
NORTH CAROLINA--6.6%
----------------------------------------------------------------------
2,500,000 North Carolina Eastern Municipal Power, 2.40%, 3/9/94 (UBS & Morgan
Guaranty LOC) A-1+ 2,500,000
----------------------------------------------------------------------
3,000,000 Wake County, NC, 4.00%, 4/1/94 AAA 3,014,256
---------------------------------------------------------------------- --------------
Total 5,514,256
---------------------------------------------------------------------- --------------
</TABLE>
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P*
OR SHARES (NOTE 6) VALUE
<C> <S> <C> <C>
- ------------- ---------------------------------------------------------------------- ---------- --------------
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------------------
PENNSYLVANIA--2.4%
----------------------------------------------------------------------
$ 2,000,000 Pennsylvania State University, 3.00%, 12/5/94 SP-1+ $ 2,005,240
---------------------------------------------------------------------- --------------
TENNESSEE--1.3%
----------------------------------------------------------------------
1,000,000 Shelby County, TN, 6.25%, 8/1/94 (Prerefunded) AAA 1,032,280
---------------------------------------------------------------------- --------------
TEXAS--4.9%
----------------------------------------------------------------------
1,000,000 Dallas, TX, 9.50%, 6/1/94 (Prerefunded) AAA 1,033,827
----------------------------------------------------------------------
1,000,000 Houston, TX, 9.75%, 5/1/94 (Prerefunded) AAA 1,029,340
----------------------------------------------------------------------
1,000,000 Lower Neches Valley Authority Texan Monthly VRDNs, 2.70%, 2/15/94
(Chevron Guaranty) A-1+ 1,000,000
----------------------------------------------------------------------
1,000,000 San Antonio, TX, Electric & Gas Revenue, 8.00%, 2/1/94 (Prerefunded) AAA 1,024,154
---------------------------------------------------------------------- --------------
Total 4,087,321
---------------------------------------------------------------------- --------------
WASHINGTON--3.6%
----------------------------------------------------------------------
3,000,000 Port Anacortes, WA, IDA, 2.63%, 2/10/94 P-1 3,000,000
---------------------------------------------------------------------- --------------
WYOMING--3.6%
----------------------------------------------------------------------
3,000,000 Uinta County, WY, Pollution Control Revenue Weekly VRDNs (Chevron
Guaranty)) P-1 3,000,000
---------------------------------------------------------------------- --------------
TOTAL SHORT-TERM MUNICIPAL BONDS 78,978,064
---------------------------------------------------------------------- --------------
REGULATED INVESTMENT COMPANIES--6.9%
- -------------------------------------------------------------------------------------
1,864,700 AIM Management Co. 1,864,700
----------------------------------------------------------------------
3,840,233 Fidelity Tax-Exempt Money Market Fund Instruments
Portfolio 3,840,233
---------------------------------------------------------------------- --------------
TOTAL REGULATED INVESTMENT COMPANIES 5,704,933
---------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 84,682,997\
---------------------------------------------------------------------- --------------
</TABLE>
\ Also represents cost for federal tax purposes.
* See Notes to Portfolio of Investments on Page 45.
Note: The categories of investments are shown as a percentage of net assets
($83,244,579) at
November 30, 1993.
The following abbreviations are used throughout this portfolio:
GO--General Obligation
HFA--Housing Finance Authority
IDA--Industrial Development Authority
IDB--Industrial Development Board
IDR--Industrial Development Revenue
LOC--Letter(s) of Credit
VRDNs--Variable Rate Demand Notes
BILTMORE TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
S&P
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S
Moody's short-term ratings are designated Moody's Investment Grade (MIG OR VMIG
(see below)). The purpose of the MIG or VMIG ratings is to provide investors
with a simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG-1 This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2 This designation denotes high quality. Margins of protection are ample,
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS)
AND
TENDER OPTION BONDS (TOBS)
RATINGS
S&P
Standard & Poor's assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first rating
(long-term rating) addresses the likelihood of repayment of principal and
interest when due, and the second rating (short-term rating) describes the
demand characteristics. Several examples are AAA/A-1+, AA/A-1K, A/A-1. (The
definitions for the short-term ratings are provided below.)
MOODY'S
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1) with
the first representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the second representing an
evaluation of the degree of risk associated with the demand feature. The VMIG
rating can be assigned a 1 or 2 designation using the same definitions described
above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
S&P
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1".
MOODY'S
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
LONG-TERM DEBT RATINGS
S&P
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rate
categories.
MOODY'S
Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large margin and principal
is secure. While the various protective elements are likely to change, such
changes which can be foreseen are most unlikely to impair the fundamentally
strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment some time in the future.
NR indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P's or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR (1) The underlying issuer/obligor/guarantor has other outstanding debt rated
"AAA" by Standard & Poor's or "Aaa" by Moody's.
NR (2) The underlying issuer/obligor/guarantor has other outstanding debt rated
"AA" by Standard & Poor's or "Aa" by Moody's.
NR (3) The underlying issuer/obligor/guarantor has other outstanding debt rated
"A" by Standard & Poor's or by Moody's.
(See Notes, which are an integral part of the Financial Statements)
BILTMORE TAX-FREE MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $ 84,682,997
- --------------------------------------------------------------------------------------------------
Cash 8,699
- --------------------------------------------------------------------------------------------------
Interest receivable 672,096
- --------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 32,048
- -------------------------------------------------------------------------------------------------- --------------
Total assets 85,395,840
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased $ 2,005,240
- -----------------------------------------------------------------------------------
Dividends payable 144,190
- -----------------------------------------------------------------------------------
Accrued expenses 1,831
- ----------------------------------------------------------------------------------- -------------
Total liabilities 2,151,261
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 83,244,579 shares of beneficial interest outstanding $ 83,244,579
- -------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- --------------------------------------------------------------------------------------------------
Institutional Shares ($59,268,563 / 59,268,563 shares of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------------------------- --------------
Investment Shares ($23,976,016 / 23,976,016 shares of beneficial interest outstanding)
$1.00
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes, which are an integral part of the Financial Statements)
BILTMORE TAX-FREE MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 1,948,752
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 380,443
- ----------------------------------------------------------------------------------------
Administrative personnel and services fee (Note 5) 100,161
- ----------------------------------------------------------------------------------------
Trustees' fees 9,465
- ----------------------------------------------------------------------------------------
Custodian fees (Note 5) 15,218
- ----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 5) 23,759
- ----------------------------------------------------------------------------------------
Recordkeeper fees (Note 5) 37,320
- ----------------------------------------------------------------------------------------
Legal fees 6,951
- ----------------------------------------------------------------------------------------
Printing and postage 21,396
- ----------------------------------------------------------------------------------------
Auditing fees 19,175
- ----------------------------------------------------------------------------------------
Insurance premiums 1,744
- ----------------------------------------------------------------------------------------
Registration fees 22,383
- ----------------------------------------------------------------------------------------
Distribution fees (Note 5) 59,172
- ----------------------------------------------------------------------------------------
Miscellaneous 32,359
- ---------------------------------------------------------------------------------------- ----------
Total expenses 729,546
- ----------------------------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 297,388
- ----------------------------------------------------------------------------
Waiver of administrative personnel and services fee (Note 5) 79,813
- ----------------------------------------------------------------------------
Waiver of custodian fees (Note 5) 15,218
- ----------------------------------------------------------------------------
Waiver of distribution fees (Note 5) 14,792
- ----------------------------------------------------------------------------
Reimbursement of other operating expenses by Administrator (Note 5) 61,079 468,290
- ---------------------------------------------------------------------------- ---------- ----------
Net expenses 261,256
- ---------------------------------------------------------------------------------------------------- -----------
Net investment income $ 1,687,496
- ---------------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes, which are an integral part of the Financial Statements)
BILTMORE TAX-FREE MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------
1993 1992*
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 1,687,496 $ 800,075
- -----------------------------------------------------------------------------
Net realized gain(loss) on investments ($5,343 net gain and
$5,749 net loss, respectively, as computed for federal tax purposes)
(Note 2D) -- (5,749)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 1,687,496 794,326
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------
Institutional Shares (1,400,375) (761,917)
- -----------------------------------------------------------------------------
Investment Shares (287,121) (32,409)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to shareholders (1,687,496) (794,326)
- ----------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------
Proceeds from sale of shares 202,842,602 178,065,356
- -----------------------------------------------------------------------------
Cost of shares redeemed (186,567,848) (111,095,531)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from fund share transactions 16,274,754 66,969,825
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets 16,274,754 66,969,825
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 66,969,825 --
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period (including undistributed net investment income
of $0 and $5,749, respectively) $ 83,244,579 $ 66,969,825
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
*For the period from May 14, 1992 (date of initial public investment) to
November 30, 1992.
(See Notes, which are an integral part of the Financial Statements)
BILTMORE U.S. TREASURY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- --------------------------------------------------------------------------------- --------------
U.S. GOVERNMENT OBLIGATIONS--43.2%
- -------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS
---------------------------------------------------------------------------------
$ 36,000,000 2/10/94-10/20/94 $ 35,573,602
--------------------------------------------------------------------------------- --------------
*REPURCHASE AGREEMENTS--57.0%
- -------------------------------------------------------------------------------------------------
3,000,000 Barclays De Zoete Wedd, Inc., 3.18%, dated 11/30/93, due 12/1/93 3,000,000
---------------------------------------------------------------------------------
3,000,000 Carroll McEntee & McGinley Inc., 3.20%, dated 11/30/93,
due 12/1/93 3,000,000
---------------------------------------------------------------------------------
17,871,523 Daiwa Securities America, Inc., 3.22%, dated 11/30/93,
due 12/1/93 17,871,523
---------------------------------------------------------------------------------
3,000,000 Merrill Lynch, Pierce, Fenner & Smith Inc. 3.15%, dated 11/30/93, due 12/1/93 3,000,000
---------------------------------------------------------------------------------
3,000,000 Nomura Securities International, Inc., 3.13%, dated 11/30/93,
due 12/1/93 3,000,000
---------------------------------------------------------------------------------
17,000,000 PaineWebber, Inc., 3.23%, dated 11/30/93, due 12/1/93 17,000,000
--------------------------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 46,871,523
--------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 82,445,125\
--------------------------------------------------------------------------------- --------------
</TABLE>
\ Also represents cost for federal tax purposes.
* Repurchase agreements are fully collateralized by U.S. Treasury obligations.
Note: The categories of investments are shown as a percentage of net assets
($82,294,360) at
November 30, 1993.
(See Notes, which are an integral part of the Financial Statements)
BILTMORE U.S. TREASURY MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments in repurchase agreements (Note 2B) $ 46,871,523
- ---------------------------------------------------------------------------------
Investments in securities 35,573,602
- --------------------------------------------------------------------------------- --------------
Total investments, at amortized cost and value (Note 2A and 2B) $ 82,445,125
- -------------------------------------------------------------------------------------------------
Interest receivable 4,178
- -------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 28,561
- ------------------------------------------------------------------------------------------------- --------------
Total assets 82,477,864
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Dividends payable 183,504
- --------------------------------------------------------------------------------- --------------
Total liabilities 183,504
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 82,294,360 shares of beneficial interest outstanding $ 82,294,360
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- -------------------------------------------------------------------------------------------------
Institutional Shares ($65,352,944 / 65,352,944 shares of beneficial interest outstanding)
$1.00
- ------------------------------------------------------------------------------------------------- --------------
Investment Shares ($16,941,416 / 16,941,416 shares of beneficial interest outstanding)
$1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes, which are an integral part of the Financial Statements)
BILTMORE U.S. TREASURY MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 2,099,428
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 333,904
- --------------------------------------------------------------------------------------
Administrative personnel and services fee (Note 5) 88,313
- --------------------------------------------------------------------------------------
Recordkeeper fees (Note 5) 33,110
- --------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees (Note 5) 22,492
- --------------------------------------------------------------------------------------
Custodian fees (Note 5) 13,358
- --------------------------------------------------------------------------------------
Distribution fees (Note 5) 11,831
- --------------------------------------------------------------------------------------
Printing and postage 11,681
- --------------------------------------------------------------------------------------
Legal 9,862
- --------------------------------------------------------------------------------------
Registration fees 29,239
- --------------------------------------------------------------------------------------
Auditing fees 19,175
- --------------------------------------------------------------------------------------
Trustees' fees 10,902
- --------------------------------------------------------------------------------------
Insurance premiums 1,199
- --------------------------------------------------------------------------------------
Miscellaneous 34,072
- -------------------------------------------------------------------------------------- -----------
Total expenses 619,138
- --------------------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 276,657
- -------------------------------------------------------------------------
Waiver of administrative personnel and services fee (Note 5) 71,133
- -------------------------------------------------------------------------
Waiver of custodian fees (Note 5) 13,358
- -------------------------------------------------------------------------
Waiver of distribution fees (Note 5) 2,966
- -------------------------------------------------------------------------
Reimbursement of other operating expenses by Administrator (Note 5) 55,602 419,716
- ------------------------------------------------------------------------- ----------- -----------
Net expenses 199,422
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 1,900,006
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes, which are an integral part of the Financial Statements)
BILTMORE U.S. TREASURY MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1993 1992*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 1,900,006 $ 926,987
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------
Institutional shares (1,826,489) (926,987)
- -----------------------------------------------------------------------------
Investment shares (73,517) --
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to shareholders (1,900,006) (926,987)
- ----------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------
Proceeds from sale of shares 288,944,990 211,639,475
- -----------------------------------------------------------------------------
Cost of shares redeemed (262,058,559) (156,231,546)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from fund share transactions 26,886,431 55,407,929
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets 26,886,431 55,407,929
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 55,407,929 --
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period $ 82,294,360 $ 55,407,929
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
*For the period from May 7, 1992 (date of initial public investment) to November
30, 1992.
(See Notes, which are an integral part of the Financial Statements)
BILTMORE MONEY MARKET FUNDS
COMBINED 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
consists of eleven diversified portfolios. The financial statements included
herein present only those of the Biltmore Money Market Fund (Money Market Fund),
the Biltmore Tax-Free Money Market Fund (Tax-Free Fund), and the Biltmore U.S.
Treasury Money Market Fund (U.S. Treasury Fund) (hereinafter each referred to as
a "Fund," or collectively as the "Funds" or the "Biltmore Money Market Funds").
The financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated, and a shareholder's interest is limited
to the portfolio in which shares are held.
The Funds offer two classes of shares ("Institutional Shares" and "Investment
Shares"). Investment Shares are identical in all respects to Institutional
Shares, except that Investment Shares are sold pursuant to a distribution plan
(the "Plan") adopted in accordance with Rule 12b-1 under the Investment Company
Act of 1940, as amended. Under the Plan, each Fund may pay Federated Securities
Corp. ("FSC") a fee at an annual rate up to 0.40 of 1% of the average aggregate
net asset value of Investment Shares of each Fund to finance any activity which
is principally intended to result in the sale of Investment Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by each Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined
that the best method currently available for valuing portfolio securities
for the Funds is amortized cost. Each Fund's use of the amortized cost
method to value its portfolio securities is conditioned on its compliance
with Rule 2a-7 under the Investment Company Act of 1940, as amended.
Investments in other regulated investment companies are valued at net asset
value.
B. REPURCHASE AGREEMENTS--It is the policy of the Funds 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 Funds to monitor, on a daily basis, the market value of
each repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Funds' investment 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 the repurchase agreement.
Accordingly, the Funds could receive less than the repurchase price on the
sale of collateral securities.
C. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest and discount earned (net of premium), including original
issue discount as required by the Internal Revenue Code (the "Code"), plus
net realized gains, if any, on portfolio securities.
D. FEDERAL TAXES--It is each 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 each Fund's taxable income, including any net
realized gain on investments. Accordingly, no provision for federal income
tax is necessary.
At November 30, 1993, the Tax-Free Money Market Fund, for federal tax
purposes, had a capital loss carryforward of $406, which will reduce the
Fund's taxable income arising from future net realized gain on investments,
if any, to the extent permitted by the Code, and thus will reduce the
amount of distributions to shareholders which would otherwise be necessary
to relieve the Fund of any liability for federal tax. Pursuant to the Code,
such capital loss carryforward will expire in 2000.
Dividends paid by the Tax-Free Fund representing net interest received on
tax-exempt municipal securities are not includable by shareholders as gross
income for federal income tax purposes because the Tax-Free Fund intends to
meet certain requirements of the Code applicable to regulated investment
companies which will enable the Tax-Free Fund to pay tax-exempt interest
dividends. The portion of such interest, if any, earned on private activity
municipal bonds issued after August 7, 1986 may be considered a tax
preference item to shareholders.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in
when-issued or delayed delivery transactions. To the the extent the Funds
engage in such transactions, they will do so for the purpose of acquiring
portfolio securities consistent with their investment objectives and
policies and not for the purpose of investment leverage. The Funds will
record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Funds 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 each Fund with respect to the
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 each
Fund's commencement date.
G. OTHER--Investment transactions are accounted for as of the trade date of
the transaction.
(3) DIVIDENDS
Each Fund computes its net income daily, and, immediately prior to the
calculation of its net asset value at the close of business, declares and
records dividends to shareholders of record at the time of the previous
computation of the Fund's net asset value. Payment of dividends is made monthly
in cash or in additional shares at the net asset value on the payable date.
(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) for each
class of shares. At November 30, 1993, capital paid-in for the Money Market
Fund, the Tax-Free Fund, and the U.S. Treasury Fund aggregated $186,932,159,
$83,244,579 and $82,294,360, respectively. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
MONEY MARKET FUND TAX-FREE FUND
YEAR ENDED NOVEMBER 30, YEAR ENDED NOVEMBER 30,
1993 1992* 1993 1992**
INSTITUTIONAL SHARES
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period 84,698,420 -- 61,632,180 --
- -----------------------------------------------------
Shares sold 508,765,112 354,809,984 157,797,806 169,860,061
- -----------------------------------------------------
Shares redeemed (416,373,470) (270,111,564) (160,161,423) (108,227,881)
- ----------------------------------------------------- ------------ ------------ ------------ ------------
Shares outstanding, end of period 177,090,062 84,698,420 59,268,563 61,632,180
- ----------------------------------------------------- ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
U.S. TREASURY FUND
YEAR ENDED NOVEMBER 30,
1993 1992***
INSTITUTIONAL SHARES
<S> <C> <C>
Shares outstanding, beginning of period 55,407,929 --
- -------------------------------------------------------------------------------------
Shares sold 268,967,543 211,639,475
- -------------------------------------------------------------------------------------
Shares redeemed (259,022,528) (156,231,546)
- ------------------------------------------------------------------------------------- ------------ ------------
Shares outstanding, end of period 65,352,944 55,407,929
- ------------------------------------------------------------------------------------- ------------ ------------
</TABLE>
* For the period from June 2, 1992 (date of initial public investment) to
November 30, 1992.
** For the period from May 14, 1992 (date of initial public investment) to
November 30, 1992.
*** For the period from February 19, 1992 (start of business) to November 30,
1992.
<TABLE>
<CAPTION>
MONEY MARKET FUND TAX-FREE FUND
YEAR ENDED NOVEMBER 30, YEAR ENDED NOVEMBER 30,
1993 1992* 1993 1992**
INVESTMENT SHARES
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period 3,106,154 -- 5,337,645 --
- ---------------------------------------------------------
Shares sold 14,573,466 4,092,614 45,044,796 8,205,295
- ---------------------------------------------------------
Shares redeemed (7,837,523) (986,460) (26,406,425) (2,867,650)
- --------------------------------------------------------- ----------- ----------- ----------- -----------
Shares outstanding, end of period 9,842,097 3,106,154 23,976,016 5,337,645
- --------------------------------------------------------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
U.S. TREASURY FUND
YEAR ENDED
NOVEMBER 30,
1993***
INVESTMENT SHARES
<S> <C>
Shares outstanding, beginning of period --
- -----------------------------------------------------------------------------------------------
Shares sold 19,977,447
- -----------------------------------------------------------------------------------------------
Shares redeemed (3,036,031)
- ----------------------------------------------------------------------------------------------- -------------------
Shares outstanding, end of period 16,941,416
- ----------------------------------------------------------------------------------------------- -------------------
</TABLE>
* For the period from June 9, 1992 (date of initial public investment) to
November 30, 1992.
** For the period from May 20, 1992 (date of initial public investment) to
November 30, 1992.
*** For the period from May 12, 1993 (date of initial public investment) to
November 30, 1993.
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Wachovia Investment Management Group, the Funds' investment adviser ("Adviser"),
receives for its services an annual investment advisory fee equal to .50 of 1%
of each 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 Funds in excess of limitations imposed by certain states. The Adviser can
modify or terminate the voluntary waiver and reimbursement at any time at its
own discretion. For the year ended November 30, 1993, the Adviser earned
investment advisory fees from the Money Market Fund, the Tax-Free Fund and the
U.S. Treasury Fund of $703,812, $380,443, and $333,904, respectively, of which
$549,233, $297,388 and $276,657 were voluntarily waived, respectively.
Federated Administrative Services ("FAS") provides the Funds with certain
administrative personnel and services, and receives an annual administrative fee
equal to .145 of 1% of the first $400 million of average aggregate daily net
assets of the Trust; .120 of 1% of the next $300 million; .095 of 1% of the next
$300 million; and .070 of 1% on 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 year ended November
30, 1993, FAS earned administrative fees from the Money Market Fund, the
Tax-Free Fund and the U.S. Treasury Fund of $183,805, $100,161, and $88,313,
respectively, of which $142,842, $79,813, and $71,133 were voluntarily waived,
respectively. In addition, FAS reimbursed other operating expenses for the Money
Market Fund, Tax-Free Fund and the U.S. Treasury
Fund of $67,462, $61,079, and $55,602, respectively. FAS can modify or terminate
the voluntary waiver and reimbursement at any time at its sole discretion.
Organization expenses of the Money Market Fund, Tax-Free Fund, and U.S. Treasury
Fund of $65,357, $59,661, and $33,032, respectively, were borne initially by
FAS. The Funds have agreed to reimburse FAS for the organization expenses
initially borne by FAS during the five year periods following the date that each
Fund's registration statements first became effective. During the year ended
November 30, 1993, the Money Market Fund, Tax-Free Fund, and U.S. Treasury Fund
paid $6,741, $7,842, and $6,506, respectively, pursuant to this agreement.
For the services to be provided to the Funds pursuant to the Custodian
Agreement, the Funds pay 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 Trust; .015 of 1% of average aggregate daily net assets
from $250 million to $500 million; and .01 of 1% of average aggregate daily net
assets over $500 million. The Custodian may voluntarily waive a portion of its
fees. The Custodian can modify or terminate the voluntary waiver at any time at
its own discretion. For the year ended November 30, 1993, the Custodian earned
from the Money Market Fund, Tax-Free Fund, and U.S. Treasury Fund fees of
$28,152, $15,218, and $13,358, respectively, all of which were voluntarily
waived.
Federated Services Company ("FSC") is transfer agent for the shares of the Funds
and dividend disbursing agent for the Funds. It also provides certain accounting
and recordkeeping services with respect to the Funds' portfolios of investments.
FSC may voluntarily waive a portion of its fees. FSC can modify or terminate the
voluntary waiver at any time at its sole discretion. For the year ended November
30, 1993, FSC earned from the Money Market Fund, Tax-Free Fund, and U.S.
Treasury Fund transfer and dividend disbursing agent fees of $23,666, $23,759,
and $22,492, respectively. For the year ended November 30, 1993, FSC earned
recordkeeper fees of $43,796, $37,320, and $33,110, respectively.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Funds will compensate Federated
Securities Corp., the principal distributor, from the assets of the Investment
Shares of the Funds to finance any activity which is principally intended to
result in the sale of Investment Shares. The Plan provides that the Funds may
incur distribution expenses up to 0.40 of 1% of the average daily net assets of
the Investment Shares, annually, to compensate Federated Securities Corp. During
the year ended November 30, 1993, Federated Securities Corp. earned from the
Money Market Fund, the Tax-Free Fund and the U.S. Treasury Fund fees of $20,582,
$59,172, and $11,831, respectively, pursuant to the Plan, of which $5,145,
$14,792, and $2,966, respectively, were voluntarily waived.
Certain Officers of the Trust are Officers and Directors of Federated Securities
Corp., FAS and FSC.
(6) CURRENT CREDIT RATINGS
Current credit ratings and related footnotes are unaudited.
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
THE BILTMORE FUNDS:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Biltmore Money Market Fund, Biltmore Tax-Free
Money Market Fund and Biltmore U.S. Treasury Money Market Fund (portfolios of
The Biltmore Funds) as of November 30, 1993, and the related statements of
operations for the year then ended and the statements of changes in net assets
and financial highlights (see pages 4, 5, 6, and 31, 32, 33 of this prospectus)
for the periods presented therein. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits 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 audits provide 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 Money Market Fund, Biltmore Tax-Free Money Market Fund and Biltmore
U.S. Treasury Money Market Fund of The Biltmore Funds at November 30, 1993, and
the results of their operations for the year then ended, and changes in their
net assets and financial highlights for the periods presented therein, in
conformity with generally accepted accounting principles.
ERNST
& YOUNG
Pittsburgh, Pennsylvania
January 14, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Biltmore Money Market Fund
Investment Shares
Biltmore Tax-Free Money Market Fund Federated Investors Tower
Investment Shares Pittsburgh, Pennsylvania 15222-3779
Biltmore U.S. Treasury Money Market Fund
Investment Shares
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Wachovia Investment Management Group 301 North Main Street
Winston-Salem, N.C. 27150
- ---------------------------------------------------------------------------------------------------------------------
Custodian
Wachovia Bank of North Carolina, N.A. Wachovia Trust Operations
301 North Main Street
Winston-Salem, N.C. 27150
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Kirkpatrick & Lockhart 1800 M Street, N.W.
Washington, D.C. 20036-5891
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Piper & Marbury 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
Wachovia Securities, Inc.
P.O. Box 110 MC 32022
Winston-Salem, N.C. 27102
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
3042106A (1/94)
BILTMORE MONEY MARKET FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Biltmore Money Market Fund (the "Fund") offered by
this prospectus represent interests in a diversified portfolio of securities
which is one of a series of investment portfolios in The Biltmore Funds (the
"Trust"), an open-end management investment company (a mutual fund).
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
The Fund is a money market fund which invests in money market instruments to
provide current income consistent with stability of principal and liquidity. The
Fund pursues this investment objective by investing exclusively in money market
instruments maturing in 397 days or less.
THE SHARES OFFERED BY THIS PROSPECTUS 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.
This prospectus contains the information you should read and know before you
invest in Institutional Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Shares and Investment Shares, dated January 31, 1994, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge, purchase Institutional Shares or obtain other
information about the Fund by writing to the Fund or by calling your Wachovia
Bank (as defined herein) account officer.
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--
INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 4
U.S. Government Obligations 4
Variable Rate Demand Notes 4
Bank Instruments 5
Short-Term Credit Facilities 5
Ratings 5
Repurchase Agreements 5
Credit Enhancement 5
Demand Features 6
Restricted and Illiquid Securities 6
When-Issued and Delayed Delivery
Transactions 6
Investing in Securities of
Other Investment Companies 7
Concentration of Investments 7
Lending of Portfolio Securities 7
Investment Risks 7
Investment Limitations 7
Regulatory Compliance 8
THE BILTMORE FUNDS INFORMATION 8
- ------------------------------------------------------
Management of the Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Institutional Shares 9
Administration of the Fund 9
Administrative Services 9
Custodian 9
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 10
Legal Services 10
Independent Auditors 10
Expenses of the Fund
and Institutional Shares 10
NET ASSET VALUE 11
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 11
- ------------------------------------------------------
Share Purchases 11
Through the Wachovia Banks 11
Via a Sweep Account 11
Minimum Investment Required 11
What Shares Cost 12
Certificates and Confirmations 12
Dividends 12
Capital Gains 12
EXCHANGES 12
- ------------------------------------------------------
REDEEMING INSTITUTIONAL SHARES 13
- ------------------------------------------------------
By Telephone 13
SHAREHOLDER INFORMATION 14
- ------------------------------------------------------
Voting Rights 14
Massachusetts Business Trusts 14
EFFECT OF BANKING LAWS 15
- ------------------------------------------------------
TAX INFORMATION 15
- ------------------------------------------------------
PERFORMANCE INFORMATION 16
- ------------------------------------------------------
OTHER CLASSES OF SHARES 16
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 17
- ------------------------------------------------------
FINANCIAL STATEMENTS 18
- ------------------------------------------------------
REPORT OF ERNST & YOUNG,
INDEPENDENT AUDITORS 27
- ------------------------------------------------------
ADDRESSES 28
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................. None
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 INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)........................................................................ 0.00%
12b-1 Fees.............................................................................................. None
Other Expenses (after waiver & reimbursement) (2)....................................................... 0.27%
Total Institutional Shares Operating Expenses (after waiver & reimbursement) (3).................... 0.27%
</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 0.50%.
(2) Other Expenses are estimated to be 0.33% absent the voluntary waiver by the
administrator and the voluntary reimbursement by the investment adviser. The
administrator and adviser may terminate the voluntary waiver and
reimbursement, respectively, at any time at their sole discretion.
(3) The Annual Institutional Shares Operating Expenses were 0.25% for the fiscal
year ended November 30, 1993. The Annual Institutional Shares Operating
Expenses in the table above reflect a reduction in the voluntary waivers of
the administrative fee and the custodian fee for the fiscal year ending
November 30, 1994. The Annual Institutional Shares Operating Expenses are
expected to be 0.83% absent the voluntary waivers and reimbursement
described above in notes 1 and 2.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES 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 5 years 10 years
<S> <C> <C> <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. The
Fund charges no redemption fees for Institutional Shares................. $3 $9 $15 $34
</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.
The information set forth in the foregoing table and example relates only to
Institutional Shares of the Fund. The Fund also offers another class of shares
called Investment Shares. Investment Shares are subject to certain of the same
expenses with the addition of a maximum 12b-1 fee of 0.40% of the Investment
Shares' average net assets. See "Other Classes of Shares."
BILTMORE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
27.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1993 1992*
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.03 0.02
- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.02)
- ------------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN** 3.05% 1.71%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 0.25% 0.14%(a)
- -------------------------------------------------------------------------------------------
Net investment income 3.00% 3.38%(a)
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.56% 0.65%(a)
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $177,090 $84,698
- -------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from June 2, 1992 (date of initial public
investment) to November 30, 1992.
** Based on net asset value, which does not reflect the sales load or
redemption fee, if applicable.
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expenses and net investment
income ratios shown above (Note 5).
(See Notes, which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Biltmore Funds (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 separate series of shares of beneficial
interest representing interests in separate portfolios of securities. The shares
in any one portfolio may be offered in separate classes. As of the date of this
prospectus, the Board of Trustees (the "Trustees") has established two classes
of shares of Biltmore Money Market Fund (the "Fund"), Institutional Shares and
Investment Shares. This prospectus relates only to the Institutional Shares of
the Fund.
Institutional Shares are offered only for purchase through the bank subsidiaries
of Wachovia Corporation: 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"). Institutional Shares are offered only to
accounts held by the Wachovia Banks in a fiduciary, agency, custodial, or
similar capacity. The Fund offers a convenient means of accumulating an interest
in a professionally-managed, diversified portfolio limited to money market
instruments maturing in 397 days or less. Investors should consult their account
agreement with the Wachovia Banks for any applicable minimum investment.
The Fund attempts to stabilize the value of a share at $1.00. Institutional
Shares are currently sold and redeemed at that price.
The other portfolios in the Trust are Biltmore Balanced Fund, Biltmore Equity
Fund, Biltmore Equity Index Fund, Biltmore Fixed Income Fund, 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 and Investment Shares), and Biltmore
U.S. Treasury Money Market Fund (Institutional Shares and Investment Shares).
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income consistent
with stability of principal and liquidity. The investment objective cannot be
changed without approval of shareholders. 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.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing exclusively in a
portfolio of money market instruments maturing in 397 days or less. The average
maturity of money market instruments in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less.
Unless indicated otherwise, the investment policies may be changed by the
Trustees without the approval of shareholders. Shareholders will be notified
before any material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are rated in the highest short-term rating categories by one or
more nationally recognized statistical rating organizations ("NRSROs") or are of
comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
commercial paper (including Canadian Commercial Paper and Europaper);
certificates of deposit, demand and time deposits, saving shares,
bankers' acceptances, and other instruments of domestic and foreign banks
and other deposit institutions;
corporate debt obligations, including variable rate demand notes;
obligations of the U.S. government, its agencies and instrumentalities;
and
repurchase agreements.
The Fund invests only in instruments denominated and payable in U.S. dollars.
For further discussion of the instruments described above and rating categories,
consult the Fund's Combined Statement of Additional Information.
U.S. GOVERNMENT OBLIGATIONS. The types of U.S. government obligations in
which the Money Market Fund may invest generally include direct obligations
of the U.S. Treasury (such as U.S. Treasury bills, notes and bonds) and
obligations issued or guaranteed by U.S. government agencies or
instrumentalities. These securities are backed by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always
receive financial support from the U.S. government are:
Federal Farm Credit Banks;
Federal Home Loan Banks;
Federal National Mortgage Association;
Student Loan Marketing Association; and
Federal Home Loan Mortgage Corporation.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
corporate debt instruments that have variable or floating interest rates
and provide the Fund with the right to tender the security for repurchase
at its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on an
interest rate index or a published interest rate. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate
demand notes as maturing on the later of the date of the next interest rate
adjustment or the date on which the Fund may next tender the security for
repurchase.
BANK INSTRUMENTS. The Fund only invests in U.S. and foreign bank
instruments either issued by an institution having capital, surplus and
undivided profits over $100 million or insured by the Bank Insurance Fund
("BIF"), which is administered by the FDIC. Bank instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The Fund will treat
securities credit enhanced with a bank's irrevocable letter of credit or
unconditional guaranty as bank instruments.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation 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. The Fund may also enter into, or acquire participations
in, short-term revolving credit facilities with corporate borrowers. Demand
notes and other short-term credit arrangements usually provide for floating
or variable rates of interest.
RATINGS. An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1+ or A-1 by
Standard & Poor's Corporation ("S&P"), Prime-1 by Moody's Investors Service,
Inc. ("Moody's"), or F-1 (+ or -) by Fitch Investors Service, Inc. ("Fitch") are
all considered rated in the highest short-term rating category. The Fund will
follow applicable regulations in determining whether a security rated by more
than one NRSRO can be treated as being in the highest short-term rating
category; currently, such securities must be rated by two NRSROs in their
highest rating category. See "Regulatory Compliance."
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. The Fund or its
custodian will 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.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. Generally, the Fund
will not treat credit enhanced securities as having been issued by the credit
enhancer for diversification purposes. However, under certain circumstances,
applicable regulations may require the Fund to treat the securities as having
been issued by both the issuer and the credit enhancer. The bankruptcy,
receivership or
default of the credit enhancer will adversely affect the quality and
marketability of the underlying security.
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.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities 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, and repurchase agreements providing for settlement in more than seven
days after notice, to 10% 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 limitation 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase short-term
U.S. government obligations 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3%
of the total outstanding voting stock of any investment company, invest more
than 5% of its total assets in any one investment company, or invest more than
10% of its total assets in investment companies in general. The Fund will only
invest in other investment companies that are money market funds having
investment objectives and policies similar to its own and primarily for the
purpose of investing short-term cash which has not yet been invested in other
portfolio instruments. The adviser to the Fund will waive its advisory fee on
assets invested in securities of open-end investment companies.
CONCENTRATION OF INVESTMENTS. The Fund may invest more than 25% of the value of
its total assets in cash or certain money market instruments (including
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),
securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, or instruments secured by these money market instruments,
such as repurchase agreements.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term basis to broker/dealers,
banks, or other institutional borrowers of securities. The Fund will only enter
into loan arrangements with broker/dealers, banks, or other institutions which
the investment adviser has determined are creditworthy under guidelines
established by the Trustees, where loaned securities are marked to market daily
and where the Fund receives collateral equal to at least 100% of the value of
the securities loaned. The Fund will limit the amount of portfolio securities it
may lend to not more than one-third of its total assets.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, and Europaper are subject to somewhat different risks
than domestic obligations of domestic issuers. Examples of these risks include
international economic and political developments, foreign governmental
restrictions that may adversely affect the payment of principal or interest,
foreign withholdings or other taxes on interest income, difficulties in
obtaining or enforcing a judgment against the issuing bank, and the possible
impact of interruptions in the flow of international currency transactions.
Different risks may also exist for ECDs, ETDs, and Yankee CDs because the banks
issuing these instruments, or their domestic or foreign branches, are not
necessarily subject to the same regulatory requirements that apply to domestic
banks, such as reserve requirements, loan limitations, examinations, accounting,
auditing, and recordkeeping, and the public availability of information. These
factors will be carefully considered by the Fund's adviser in selecting
investments for the Fund.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) except, under certain circumstances, the Fund may borrow up to one-
third of the value of its total assets; 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 U.S. government securities).
The above investment limitations cannot be changed without shareholder approval.
For additional information regarding the Fund's investment limitations, please
refer to Combined Statement of Additional Information.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and the Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. The Fund will
invest more than 5% of its assets in any one issuer only under the circumstances
permitted by Rule 2a-7. The Fund will also determine the effective maturity of
its investments, as well as its ability to consider a security as having
received the requisite short-term ratings by NRSROs, according to Rule 2a-7. The
Fund may change these operational policies to reflect changes in the laws and
regulations without the approval of its shareholders.
THE BILTMORE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Board of Trustees is 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,
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 Fund's adviser receives an annual investment advisory
fee equal to 0.50 of 1% of the Fund's average aggregate 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. is a national banking association,
which offers a broad range of financial services, including commercial and
consumer loans, corporate, institutional, and personal trust services,
demand and time deposit accounts, letters of credit and international
financial services.
Wachovia Investment Management Group 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., together with its affiliates, Wachovia Bank of Georgia,
N.A. and The South Carolina National Bank, 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 for The Biltmore Funds since March 9, 1992.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is 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.
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 and the separate classes. 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 transfer agent, dividend disbursing agent, and
portfolio accounting services:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<C> <S>
.145 of 1% of the first $400 million
.120 of 1% of the next $300 million
.095 of 1% of the next $300 million
.070 of 1% in excess of $1 billion
</TABLE>
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 for the securities and cash of the Fund. Under the
Custodian Agreement, Wachovia Bank of North Carolina, N.A. 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 Wachovia Bank of North Carolina, N.A. 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, a subsidiary of Federated Investors, is 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 disinterested Trustees.
INDEPENDENT AUDITORS. The independent auditors are Ernst & Young, Pittsburgh,
Pennsylvania.
EXPENSES OF THE FUND AND INSTITUTIONAL SHARES
Holders of Institutional Shares pay their allocable share of Fund and Trust
expenses. The Trust expenses for which holders of Institutional Shares pay their
allocable share include, but are not limited to: the cost of organizing the
Trust and continuing its existence; registering the Trust; Trustees' fees;
auditors' fees; the cost of meetings of Trustees; legal fees of the Trust;
association membership dues and such non-recurring and extraordinary items as
may arise.
Each Fund's expenses for which holders of shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund
under state and federal law; investment advisory services, taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise.
At present, no expenses are allocated to Institutional Shares as a class.
However, the Trustees reserve the right to allocate certain other expenses to
the shareholders of a particular class as they deem appropriate ("Class
Expenses"). In any case, Class Expenses would be limited to: transfer agent fees
as identified by the transfer agent as attributable to holders of Institutional
Shares; printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders; registration fees paid to the Securities and Exchange Commission
and registration fees paid to states; expenses related to administrative
personnel and services as required to support holders of Institutional Shares;
legal fees relating solely to Institutional Shares; and Trustees' fees incurred
as a result of issues relating solely to Institutional Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Institutional Shares at
$1.00 by valuing the portfolio securities using the amortized cost method. The
net asset value per share is determined by adding the interest of the
Institutional Shares in the value of all securities and other assets of the
Fund, subtracting the interest of the Institutional Shares in the liabilities of
the Fund and those attributable to Institutional Shares, and dividing the
remainder by the total number of Institutional Shares outstanding. The Fund, of
course, cannot guarantee that its net asset value will always remain at $1.00
per share.
INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Institutional Shares may be
purchased by or through the Wachovia Banks. Texas residents must purchase,
exchange, and redeem shares through Federated Securities Corp. at
1-800-618-8573. In connection with the sale of Fund shares, the distributor may
from time to time offer certain items of nominal value to any shareholder or
investor. The Fund and the distributor reserve the right to reject any purchase
request.
THROUGH THE WACHOVIA BANKS. To place an order to purchase Institutional Shares
of the Fund, customers of the Wachovia Banks may telephone, send written
instructions, or place 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, 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, 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 communicated to the Wachovia Banks by 11:00 a.m. (Eastern time) and
payment by federal funds must be received by the Wachovia Banks before 4:00 p.m.
(Eastern time) on the same day as the order to earn dividends for that day.
Shares cannot be purchased on days 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.
VIA A SWEEP ACCOUNT. If you are investing in the Fund as part of a Wachovia
Bank sweep account program, automatic purchases and redemptions will be made by
the Wachovia Banks on your behalf pursuant to the sweep agreement you signed as
part of your trust account with the Wachovia Banks.
MINIMUM INVESTMENT REQUIRED
Investors should consult their account agreement with the Wachovia Banks in
order to determine any applicable minimum investment. Minimum investment
requirements may vary under different sweep agreements.
WHAT SHARES COST
Institutional Shares are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Fund.
The net asset value is determined at 12:00 noon and 4:00 p.m. (Eastern time),
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.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued.
Federated Services Company provides the Wachovia Banks, as shareholders of
record, with detailed statements on a monthly basis that include account
balances, information on each purchase or redemption, and a report of dividends
paid during the month. These statements will serve as confirmations of all
transactions in the shareholders' account for the statement period.
Investors purchasing through the Wachovia Banks will receive account statements
from those institutions periodically as required by the relevant account
agreement.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested on
payment dates in additional Institutional Shares of the Fund unless cash
payments are requested by writing to the Wachovia Banks.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If for some extraordinary reason the
Fund realizes net long-term capital gains, it will distribute them at least once
every 12 months.
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder may exchange Institutional Shares of one fund for Institutional
Shares of any other fund that does not assess a sales charge on the basis of
their respective net asset values by calling or writing to his account officer
at the Wachovia Banks. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. Institutional Shares
purchased by check are eligible for exchange after the purchase check has
cleared, which could take up to ten calendar days. The exchange feature applies
to Institutional Shares of each fund that does not assess a sales charge as of
the effective offering date of each fund's Institutional Shares.
Orders to exchange Institutional Shares of one fund for Institutional Shares of
any of the other Biltmore Funds that do not assess a sales charge will be
executed by redeeming the Institutional Shares owned at net asset value next
determined after receipt of the order and purchasing Institutional Shares of any
such other Biltmore Funds at the net asset value determined after the proceeds
from such redemption become available. Orders for exchanges received by the Fund
after 12:00 noon but prior to 4:00 p.m. (Eastern time) on any day the Trust is
open for business will be executed at the price determined at 4:00 p.m. (Eastern
time) that day. Orders for exchanges received after 4:00 p.m. (Eastern time) on
any business day will be executed at the price determined at 12:00 noon (Eastern
time) on the next business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege of any shareholder, provided the
shareholder is given 60 days' written notice.
An exchange order must comply with the requirements for a redemption and
purchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial investment requirement
imposed by the relevant account agreement. An exchange constitutes a sale for
federal income tax purposes.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Before the exchange, a shareholder
should review a prospectus of the fund for which the exchange is being made.
REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the
Wachovia Banks receive the redemption request. Redemptions will be made on days
on which the Fund computes its net asset value. Requests for redemption can be
made in person, by telephone, or by writing to your 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 the Wachovia Banks and whose account
agreement with the Wachovia Banks permits telephone redemption may redeem
Institutional Shares of the Fund by telephoning his account officer. For calls
received by the Wachovia Banks before 11:00 a.m. (Eastern time) proceeds will
normally be wired the same day to the shareholder's account at the Wachovia
Banks or a check will be sent to the address of record. Those shares will not be
entitled to the dividend declared that day. For calls received by the Wachovia
Banks after 11:00 a.m. (Eastern time) proceeds will normally be wired or a check
mailed the following business day. Those shares will be entitled to the dividend
declared on the day the redemption request was received. In no event will
proceeds be wired or a check mailed more than seven days after a proper request
for redemption has been received. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
such a case should occur, another method of redemption should be considered.
An authorization permitting the Wachovia Banks to accept telephone requests is
included as part of your account agreement. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Institutional Share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All shares of
all classes of each fund in the Trust have equal voting rights, except that in
matters affecting only a particular fund or class, only shares of that fund or
class are entitled to vote. As of January 7, 1994, Wachovia Trust Services,
Winston-Salem, North Carolina, acting in various capacities for numerous
accounts, was the owner of record of approximately 159,735,489 Institutional
Shares (100%) 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.
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.
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 the 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 customer. 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 advisory and custody agreements
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.
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 will 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.
Dividends of the Funds representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
Unless otherwise exempt, shareholders will be subject to federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional 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 yield and effective yield for
Institutional Shares.
The yield of Institutional Shares represents the annualized rate of income
earned on an investment in Institutional Shares over a seven-day period. It is
the annualized dividends earned during the period on the investment shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield but, when annualized, the income earned by an investment in Institutional
Shares is assumed to be reinvested daily. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Shares after reinvesting all distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
Yield and effective yield will be calculated separately for Institutional Shares
and Investment Shares. Because Investment Shares are subject to Rule 12b-1 fees,
the yield and effective yield of Institutional Shares for the same period will
exceed that of Investment Shares.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Investment Shares are sold to customers of the Wachovia Banks who are not
eligible to purchase Institutional Shares and customers of Wachovia Securities,
Inc. Investment Shares are subject to a minimum initial investment of $1,000.
Investment Shares are sold at net asset value and are distributed pursuant to a
Rule 12b-1 Plan adopted by The Biltmore Funds, whereby the distributor is paid a
maximum fee of 0.40 of 1% of the Investment Shares' average daily net assets.
Institutional Shares are distributed without a Rule 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares than from
another class of shares.
The amount of dividends payable to Investment Shares will be less than those
payable to Institutional Shares by the difference between class expenses and
distribution expenses borne by shares of each respective class. The stated
advisory fee is the same for both classes of shares.
BILTMORE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
27.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1993 1992*
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.03 0.01
- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.01)
- ------------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN** 2.74% 1.48%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 0.55% 0.48%(a)
- -------------------------------------------------------------------------------------------
Net investment income 2.70% 3.44%(a)
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.66% 0.75%(a)
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $9,842 $3,106
- -------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from June 9, 1992 (date of initial public
investment) to
November 30, 1992.
** Based on net asset value, which does not reflect the sales load or
redemption fee, if applicable.
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expenses and net investment
income ratios shown above (Note 5).
(See Notes, which are an integral part of the Financial Statements)
BILTMORE MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
*COMMERCIAL PAPER--52.1%
- ------------------------------------------------------------------------------------------------
FINANCE--AUTOMOTIVE--4.0%
--------------------------------------------------------------------------------
$ 7,500,000 Ford Motor Credit Co., 3.11%-3.33%, 12/2/93-4/15/94 $ 7,500,000
-------------------------------------------------------------------------------- ---------------
FINANCE--COMMERCIAL--8.6%
--------------------------------------------------------------------------------
8,000,000 CIT Group Holdings, Inc., 3.10%-3.18%, 12/2/93-2/4/94 7,977,033
--------------------------------------------------------------------------------
8,000,000 General Electric Capital Corp., 3.10%-3.48%, 12/2/93-3/31/94 8,000,000
-------------------------------------------------------------------------------- ---------------
Total 15,977,033
-------------------------------------------------------------------------------- ---------------
FINANCE--COMPUTERS--4.0%
--------------------------------------------------------------------------------
7,500,000 Xerox Credit Corp., 3.20%-3.30%, 12/1/93-4/8/94 7,441,333
-------------------------------------------------------------------------------- ---------------
FINANCE--FOOD & BEVERAGE--2.1%
--------------------------------------------------------------------------------
4,000,000 Bass Finance, 3.32%, 1/28/94 3,978,604
-------------------------------------------------------------------------------- ---------------
FINANCE--RETAIL--8.3%
--------------------------------------------------------------------------------
7,500,000 Associate Corp. of North America, 3.10%, 12/2/93 7,500,000
--------------------------------------------------------------------------------
8,000,000 Commercial Credit Corp., 3.10%-3.33%, 12/2/93-1/27/94 8,000,000
-------------------------------------------------------------------------------- ---------------
Total 15,500,000
-------------------------------------------------------------------------------- ---------------
FINANCE--TELECOMMUNICATIONS--2.7%
--------------------------------------------------------------------------------
5,000,000 Bell Atlantic Financial Services, 3.11%, 12/2/93 4,999,568
-------------------------------------------------------------------------------- ---------------
FOOD & BEVERAGE--2.1%
--------------------------------------------------------------------------------
4,000,000 Pepsico, Inc., 3.08%, 12/3/93 3,999,316
-------------------------------------------------------------------------------- ---------------
OIL & OIL FINANCE--20.3%
--------------------------------------------------------------------------------
7,500,000 Chevron Oil Finance Co., 3.10%, 12/2/93 7,500,000
--------------------------------------------------------------------------------
7,500,000 Cooper Industries, Inc., 3.05%-3.35%, 12/2/93-2/1/94 7,473,495
--------------------------------------------------------------------------------
7,500,000 Cortez Capital, 3.09%, 12/2/93 7,499,356
--------------------------------------------------------------------------------
7,500,000 Exxon Imperial U.S., Inc., 3.06%, 12/2/93 7,499,363
--------------------------------------------------------------------------------
</TABLE>
BILTMORE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- -------------------------------------------------------------------------------- ---------------
*COMMERCIAL PAPER--CONTINUED
- ------------------------------------------------------------------------------------------------
OIL & OIL FINANCE--CONTINUED
--------------------------------------------------------------------------------
$ 8,000,000 Texaco, Inc., 3.10%, 12/2/93 $ 8,000,000
-------------------------------------------------------------------------------- ---------------
Total 37,972,214
-------------------------------------------------------------------------------- ---------------
TOTAL COMMERCIAL PAPER 97,368,068
-------------------------------------------------------------------------------- ---------------
TIME DEPOSITS--16.6%
- ------------------------------------------------------------------------------------------------
6,500,000 Barclays Bank, Canada, 3.38%-3.44%, 1/4/94-4/14/94 6,500,000
--------------------------------------------------------------------------------
7,500,000 Commonwealth Bank of Australia, 3.31%-3.38%, 1/5/94-3/9/94 7,500,000
--------------------------------------------------------------------------------
2,500,000 NationsBank, London, 3.31%, 1/10/94 2,500,000
--------------------------------------------------------------------------------
5,000,000 NBD Bank, Canada, 3.09%, 12/2/93 5,000,000
--------------------------------------------------------------------------------
4,500,000 Mitsubishi Bank, Ltd., London, 3.50%, 12/14/93 4,500,000
--------------------------------------------------------------------------------
2,500,000 Royal Bank of Scotland, 3.63%, 6/1/94 2,500,000
--------------------------------------------------------------------------------
2,500,000 SouthTrust Bank of Alabama, 3.31%, 1/25/94 2,500,000
-------------------------------------------------------------------------------- ---------------
TOTAL TIME DEPOSITS 31,000,000
-------------------------------------------------------------------------------- ---------------
**REPURCHASE AGREEMENTS--31.2%
- ------------------------------------------------------------------------------------------------
38,370,076 Daiwa Securities America, Inc., 3.22%, dated 11/30/93,
due 12/1/93 38,370,076
--------------------------------------------------------------------------------
20,000,000 PaineWebber, Inc., 3.20%, dated 11/30/93, due 12/1/93 20,000,000
-------------------------------------------------------------------------------- ---------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 58,370,076
-------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 186,738,144\
-------------------------------------------------------------------------------- ---------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
** The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
\ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($186,932,159) at
November 30, 1993.
(See Notes, which are an integral part of the Financial Statements)
BILTMORE MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 58,370,076
- -------------------------------------------------------------------------------
Investments in securities 128,368,068
- ------------------------------------------------------------------------------- ---------------
Total investments, at amortized cost and value
(Notes 2A and 2B) $ 186,738,144
- ------------------------------------------------------------------------------------------------
Interest receivable 565,057
- ------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 35,132
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 187,338,333
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Dividends payable 398,412
- -------------------------------------------------------------------------------
Accrued expenses 7,762
- ------------------------------------------------------------------------------- ---------------
Total liabilities 406,174
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 186,932,159 shares of beneficial interest outstanding $ 186,932,159
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- ------------------------------------------------------------------------------------------------
Institutional Shares ($177,090,062 / 177,090,062 shares of beneficial interest outstanding)
$1.00
- ------------------------------------------------------------------------------------------------ ---------------
Investment Shares ($9,842,097 / 9,842,097 shares of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------ ---------------
(See Notes, which are an integral part of the Financial Statements)
</TABLE>
BILTMORE MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 4,572,488
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 703,812
- --------------------------------------------------------------------------------------
Administrative personnel and services fee (Note 5) 183,805
- --------------------------------------------------------------------------------------
Trustees' fees 36,195
- --------------------------------------------------------------------------------------
Custodian fees (Note 5) 28,152
- --------------------------------------------------------------------------------------
Recordkeeper fees (Note 5) 43,796
- --------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses
(Note 5) 23,666
- --------------------------------------------------------------------------------------
Legal fees 12,809
- --------------------------------------------------------------------------------------
Printing and postage 29,319
- --------------------------------------------------------------------------------------
Insurance premiums 2,248
- --------------------------------------------------------------------------------------
Fund share registration costs 24,492
- --------------------------------------------------------------------------------------
Distribution fees (Note 5) 20,582
- --------------------------------------------------------------------------------------
Auditing fees 19,175
- --------------------------------------------------------------------------------------
Miscellaneous 29,783
- -------------------------------------------------------------------------------------- -----------
Total expenses 1,157,834
- --------------------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 549,233
- -------------------------------------------------------------------------
Waiver of administrative personnel and services fee (Note 5) 142,842
- -------------------------------------------------------------------------
Waiver of custodian fees (Note 5) 28,152
- -------------------------------------------------------------------------
Waiver of distribution fees (Note 5) 5,145
- -------------------------------------------------------------------------
Reimbursement of other operating expenses by the Administrator (Note 5) 67,462 792,834
- ------------------------------------------------------------------------- ----------- -----------
Net expenses 365,000
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 4,207,488
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes, which are an integral part of the Financial Statements)
BILTMORE MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1993 1992*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------
Net investment income $ 4,207,488 $ 1,432,694
- ------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -------------------------------------------------------------------------
Institutional Shares (4,068,438) (1,413,297)
- -------------------------------------------------------------------------
Investment Shares (139,050) (19,397)
- ------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions to shareholders (4,207,488) (1,432,694)
- ------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -------------------------------------------------------------------------
Proceeds from sales of shares 523,338,578 358,902,598
- -------------------------------------------------------------------------
Cost of shares redeemed (424,210,993) (271,098,024)
- ------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from fund share transactions 99,127,585 87,804,574
- ------------------------------------------------------------------------- ---------------- ----------------
Change in net assets 99,127,585 87,804,574
- -------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------
Beginning of period 87,804,574 --
- ------------------------------------------------------------------------- ---------------- ----------------
End of period $ 186,932,159 $ 87,804,574
- ------------------------------------------------------------------------- ---------------- ----------------
*For the period from June 2, 1992 (date of initial public investment) to November 30, 1992.
(See Notes, which are an integral part of the Financial Statements)
</TABLE>
BILTMORE MONEY MARKET 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 Biltmore Money Market
Fund (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio of the Trust are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.
Biltmore Money Market Fund offers two classes of shares ("Institutional Shares"
and "Investment Shares"). Investment Shares are identical in all respects to
Institutional Shares, except that Investment Shares are sold pursuant to a
distribution plan (the "Plan") adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940, as amended. Under the Plan, the Fund may pay
Federated Securities Corp. a fee at an annual rate up to 0.40 of 1% of the
average aggregate daily net asset value of Investment Shares to finance any
activity which is principally intended to result in the sale of Investment
Shares.
(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--The Board of Trustees ("Trustees") has determined
that the best method currently available for valuing portfolio securities
is amortized cost. The Fund's use of the amortized cost method to value its
portfolio securities is conditioned on its compliance with Rule 2a-7 under
the Investment Company Act of 1940.
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. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest and discount earned (net of premium), including original
issue discount as required by the Internal Revenue Code (the "Code"), plus
net realized gains if any, on portfolio securities.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue 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 or excise 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--The costs incurred by the Fund with respect to the
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
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash or in additional
shares at the net asset value on the payable date.
(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). At
November 30, 1993, capital paid-in for the Fund aggregated $186,932,159.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
INSTITUTIONAL SHARES 1993 1992*
- ----------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Shares outstanding, beginning of period 84,698,420 --
- -----------------------------------------------------------------------------
Shares sold 508,765,112 354,809,984
- -----------------------------------------------------------------------------
Shares redeemed (416,373,470) (270,111,564)
- ----------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 177,090,062 84,698,420
- ----------------------------------------------------------------------------- --------------- ---------------
</TABLE>
* For the period from June 2, 1992 (date of initial public investment) to
November 30, 1992.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
INVESTMENT SHARES 1993 1992**
- ----------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Shares outstanding, beginning of period 3,106,154 --
- -----------------------------------------------------------------------------
Shares sold 14,573,466 4,092,614
- -----------------------------------------------------------------------------
Shares redeemed (7,837,523) (986,460)
- ----------------------------------------------------------------------------- --------------- ---------------
Shares outstanding, end of period 9,842,097 3,106,154
- ----------------------------------------------------------------------------- --------------- ---------------
</TABLE>
** For the period from June 9, 1992 (date of initial public investment) to
November 30, 1992.
(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 0.50 of 1%
of the Fund's average aggregate 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 year ended November 30, 1993, the Adviser earned an
investment advisory fee of $703,812, of which $549,233 was voluntarily waived.
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services, and receives an annual administrative fee
equal to 0.145 of 1% on the first $400 million of average aggregate daily net
assets of the Trust; 0.120 of 1% of the next $300 million; 0.095 of 1% of the
next $300 million; and 0.070 of 1% of average aggregate daily net assets in
excess of $1 billion. FAS may voluntarily waive a portion of its fee or
reimburse certain operating expenses of the Fund. For the year ended November
30, 1993, FAS earned an administrative fee from the Fund of $183,805, of which
$142,842 was voluntarily waived. In addition, FAS reimbursed $67,462 of other
operating expenses. FAS can modify or terminate the voluntary waiver and
reimbursement at any time at its sole discretion.
Organization expenses of the Fund ($65,357) were borne initially by FAS. The
Trust has agreed to reimburse FAS for the organization expenses initially borne
by FAS during the five year period following the date the Fund's registration
statement first became effective. During the year ended November 30, 1993, the
Fund paid $6,741 pursuant to this agreement.
For the services provided to the Fund pursuant to the Custodian Agreement, the
Trust pays Wachovia Bank of North Carolina, N.A. (the "Custodian") an annual fee
equal to 0.02 of 1% on the first $250 million of average aggregate daily net
assets of the Trust, 0.015 of 1% of average aggregate daily net assets from $250
million to $500 million; and 0.01 of 1% of average aggregate daily net assets
over $500 million. The Custodian may voluntarily waive a portion of its fees.
The Custodian can modify or terminate the voluntary waiver at any time at its
sole discretion. For the year ended November 30, 1993, the Custodian earned
$28,152, all of which was voluntarily waived.
Federated Services Company ("FSC") is transfer agent for the shares of the Fund
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 fees. FSC can modify or terminate the
voluntary waiver at any time at its sole discretion. For the year ended November
30, 1993, FSC earned transfer and dividend disbursing agent fees of $23,666. For
the year ended November 30, 1993, FSC earned recordkeeper fees of $43,796.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. The Fund will compensate
Federated Securities Corp., the principal distributor, from the assets of the
Investment Shares of the Fund to finance any activity which is principally
intended to result in the sale of Investment Shares. The Plan provides that the
Fund may incur distribution expenses up to 0.40 of 1% of the average daily net
assets of the Investment Shares, annually, to compensate Federated Securities
Corp. During the year ended November 30, 1993, Federated Securities Corp. earned
$20,582 in distribution fees, of which $5,145 was voluntarily waived.
Certain Officers of the Trust are Officers and Directors of Federated Securities
Corp., FAS and FSC.
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 Money Market Fund (one of the
portfolios comprising The Biltmore Funds) as of November 30, 1993, and the
related statement of operations for the year then ended and the statement of
changes in net assets for the year then ended and for the period from June 2,
1992 (date of initial public investment) to November 30, 1992 and financial
highlights (see pages 2 and 17 of this prospectus) for the periods presented
therein. 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
audits.
We conducted our audits 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 audits provide 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 Money Market Fund of The Biltmore Funds at November 30, 1993, and the
results of its operations for the year then ended, changes in its net assets for
the year then ended and for the period from June 2, 1992 to November 30, 1992,
and financial highlights for the periods presented therein, in conformity with
generally accepted accounting principles.
ERNST
& YOUNG
Pittsburgh, Pennsylvania
January 14, 1994
ADDRESSES
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<TABLE>
<S> <C> <C>
Biltmore Money Market Fund
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Investment Adviser
Wachovia Investment Management Group 301 North Main Street
Winston-Salem, N.C. 27150
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Custodian
Wachovia Bank of North Carolina, N.A. Wachovia Trust Operations
301 North Main Street
Winston-Salem, N.C. 27150
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Legal Counsel
Kirkpatrick & Lockhart 1800 M Street, N.W.
Washington, D.C. 20036-5891
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Piper & Marbury 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
2020203A-IS (1/94)
BILTMORE MONEY MARKET FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
INVESTMENT SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectus for Institutional Shares and Investment
Shares of Biltmore Money Market Fund (the "Fund"), dated January 31,
1994. This Combined Statement is not a prospectus itself. To receive a
copy of either prospectus, write to Biltmore Money Market Fund or call
your Wachovia Bank account officer.
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 OBJECTIVE AND POLICIES 1
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Types of Investments 1
When-Issued and Delayed Delivery
Transactions 1
Reverse Repurchase Agreements 2
Investment Limitations 2
THE BILTMORE FUNDS MANAGEMENT 4
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Officers and Trustees 4
Fund Ownership 5
Trustee Liability 5
INVESTMENT ADVISORY SERVICES 5
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Adviser to the Fund 5
Advisory Fees 5
ADMINISTRATIVE SERVICES 5
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 6
- ---------------------------------------------------------------
PURCHASING SHARES 6
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Distribution Plan (Investment Shares Only) 6
Conversion to Federal Funds 7
EXCHANGING SECURITIES FOR FUND SHARES 7
- ---------------------------------------------------------------
DETERMINING NET ASSET VALUE 7
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Use of the Amortized Cost Method 7
REDEEMING SHARES 8
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Redemption in Kind 8
TAX STATUS 9
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The Fund's Tax Status 9
Shareholders' Tax Status 9
YIELD 9
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EFFECTIVE YIELD 9
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 9
- ---------------------------------------------------------------
APPENDIX 11
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in The Biltmore Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust dated
November 19, 1991.
Shares of the Fund are offered in two classes, Institutional Shares and
Investment Shares (individually and collectively referred to as "Shares" as the
context may require). This Combined Statement of Additional Information relates
to both classes of the above-mentioned Shares.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income consistent with
stability of principal and liquidity. The investment objective cannot be changed
without approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests exclusively in money market instruments which mature in 397
days or less and which include, but are not limited to, high quality commercial
paper and variable amount master demand notes, bank instruments, and U.S.
government obligations.
The instruments of banks whose deposits are insured by the Bank Insurance Fund
("BIF") which is administered by the Federal Deposit Insurance Corporation, such
as certificates of deposit, demand and time deposits, and bankers' acceptances,
are not necessarily guaranteed by that organization.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are
backed by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
Federal Farm Credit Banks;
Federal Home Loan Banks;
Federal National Mortgage Association;
Student Loan Marketing Association; and
Federal Home Loan Mortgage Corporation.
BANK INSTRUMENTS
In addition to domestic bank obligations such as certificates of deposit,
demand and time deposits, and bankers' acceptances, the Fund may invest
in:
Eurodollar Certificates of Deposit issued by foreign branches of U.S. or
foreign banks;
Eurodollar Time Deposits, which are U.S. dollar-denominated deposits in
foreign branches of U.S. or foreign banks; and
Yankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and
held in the United States.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. 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 payments for the
securities to be purchased are segregated at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
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
more than 20% of the total value of its assets.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are 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 assets are marked to market daily and
are maintained until the transaction has been settled.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including the amount
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 or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing or holding money market instruments, including
repurchase agreements and variable amount demand master notes, permitted
by its investment objective, policies, and limitations or Declaration of
Trust.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in securities of issuers
whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase 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 U.S. government 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.")
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry. The Fund may invest 25% or more of the value of its
total assets in cash or certain money market instruments (including
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), securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
Except as noted, the above limitations cannot be changed without shareholder
approval. The Fund does not consider the issuance of separate classes of shares
to involve the issuance of "senior securities" within the meaning of the
investment limitation set forth above. The following investment limitations,
however, may be changed by the Board of Trustees (the "Trustees") without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for
clearance of transactions.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under federal securities law, except
for Section 4(2) commercial paper and other restricted securities
determined to be liquid under criteria established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
income time deposits with maturities over seven days, and restricted
securities which have not been determined to be liquid under criteria
established by the Trustees.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS 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 0.5 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of its total assets in any one investment
company, or invest more than 10% of its total assets in investment
companies in general. The Fund will limit its investments in the
securities of other investment companies to those of money market funds
having investment objectives and policies similar to its own. The Fund
will purchase securities of closed-end investment companies only in open
market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, reorganization or acquisition of
assets. While it is the Fund's investment adviser's policy to waive its
investment advisory fee on assets invested in securities of open-end
investment companies, it should be noted that investment companies incur
certain expenses such as custodian and transfer agent fees, and therefore
any investment by the Fund in shares of another investment company would
be subject to such duplicate expenses.
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 will not purchase any securities while borrowings in excess of 5% of
the value of its total assets are outstanding.
The Fund does not expect to borrow money in excess of 5% of the value of its net
assets or invest in securities of closed-end investment companies during the
coming 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>
<S> <C> <C>
POSITIONS WITH
NAME AND ADDRESS THE TRUST PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
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 & Co., 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 bankholding 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; Vice President and
and Assistant Assistant Treasurer of certain investment companies for which Federated
Treasurer Securities Corp. is the principal distributor; formerly, Associate
Corporate Counsel, Federated Investors.
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 January 7, 1994, the following shareholder of record owned 5% or more of
the outstanding Institutional Shares of the Fund: Wachovia Trust Services,
Winston-Salem, North Carolina, owned approximately 159,735,489 Institutional
Shares (100%).
As of January 7, 1994, the following shareholders of record owned 5% or more of
the outstanding Investment Shares of the Fund: Wachovia Bank of North Carolina,
N.A., Winston-Salem, North Carolina, owned approximately 615,775 Investment
Shares (7%); Wachovia Bank of Georgia, N.A., Winston-Salem, North Carolina,
owned approximately 751,885 Investment Shares (8%); and Wachovia Brokerage
Service, Winston-Salem, North Carolina, owned approximately 7,317,606 Investment
Shares (82%).
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 prospectuses.
For the fiscal year ended November 30, 1993, and for the period from June 2,
1992 (date of initial public investment) to November 30, 1992, the Adviser
earned $703,812 and $211,845, of which $549,233 and $200,203, respectively,were
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.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, which is a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for the fees set
forth in the prospectuses.
For the fiscal year ended November 30, 1993, and for the period from June 2,
1992, (date of initial public investment) to November 30, 1992, the Fund
incurred costs for administrative services of $183,805 and $43,901, of which
$142,842 and $43,901, respectively, were voluntarily waived. In addition,
Federated Administrative Services reimbursed $67,462 and $17,500, respectively
of other operating expenses.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. The
Adviser determines 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 might otherwise have paid,
it would tend to reduce its expenses. The Fund has no obligation to deal with
any broker or group of brokers in the execution of portfolio 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.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days Wachovia
Bank of North Carolina, N.A., the New York Stock Exchange and the Federal
Reserve Wire System are open for business. The procedure for purchasing Shares
is explained in the respective prospectus under "Investing in Institutional
Shares" and "Investing in Investment Shares."
DISTRIBUTION PLAN (INVESTMENT SHARES ONLY)
With respect to the Investment Shares class of the Fund, the Trust has adopted a
plan (the "Plan") pursuant to Rule 12b-1 which was promulgated by the Securities
and Exchange Commission pursuant to the 1940 Act. The Plan provides for payment
of fees to Federated Securities Corp. to finance any activity which is
principally intended to result in the sale of the Fund's Investment Shares
subject to the Plan. Such activities may include the advertising and marketing
of Investment Shares; preparing, printing, and distributing prospectuses and
sales literature to prospective shareholders, brokers, or administrators; and
implementing and operating the Plan. Pursuant to the Plan, Federated Securities
Corp. may pay fees to brokers for distribution and administrative services and
to administrators for administrative services as to Investment Shares. The
administrative services are provided by a representative who has knowledge of
the shareholder's particular circumstances and goals, and include, but are not
limited to: communicating account openings; communicating account closings;
entering purchase transactions; entering redemption transactions; providing or
arranging to provide accounting support for all transactions, wiring funds and
receiving funds for Investment Share purchases and redemptions, confirming and
reconciling all transactions, reviewing the activity in Fund accounts, and
providing training and supervision of broker personnel; posting and reinvesting
dividends to Fund accounts or arranging for this service to be performed by the
Fund's transfer agent; and maintaining and distributing current copies of
prospectuses and shareholder reports to the beneficial owners of Investment
Shares and prospective shareholders.
The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of Investment Shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
For the fiscal year ended November 30, 1993, and for the period from June 9,
1992 (date of initial public investment) to November 30, 1992, brokers and
administrators (financial institutions) received fees in the amount of $20,582
and $2,258, respectively, pursuant to the Plan, of which $5,145 and $564,
respectively were voluntarily waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. The Wachovia Banks (as defined
in the prospectus) act as the shareholder's agent in depositing checks and
converting them to federal funds.
EXCHANGING SECURITIES FOR FUND SHARES
- --------------------------------------------------------------------------------
The Fund has no present intention of accepting securities in exchange for
Shares. However, if the Fund should allow such exchanges, it will do so only
upon the prior approval of the Fund and only upon a determination by the Fund
and its investment 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 requirement of 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 Shares on the day the securities are valued. One Share 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.
TAX CONSEQUENCES
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 Shares, a gain or loss may be realized by the investor.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the respective
prospectus of Institutional Shares and Investment Shares.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value. The
Fund's use of the amortized cost method of valuing portfolio instruments depends
on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated
by the Securities and Exchange Commission under the 1940 Act. Under the Rule,
the Trustees must establish procedures reasonably designed to stabilize the net
asset value per share, as computed for purposes of distribution and redemption,
at $1.00 per share, taking into account current market conditions and the Fund's
investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding 397 days on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
The Fund acquires instruments subject to demand features and standby commitments
to enhance the instrument's liquidity. The Fund treats demand features and
standby commitments as a part of the underlying instruments because the Fund
does not acquire them for speculative purposes and cannot transfer them
separately from the underlying instruments. Therefore, although the Rule defines
demand features and standby commitments as "puts," the Fund does not consider
them to be separate investments for the purposes of its investment policies.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
that, if rated, meet minimum rating standards set forth in the Rule. If
the instruments are not rated, the Trustees must determine that they are
of comparable quality. The Rule also requires the Fund to maintain a
dollar-weighted average portfolio maturity (not more than 90 days)
appropriate to the objective of maintaining a stable net asset value of
$1.00 per share. In addition, no instrument with a remaining maturity of
more than 397 days can be purchased by the Fund. Should the disposition
of a portfolio security result in a dollar-weighted average portfolio
maturity of more than 90 days, the Fund will invest its available cash to
reduce the average maturity to 90 days or less as soon as possible.
Shares of investment companies purchased by the Fund will meet these same
criteria and will have investment policies consistent with the Rule.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio. In periods of
declining interest rates, the indicated daily yield on shares of the Fund
computed by dividing the annualized daily income on the Fund's portfolio by the
net asset value computed as above, may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the indicated daily yield on
shares of the Fund computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market prices and
estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectus under "Redeeming Institutional Shares" and "Redeeming
Investment Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem Shares for any one shareholder in cash only up to
the lesser of $250,000 or 1% of the respective Fund's net asset value during any
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that payments should be in kind. In such a case, the Fund
will pay all or a portion of the remainder of the redemption in portfolio
instruments, valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and any short-term
capital gains received as cash or additional Shares. No portion of any income
dividend paid by the Fund is eligible for the dividends received deduction
available to corporations. These dividends and any short-term capital gains are
taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If,
for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for the seven-day period ended November 30, 1993 was 2.95% for
Institutional Shares. The yield for Investment Shares was 2.65% for the same
period.
The Fund calculates the yield for both classes of Shares daily, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
determining the net change in the value of a hypothetical account with a balance
of one share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by 365/7.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of Shares, the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield for the seven-day period ended November 30, 1993 was
2.99% for Institutional Shares. The effective yield for Investment Shares was
2.68% for the same period.
The Fund's effective yield for both classes of Shares is computed by compounding
the unannualized base period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of both classes of Shares depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in the expenses of the Fund or of either class of Shares; and
the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute net asset value. The financial
publications and/or indices which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "money market
instruments funds" category in advertising and sales literature.
BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial reporting
service which publishes weekly average rates of 50 leading bank and thrift
institution money market deposit accounts. The rates published in the index are
averages of the personal account rates offered on the Wednesday prior to the
date of publication by ten of the largest banks and thrifts in each of the five
largest Standard Metropolitan Statistical Areas. Account minimums range upward
from $2,500 in each institution and compounding methods vary. If more than one
rate is offered, the lowest rate is used. Rates are subject to change at any
time specified by the institution.
IBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of
money market funds on a weekly basis and, through its Money Market Insight
publication, reports monthly and 12-month-to-date investment results for the
same money funds.
MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day compound (effective) yield.
From time to time, the Fund will quote its Money ranking in advertising and
sales literature.
Advertisements and other sales literature for either class of Shares may quote
total returns, which are calculated on standardized base periods. These total
returns also represent the historic change in the value of an investment in
either class of Shares based on the monthly reinvestment of dividends over a
specified period of time.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S CORPORATION, COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATING DEFINITIONS
P-1--Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior
ability for repayment of senior short-term debt obligations. P-1 repayment
ability will often be evidenced by many of the following characteristics:
Leading market positions in well-established industries.
High rates of return of funds employed.
Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
Broad margins in earnings coverage of fixed financial charges and high internal
cash generation.
Well-established access to a range of financial markets and assured sources of
alternate liquidity.
FITCH INVESTORS SERVICE, COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
IBCA, SHORT-TERM RATING DEFINITIONS
A1+--Obligations supported by the highest capacity for timely repayment.
A1--Obligations supported by a very strong capacity for timely repayment.
DUFF & PHELPS, INC., COMMERCIAL PAPER RATING DEFINITIONS
DUFF 1+--Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
DUFF 1--Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
DUFF 1---High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
2020203B-IS (1/94)
BILTMORE PRIME CASH MANAGEMENT FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Biltmore Prime Cash Management Fund (the "Fund")
offered by this prospectus represent interests in a diversified portfolio of
securities which is one of a series of investment portfolios in The Biltmore
Funds (the "Trust"), an open-end management investment company (a mutual fund).
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
The Fund is a money market fund which invests in money market instruments to
provide current income consistent with stability of principal and liquidity.
THE SHARES OFFERED BY THIS PROSPECTUS 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.
This prospectus contains the information you should read and know before you
invest in Institutional Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Statement of Additional Information for Institutional
Shares, 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. You may request a copy of the Statement of
Additional Information free of charge, purchase Institutional Shares, or obtain
other information about the Fund by writing to the Fund or by calling your
Wachovia Bank (as defined herein) account officer.
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
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Variable Rate Demand Notes 3
Bank Instruments 3
Short-Term Credit Facilities 3
Ratings 3
Repurchase Agreements 4
Credit Enhancement 4
Demand Features 4
Restricted and Illiquid Securities 4
When-Issued and Delayed Delivery
Transactions 5
Investing in Securities of
Other Investment Companies 5
Concentration of Investments 5
Lending of Portfolio Securities 5
Investment Risks 6
Investment Limitations 6
Regulatory Compliance 6
THE BILTMORE FUNDS INFORMATION 7
- ------------------------------------------------------
Management of the Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Distribution of Institutional Shares 7
Administration of the Fund 8
Administrative Services 8
Custodian 8
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 8
Legal Services 8
Independent Auditors 8
Expenses of the Fund
and Institutional Shares 9
NET ASSET VALUE 9
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 9
- ------------------------------------------------------
Share Purchases 9
Through the Wachovia Banks 9
Via a Sweep Account 10
Minimum Investment Required 10
What Shares Cost 10
Certificates and Confirmations 10
Dividends 10
Capital Gains 11
EXCHANGES 11
- ------------------------------------------------------
REDEEMING INSTITUTIONAL SHARES 12
- ------------------------------------------------------
By Telephone 12
SHAREHOLDER INFORMATION 12
- ------------------------------------------------------
Voting Rights 12
Massachusetts Business Trusts 13
EFFECT OF BANKING LAWS 13
- ------------------------------------------------------
TAX INFORMATION 14
- ------------------------------------------------------
PERFORMANCE INFORMATION 14
- ------------------------------------------------------
ADDRESSES 15
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................................... None
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
<CAPTION>
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
<S> <C>
Management Fee (after waiver)(1)........................................................................ 0.08%
12b-1 Fees.............................................................................................. None
Other Expenses (after waiver)(2)........................................................................ 0.10%
Total Fund Operating Expenses (after waivers)(3)............................................... 0.18%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the investment adviser. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.30%.
(2) Other Expenses are estimated to be 0.15% absent the anticipated voluntary
waiver by the administrator. The administrator may terminate this voluntary
waiver at any time at its sole discretion.
(3) Total Fund Operating Expenses are estimated to be 0.45% absent the
anticipated voluntary waivers described above in notes 1 and 2.
* Since the Fund does not have an operating history, the percentages indicated
as Annual Fund Operating Expenses are based on the Fund's projected fees and
estimated expenses for the fiscal year ending November 30, 1994. The table
should not be considered a representation of past or future expenses. Actual
expenses may be greater or less than those shown in this table.
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................................................................................ $2 $6
</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. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING NOVEMBER
30, 1994.
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. The shares in any one portfolio
may be offered in separate classes. As of the date of this prospectus, the Board
of Trustees (the "Trustees") has established one class of shares of Biltmore
Prime Cash Management Fund (the "Fund"), Institutional Shares. This prospectus
relates only to Institutional Shares of the Fund.
Institutional Shares are offered only for purchase through the bank subsidiaries
of Wachovia Corporation: Wachovia Bank of North Carolina, N.A., the Wachovia
Bank of Georgia, N.A., The South Carolina National Bank, and their affiliates
(collectively, the "Wachovia Banks"). Institutional Shares are offered only to
accounts held by the Wachovia Banks in a fiduciary, agency, custodial, or
similar capacity. The Fund offers a convenient means of accumulating an interest
in a professionally managed, diversified portfolio limited to money market
instruments maturing in 397 days or less. A minimum initial investment of $5
million is required.
The Fund attempts to stabilize the value of a share at $1.00. Institutional
Shares are currently sold and redeemed at that price.
The other portfolios in the Trust are Biltmore Balanced Fund, Biltmore Equity
Fund, Biltmore Equity Index Fund, Biltmore Fixed Income Fund, Biltmore Money
Market Fund (Institutional and Investment Shares), Biltmore Quantitative Equity
Fund, Biltmore Short-Term Fixed Income Fund, Biltmore Special Values Fund,
Biltmore Tax-Free Money Market Fund (Institutional and Investment Shares), and
Biltmore U.S. Treasury Money Market Fund (Institutional and Investment Shares).
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income consistent
with stability of principal and liquidity. The investment objective cannot be
changed without approval of shareholders. 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.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of money
market instruments maturing in 397 days or less. The average maturity of money
market instruments in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days or less.
Unless indicated otherwise, the investment policies may be changed by the
Trustees without the approval of shareholders. Shareholders will be notified
before any material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are rated in the highest short-term rating categories by one
or more nationally recognized statistical rating organizations ("NRSROs") or
are of comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
obligations issued or guaranteed as to payment of principal and interest
by the U.S. government, its agencies and instrumentalities;
commercial paper (including U.S. dollar denominated Eurodollar commercial
paper ("Europaper") );
certificates of deposit, demand and time deposits, and bankers'
acceptances ("Bank Instruments");
corporate debt obligations, including bonds, notes, and debentures; and
repurchase agreements.
The Fund invests only in instruments denominated and payable in U.S. dollars.
For further discussion of the instruments described above and rating categories,
consult the Fund's Combined Statement of Additional Information.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
corporate debt instruments that have variable or floating interest rates
and provide the Fund with the right to tender the security for repurchase
at its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on an
interest rate index or published interest rate. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest rate
adjustment or the date on which the Fund may next tender the security for
repurchase.
BANK INSTRUMENTS. The Fund only invests in U.S. and foreign bank
instruments either issued by an institution having capital, surplus and
undivided profits over $100 million or insured by the Bank Insurance Fund
("BIF") which is administered by the FDIC. Bank instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The Fund will treat
securities credit enhanced with a bank's irrevocable letter of credit or
unconditional guaranty as bank instruments.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation 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. The Fund may also enter into, or acquire participations
in, short-term revolving credit facilities with corporate borrowers. Demand
notes and other short-term credit arrangements usually provide for floating
or variable rates of interest.
RATINGS. An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1+ or A-1 by
Standard & Poor's Corporation ("S&P"), Prime-1 by Moody's Investors Service,
Inc. ("Moody's"), or F-1 (+ or -) by Fitch Investors Service, Inc. ("Fitch")
are all considered rated in the highest short-term rating category. The Fund
will follow applicable regulations in determining whether a security rated by
more than one NRSRO can be treated as being in the highest short-term rating
category; currently, such securities must be rated by two NRSROs in their
highest rating category. See "Regulatory Compliance."
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. The Fund or its
custodian will 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.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. Generally, the Fund
will not treat credit enhanced securities as having been issued by the credit
enhancer for diversification purposes. However, under certain circumstances
applicable regulations may require the Fund to treat the securities as having
been issued by both the issuer and the credit enhancer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
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.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which
are subject to restrictions on resale under federal securities 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, and repurchase agreements providing for
settlement in more than seven days after notice, to 10% 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 limitation 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase short-term
U.S. government obligations 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3%
of the total outstanding voting stock of any investment company, invest more
than 5% of its total assets in any one investment company, or invest more than
10% of its total assets in investment companies in general. The Fund will only
invest in other investment companies that are money market funds having
investment objectives and policies similar to its own and primarily for the
purpose of investing short-term cash which has not yet been invested in other
portfolio instruments. The Fund's investment adviser will waive its advisory fee
on assets invested in securities of open-end investment companies.
CONCENTRATION OF INVESTMENTS. The Fund may invest more than 25% of the value of
its total assets in cash or certain money market instruments (including
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),
securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, or instruments secured by these money market instruments,
such as repurchase agreements.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income,
the Fund may lend its portfolio securities on a short-term basis to
broker/dealers, banks, or other institutional borrowers of securities. The Fund
will limit the amount of portfolio securities it may lend to not more than
one-third of its total assets. The Fund will only enter into loan arrangements
with broker/dealers, banks, or other institutions which the investment adviser
has determined are creditworthy under guidelines established by the Trustees,
where loaned securities are marked to market daily and where the Fund receives
collateral equal to at least 100% of the value of the securities loaned.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, and Europaper are subject to somewhat different risks
than domestic obligations of domestic issuers. Examples of these risks include
international economic and political developments, foreign governmental
restrictions that may adversely affect the payment of principal or interest,
foreign withholding or other taxes on interest income, difficulties in obtaining
or enforcing a judgment against the issuing bank, and the possible impact of
interruptions in the flow of international currency transactions. Different
risks may also exist for ECDs, ETDs, and Yankee CDs because the banks issuing
these instruments, or their domestic or foreign branches, are not necessarily
subject to the same regulatory requirements that apply to domestic banks, such
as reserve requirements, loan limitations, examinations, accounting, auditing,
and recordkeeping, and the public availability of information. These factors
will be carefully considered by the Fund's adviser in selecting investments for
the Fund.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) except, under certain circumstances, the Fund may borrow up to one-
third of the value of its total assets; 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 U.S. government securities).
The above investment limitations cannot be changed without shareholder approval.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and the Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. The Fund will invest more
than 5% of its assets in any one issuer only under the circumstances permitted
by Rule 2a-7. The Fund will also determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
THE BILTMORE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Board of Trustees is 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,
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 0.30 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. is a national banking association,
which offers a broad range of financial services, including commercial and
consumer loans, corporate, institutional, and personal trust services,
demand and time deposit accounts, letters of credit and international
financial services.
Wachovia Investment Management Group 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. together with its affiliates, Wachovia Bank of Georgia, N.A.
and The South Carolina National Bank 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.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is 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.
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 and the separate classes. 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 transfer agent, dividend disbursing agent, and
portfolio accounting services:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<C> <S>
.145 of 1% of the first $400 million
.120 of 1% of the next $300 million
.095 of 1% of the next $300 million
.070 of 1% in excess of $1 billion
</TABLE>
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 for the securities and cash of the Fund. Under the
Custodian Agreement, Wachovia Bank of North Carolina, N.A. holds the Fund's
portfolio securities in safekeeping and keeps all necessary records and
documents relating to its duties. For the services provided to the Trust
pursuant to the Custodian Agreement, the Trust pays Wachovia Bank of North
Carolina, N.A. an annual fee calculated based upon the average daily net assets
of the 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, Pittsburgh, PA, a subsidiary of Federated
Investors, is 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 disinterested Trustees.
INDEPENDENT AUDITORS. The independent auditors are Ernst & Young, Pittsburgh,
Pennsylvania.
EXPENSES OF THE FUND AND INSTITUTIONAL SHARES
Holders of Institutional Shares pay their allocable portion of Fund and Trust
expenses. The Trust expenses for which holders of Institutional Shares pay their
allocable share include, but are not limited to: the cost of organizing the
Trust and continuing its existence; registering the Trust; Trustees' fees;
auditors' fees; the cost of meetings of Trustees; legal fees of the Trust;
association membership dues and such non-recurring and extraordinary items as
may arise.
The Fund's expenses for which holders of shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund
under state and federal law; investment advisory services, taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such non-
recurring and extraordinary items as may arise.
The Fund's expenses for which holders of Institutional Shares pay their
allocable portion would be limited to: transfer agent fees as identified by the
transfer agent as attributable to holders of Institutional Shares; printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and
registration fees paid to states; expenses related to administrative personnel
and services as required to support holders of Institutional Shares; legal fees
relating solely to Institutional Shares; and Trustees' fees incurred as a result
of issues relating solely to Institutional Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Institutional Shares at
$1.00 by valuing the portfolio securities using the amortized cost method. The
net asset value per share is determined by adding the interest of the
Institutional Shares in the value of all securities and other assets of the
Fund, subtracting the interest of the Institutional Shares in the liabilities of
the Fund and those attributable to Institutional Shares, and dividing the
remainder by the total number of Institutional Shares outstanding. The Fund, of
course, cannot guarantee that its net asset value will always remain at $1.00
per share.
INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Institutional Shares may be
purchased by or through the Wachovia Banks. Texas residents must purchase,
exchange, and redeem shares through Federated Securities Corp. at
1-800-618-8573. The Fund and the distributor reserve the right to reject any
purchase request.
THROUGH THE WACHOVIA BANKS. To place an order to purchase Institutional Shares
of the Fund, customers of the Wachovia Banks may telephone, send written
instructions, or place 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, 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, 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 communicated to the Wachovia Banks by 11:00 a.m. (Eastern time) and
payment by federal funds must be received by the Wachovia Banks before 4:00 p.m.
(Eastern time) on the same day as the order to earn dividends for that day.
Institutional Shares cannot be purchased on days 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.
VIA A SWEEP ACCOUNT. If you are investing in the Fund as part of a Wachovia
Bank sweep account program, automatic purchases and redemptions will be made by
the Wachovia Banks on your behalf pursuant to the sweep agreement you signed as
part of your trust account with the Wachovia Banks.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $5 million. This amount may be
waived from time to time.
WHAT SHARES COST
Institutional Shares are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Fund.
The net asset value is determined at 12:00 noon and 4:00 p.m. (Eastern time),
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.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued.
Federated Services Company provides the Wachovia Banks, as shareholders of
record, with detailed statements on a monthly basis that include account
balances, information on each purchase or redemption, and a report of dividends
paid during the month. These statements will serve as confirmations of all
transactions in the shareholders' account for the statement period.
Investors purchasing through the Wachovia Banks will receive account statements
from those institutions periodically as required by the relevant account
agreement.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested on
payment dates in additional Institutional Shares of the Fund unless cash
payments are requested by writing to the Wachovia Banks.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If for some extraordinary reason the
Fund realizes net long-term capital gains, it will distribute them at least once
every 12 months.
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder may exchange Institutional Shares of one fund for Institutional
Shares of any other fund that does not assess a sales charge on the basis of
their respective net asset values by calling or writing to his account officer
at the Wachovia Banks. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. Institutional Shares
purchased by check are eligible for exchange after the purchase check has
cleared, which could take up to ten calendar days. The exchange feature applies
to Institutional Shares of each fund that does not assess a sales charge as of
the effective offering date of each fund's Institutional Shares.
Orders to exchange Institutional Shares of one fund for Institutional Shares of
any of the other Biltmore Funds that do not assess a sales charge will be
executed by redeeming the Institutional Shares owned at net asset value next
determined after receipt of the order and purchasing Institutional Shares of any
such other Biltmore Funds at the net asset value determined after the proceeds
from such redemption become available. Orders for exchanges received by the Fund
after 12:00 noon but prior to 4:00 p.m. (Eastern time) on any day the Trust is
open for business will be executed at the price determined at 4:00 p.m. (Eastern
time) that day. Orders for exchanges received after 4:00 p.m. (Eastern time) on
any business day will be executed at the price determined at 12:00 noon (Eastern
time) on the next business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege of any shareholder, provided the
shareholder is given 60 days' written notice.
An exchange order must comply with the requirements for a redemption and
purchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial investment requirement
imposed by the relevant account agreement. An exchange constitutes a sale for
federal income tax purposes.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Before the exchange, a shareholder
should review a prospectus of the fund for which the exchange is being made.
REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the
Wachovia Banks receive the redemption request. Redemptions will be made on days
on which the Fund computes its net asset value. Requests for redemption can be
made in person, by telephone, or by writing to your 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 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. For calls received by the
Wachovia Banks before 11:00 a.m. (Eastern time) proceeds will normally be wired
the same day to the shareholder's account at the Wachovia Banks or a check will
be sent to the address of record. Those shares will not be entitled to the
dividend declared that day. For calls received by the Wachovia Banks after 11:00
a.m. (Eastern time) proceeds will normally be wired or a check mailed the
following business day. Those shares will be entitled to the dividend declared
on the day the redemption request was received. In no event will proceeds be
wired or a check mailed more than seven days after a proper request for
redemption has been received.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.
An authorization permitting the Wachovia Banks to accept telephone requests is
included as part of your account agreement. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Institutional Share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All shares of
all classes of each fund in the Trust have equal voting rights, except that in
matters affecting only a particular fund or class, only shares of that fund or
class are entitled to vote. As of January 7, 1994, Wachovia Brokerage Services,
Winston-Salem, North Carolina, acting in various capacities for numerous
accounts, was the owner of record of approximately 178,109,218 Institutional
Shares (100%) 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.
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.
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 the 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 customer. 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 advisory and custody agreements
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.
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 will 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 will be subject to federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional 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 yield and effective yield for
Institutional Shares.
The yield of Institutional Shares represents the annualized rate of income
earned on an investment in Institutional Shares over a seven-day period. It is
the annualized dividends earned during the period on the investment shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield but, when annualized, the income earned by an investment in Institutional
Shares is assumed to be reinvested daily. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Shares after reinvesting all distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Biltmore Prime Cash Management Fund
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Wachovia Investment Management Group 301 North Main Street
Winston-Salem, N.C. 27150
- ---------------------------------------------------------------------------------------------------------------------
Custodian
Wachovia Bank of North Carolina, N.A. Wachovia Trust Operations
301 North Main Street
Winston-Salem, N.C. 27150
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent, and
Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Kirkpatrick & Lockhart 1800 M Street, N.W.
Washington, D.C. 20036-5891
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Piper & Marbury 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
BILTMORE
Prime Cash
Management Fund
Institutional Shares
January 31, 1994
Wachovia Investment Management Group
Investment Adviser
301 North Main Street
Winston-Salem, NC 27150
FEDERATED SECURITIES CORP.
DISTRIBUTOR
2051406A-IS (1/94)
BILTMORE PRIME CASH MANAGEMENT FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus for Institutional Shares of Biltmore Prime Cash Management
Fund (the "Fund"), dated January 31, 1994. This Statement is not a
prospectus itself. To receive a copy of the prospectus, write to
Biltmore Prime Cash Management Fund or call your Wachovia Bank account
officer.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1994
FEDERATED SECURITIES CORP.
--------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
When-Issued and Delayed
Delivery Transactions 1
Reverse Repurchase Agreements 2
Investment Limitations 2
THE BILTMORE FUNDS MANAGEMENT 4
- ---------------------------------------------------------------
Officers and Trustees 4
Fund Ownership 5
Trustee Liability 5
INVESTMENT ADVISORY SERVICES 5
- ---------------------------------------------------------------
Adviser to the Fund 5
Advisory Fees 5
ADMINISTRATIVE SERVICES 5
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 5
- ---------------------------------------------------------------
PURCHASING INSTITUTIONAL SHARES 6
- ---------------------------------------------------------------
Conversion to Federal Funds 6
EXCHANGING SECURITIES FOR FUND SHARES 6
- ---------------------------------------------------------------
DETERMINING NET ASSET VALUE 6
- ---------------------------------------------------------------
Use of the Amortized Cost Method 7
REDEEMING INSTITUTIONAL SHARES 7
- ---------------------------------------------------------------
Redemption in Kind 8
TAX STATUS 8
- ---------------------------------------------------------------
The Fund's Tax Status 8
Shareholders' Tax Status 8
TOTAL RETURN 8
- ---------------------------------------------------------------
YIELD 8
- ---------------------------------------------------------------
EFFECTIVE YIELD 9
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 9
- ---------------------------------------------------------------
APPENDIX 10
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in The Biltmore Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust dated
November 19, 1991.
Shares of the Fund are offered in one class, Institutional Shares. This
Statement of Additional Information relates to the Institutional Shares of the
Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income consistent with
stability of principal and liquidity. The investment objective cannot be changed
without approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests exclusively in money market instruments which mature in 397
days or less and which include, but are not limited to, high quality obligations
issued or backed by the U.S. government, its agencies or instrumentalities,
commercial paper, variable amount master demand notes, and bank instruments.
The instruments of banks whose deposits are insured by the Bank Insurance Fund
("BIF") which is administered by the Federal Deposit Insurance Corporation, such
as certificates of deposit, demand and time deposits, and bankers' acceptances,
are not necessarily guaranteed by that organization.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are
backed by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
Federal Farm Credit Banks;
Federal Home Loan Banks;
Federal National Mortgage Association;
Student Loan Marketing Association; and
Federal Home Loan Mortgage Corporation.
BANK INSTRUMENTS
In addition to domestic bank obligations such as certificates of deposit,
demand and time deposits, and bankers' acceptances, the Fund may invest
in:
Eurodollar Certificates of Deposit issued by foreign branches of U.S. or
foreign banks;
Eurodollar Time Deposits, which are U.S. dollar-denominated deposits in
foreign branches of U.S. or foreign banks; and
Yankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and
held in the United States.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. 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 payments for the
securities to be purchased are segregated at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of up to 20% of the total value of its assets.
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REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are 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 assets are marked to market daily and
are maintained until the transaction has been settled.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including the amount
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 or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing or holding money market instruments, including
repurchase agreements and variable amount demand master notes, permitted
by its investment objective, policies, and limitations or Declaration of
Trust.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in securities of issuers
whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase 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 U.S. government 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.")
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry. The Fund may invest 25% or more of the value of its
total assets in cash or certain money market instruments (including
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), securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
Except as noted, the above limitations cannot be changed without shareholder
approval. The Fund does not consider the issuance of separate classes of shares
to involve the issuance of "senior securities" within the meaning of the
investment limitation set forth above. The following investment limitations,
however, may be changed by the Board of Trustees (the "Trustees") without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for
clearance of transactions.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under federal securities law, except
for Section 4(2) commercial paper and other restricted securities
determined to be liquid under criteria established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
income time deposits with maturities over seven days, and restricted
securities which have not been determined to be liquid under criteria
established by the Trustees.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS 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 0.5 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of its total assets in any one investment
company, or invest more than 10% of its total assets in investment
companies in general. The Fund will limit its investments in the
securities of other investment companies to those of money market funds
having investment objectives and policies similar to its own. The Fund
will purchase securities of closed-end investment companies only in open
market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, reorganization or acquisition of
assets. While it is the Fund's investment adviser's policy to waive its
investment advisory fee on assets invested in securities of open-end
investment companies, it should be noted that investment companies incur
certain expenses, such as custodian and transfer agent fees, and
therefore any investment by the Fund in shares of another investment
company would be subject to such duplicate expenses.
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 will not purchase any securities while borrowings in excess of 5% of
the value of its total assets are outstanding.
The Fund does not expect to borrow money in excess of 5% of the value of its net
assets or invest in securities of closed-end investment companies during the
coming fiscal year.
THE BILTMORE FUNDS MANAGEMENT
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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
NAME AND ADDRESS THE TRUST PRINCIPAL OCCUPATIONS 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 & Co., 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; Vice President and
and Assistant Assistant Treasurer of certain investment companies for which Federated
Treasurer Securities Corp. is the principal distributor; formerly Associate
Corporate Counsel, Federated Investors.
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 January 7, 1994, the following shareholder of record owned 5% or more of
the outstanding Institutional Shares of the Fund: Wachovia Brokerage Services,
Winston-Salem, North Carolina, owned approximately 178,109,218 Institutional
Shares (100%).
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
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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.
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, which is a subsidiary of Federated Investors,
provides administrative personnel and services to the Funds for the fees set
forth in the prospectus.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. The
Adviser determines 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 might otherwise have paid,
it would tend to reduce its expenses. The Fund has no obligation to deal with
any broker or group of brokers in the execution of portfolio 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.
PURCHASING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Institutional Shares of the Fund are sold at their net asset value without a
sales charge on days Wachovia Bank of North Carolina, N.A., the New York Stock
Exchange and the Federal Reserve Wire System are open for business. The
procedure for purchasing Institutional Shares is explained in the prospectus
under "Investing in Institutional Shares."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. The Wachovia Banks (as defined
in the prospectus) act as the shareholder's agent in depositing checks and
converting them to federal funds.
EXCHANGING SECURITIES FOR FUND SHARES
- --------------------------------------------------------------------------------
The Fund has no present intention of accepting securities in exchange for Fund
shares. However, if the Fund should allow such exchanges, it will do so only
upon the prior approval of the Fund and only upon a determination by the Fund
and its 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 requirement of 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.
TAX CONSEQUENCES
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.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value. The
Fund's use of the amortized cost method of valuing portfolio instruments depends
on its compliance with certain conditions in Rule 2a-7 (the "Rule") promulgated
by the Securities and Exchange Commission under the Investment Company Act of
1940, as amended (the "1940 Act"). Under the Rule, the Trustees must establish
procedures reasonably designed to stabilize the net asset value per share, as
computed for purposes of distribution and redemption, at $1.00 per share, taking
into account current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding 397 days on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
The Fund acquires instruments subject to demand features and standby commitments
to enhance the instrument's liquidity. The Fund treats demand features and
standby commitments as a part of the underlying instruments because the Fund
does not acquire them for speculative purposes and cannot transfer them
separately from the underlying instruments. Therefore, although the Rule defines
demand features and standby commitments as "puts," the Fund does not consider
them to be separate investments for the purposes of its investment policies.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
that, if rated, meet minimum rating standards set forth in the Rule. If
the instruments are not rated, the Trustees must determine that they are
of comparable quality. The Rule also requires the Fund to maintain a
dollar-weighted average portfolio maturity (not more than 90 days)
appropriate to the objective of maintaining a stable net asset value of
$1.00 per share. In addition, no instrument with a remaining maturity of
more than 397 days can be purchased by the Fund. Should the disposition
of a portfolio security result in a dollar-weighted average portfolio
maturity of more than 90 days, the Fund will invest its available cash to
reduce the average maturity to 90 days or less as soon as possible.
Shares of investment companies purchased by the Fund will meet these same
criteria and will have investment policies consistent with the Rule.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio. In periods of
declining interest rates, the indicated daily yield on shares of the Fund
computed by dividing the annualized daily income on the Fund's portfolio by the
net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the indicated daily yield on
shares of the Fund computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market prices and
estimates.
REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Institutional Shares are redeemed at the next computed net asset value after the
Fund receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Institutional Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem Institutional Shares in cash, it reserves
the right under certain circumstances to pay the redemption price in whole or in
part by a distribution of securities from the Fund's portfolio. To the extent
available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares for any one shareholder in cash only up to
the lesser of $250,000 or 1% of the respective Fund's net asset value during any
90-day period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that payments should be in kind. In such a case, the Fund
will pay all or a portion of the remainder of the redemption in portfolio
instruments, valued in the same way as the Fund determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable.
Redemption in kind is not as liquid as cash redemption. If redemption is made in
kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and any short-term
capital gains received as cash or additional shares. No portion of any income
dividend paid by the Fund is eligible for the dividends received deduction
available to corporations. These dividends and any short-term capital gains are
taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If,
for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
compounded by multiplying the number of Institutional Shares owned at the end of
the period by the net asset value per Institutional Share at the end of the
period. The number of Institutional Shares owned at the end of the period is
based on the number of Institutional Shares purchased at the beginning of the
period with $1,000, adjusted over the period by any additional Institutional
Shares, assuming the monthly reinvestment of all dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The Fund calculates the yield for Institutional Shares daily, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
determining the net change in the value of a hypothetical account with a balance
of one Institutional Share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
Institutional Shares purchased with dividends earned from the original one
Institutional Share and all dividends declared on the original and any purchased
Institutional Shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by 365/7.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in
Institutional Shares, the performance will be reduced for those shareholders
paying those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield for Institutional Shares is computed by compounding
the unannualized base period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of Institutional Shares depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in the expenses of the Fund or of Institutional Shares; and
the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute net asset value. The financial
publications and/or indices which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "money market
instruments funds" category in advertising and sales literature.
BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading bank
and thrift institution money market deposit accounts. The rates published in
the index are averages of the personal account rates offered on the Wednesday
prior to the date of publication by ten of the largest banks and thrifts in
each of the five largest Standard Metropolitan Statistical Areas. Account
minimums range upward from $2,500 in each institution and compounding methods
vary. If more than one rate is offered, the lowest rate is used. Rates are
subject to change at any time specified by the institution.
IBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of
money market funds on a weekly basis and, through its Money Market Insight
publication, reports monthly and 12-month-to-date investment results for the
same money funds.
MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day compound (effective) yield.
From time to time, the Fund will quote its Money ranking in advertising and
sales literature.
Advertisements and other sales literature for Institutional Shares may quote
total returns which are calculated on standardized base periods. These total
returns also represent the historic change in the value of an investment in
Institutional Shares based on the monthly reinvestment of dividends over a
specified period of time.
APPENDIX
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STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
P-1--Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior
ability for repayment of senior short-term debt obligations. P-1 repayment
ability will often be evidenced by many of the following characteristics:
Leading market positions in well-established industries.
High rates of return of funds employed.
Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
Broad margins in earnings coverage of fixed financial charges and high internal
cash generation.
Well-established access to a range of financial markets and assured sources of
alternate liquidity.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
IBCA SHORT-TERM RATING DEFINITIONS
A1+--Obligations supported by the highest capacity for timely repayment.
A1--Obligations supported by a very strong capacity for timely repayment.
DUFF & PHELPS, INC. COMMERCIAL PAPER RATING DEFINITIONS
DUFF 1+--Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
DUFF 1--Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
DUFF 1S--High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
2051406B-IS (1/94)
BILTMORE U.S. TREASURY MONEY MARKET FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Biltmore U.S. Treasury Money Market Fund (the
"Fund") offered by this prospectus represent interests in a diversified
portfolio of securities which is one of a series of investment portfolios in The
Biltmore Funds (the "Trust"), an open-end, management investment company (a
mutual fund).
AN INVESTMENT IN THE FUND IS NEITHER GUARANTEED NOR INSURED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
The investment objective of the Fund is to provide current income consistent
with stability of principal and liquidity. The Fund seeks to achieve its
objective by investing in a portfolio of short-term U.S. Treasury obligations
with an average maturity of 90 days or less.
THE SHARES OFFERED BY THIS PROSPECTUS 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.
This prospectus contains the information you should read and know before you
invest in Institutional Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Shares and Investment Shares, dated January 31, 1994, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge, purchase Institutional Shares, or obtain other
information about the Fund by writing to the Fund or calling your Wachovia Bank
(as defined herein) account officer.
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--INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Repurchase Agreements 4
Investing in Securities of
Other Investment Companies 4
When-Issued and Delayed Delivery
Transactions 4
Lending of Portfolio Securities 4
Investment Limitation 4
Regulatory Compliance 5
THE BILTMORE FUNDS INFORMATION 5
- ------------------------------------------------------
Management of the Trust 5
Board of Trustees 5
Investment Adviser 5
Advisory Fees 5
Adviser's Background 5
Distribution of Institutional Shares 6
Administration of the Fund 6
Administrative Services 6
Custodian 6
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 7
Legal Services 7
Independent Auditors 7
Expenses of the Fund
and Institutional Shares 7
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 8
- ------------------------------------------------------
Share Purchases 8
Through the Wachovia Banks 8
Via a Sweep Account 8
Minimum Investment Required 8
What Shares Cost 8
Certificates and Confirmations 9
Dividends 9
Capital Gains 9
EXCHANGES 9
- ------------------------------------------------------
REDEEMING INSTITUTIONAL SHARES 10
- ------------------------------------------------------
By Telephone 10
SHAREHOLDER INFORMATION 10
- ------------------------------------------------------
Voting Rights 10
Massachusetts Business Trusts 11
EFFECT OF BANKING LAWS 11
- ------------------------------------------------------
TAX INFORMATION 12
- ------------------------------------------------------
PERFORMANCE INFORMATION 12
- ------------------------------------------------------
OTHER CLASSES OF SHARES 13
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 14
- ------------------------------------------------------
FINANCIAL STATEMENTS 15
- ------------------------------------------------------
REPORT OF ERNST & YOUNG,
INDEPENDENT AUDITORS 23
- ------------------------------------------------------
ADDRESSES 24
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................ None
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 INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)...................................................................... 0.00%
12b-1 Fees............................................................................................. None
Other Expenses (after waiver & reimbursement) (2)...................................................... 0.37%
Total Institutional Shares Operating Expenses (after waiver & reimbursement) (3).............. 0.37%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The investment adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.
(2) Other Expenses are estimated to be 0.41% absent the voluntary waiver by the
administrator and the voluntary reimbursement by the investment adviser. The
administrator and adviser may terminate the voluntary waiver and
reimbursement, respectively, at any time at their sole discretion.
(3) The Annual Institutional Shares Operating Expenses were 0.28% for the fiscal
year ended November 30, 1993. The Annual Institutional Shares Operating
Expenses in the table above reflect a reduction in voluntary waivers of the
administrative fee and custodian fee for the fiscal year ended November 30,
1994. The Annual Institutional Shares Operating Expenses are expected to be
0.91% absent the voluntary waivers and reimbursement described above in
notes 1 & 2.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES 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 5 years 10 years
<S> <C> <C> <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. The
Fund charges no redemption fees for Institutional Shares................. $4 $12 $21 $47
</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.
The information set forth in the foregoing table and example relates only to
Institutional Shares of the Fund. The Fund also offers another class of Shares
called Investment Shares. Investment Shares are subject to certain of the same
expenses with the addition of a maximum 12b-1 fee of 0.40% of the Investment
Shares' average net assets. See "Other Classes of Shares."
BILTMORE U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
23.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S> <C> <C>
1993 1992*
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------
Net investment income 0.03 0.02
- -----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.02)
- ----------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN** 2.91% 1.90%
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses 0.28% 0.17%(a)
- -----------------------------------------------------------------------------------------
Net investment income 2.87% 3.24%(a)
- -----------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.63% 0.71%(a)
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $65,353 $55,408
- -----------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 7, 1992 (the date of initial
public investment) to November 30, 1992. During the period from February 19,
1992 (start of business) to May 7, 1992, net investment income aggregating
$0.00806 per share ($806) was distributed to Federated Administrative
Services.
** Based on net asset value, which does not reflect the sales load or
redemption fee, if applicable.
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expenses and net investment
income ratios shown above (Note 5).
(See Notes, which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Biltmore Funds (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 separate series of shares of beneficial
interest representing interests in separate portfolios of securities. The shares
in any one portfolio may be offered in separate classes. As of the date of this
prospectus, the Board of Trustees (the "Trustees") has established two classes
of shares of Biltmore U.S. Treasury Money Market Fund (the "Fund"),
Institutional Shares and Investment Shares. This prospectus relates only to
Institutional Shares of the Fund.
Institutional Shares are offered only for purchase through the bank subsidiaries
of Wachovia Corporation: 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"). Institutional Shares are offered only to
accounts held by the Wachovia Banks in a fiduciary, agency, custodial, or
similar capacity. The Fund offers a convenient means of participating in a
professionally-managed, diversified portfolio limited to short-term U.S.
Treasury obligations. Investors should consult their account agreement with the
Wachovia Banks for any applicable minimum investment.
The Fund attempts to stabilize the value of a share at $1.00. Institutional
Shares are currently sold and redeemed at that price.
The other portfolios in the Trust are Biltmore Balanced Fund, Biltmore Equity
Fund, Biltmore Equity Index Fund, Biltmore Fixed Income Fund, Biltmore Money
Market Fund (Institutional and Investment Shares), Biltmore Prime Cash
Management Fund (Institutional Shares), Biltmore Quantitative Equity Fund,
Biltmore Short-Term Fixed Income Fund, Biltmore Special Values Fund, and
Biltmore Tax-Free Money Market Fund (Institutional and Investment Shares).
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income consistent
with stability of principal and liquidity. This investment objective cannot be
changed without approval of shareholders. 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.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
short-term U.S. Treasury obligations which are issued by the U.S. government,
and are fully guaranteed as to payment of principal and interest by the United
States. Unless indicated otherwise, the investment policies may be changed by
the Trustees without approval of shareholders. Shareholders will be notified
before any material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests only in U.S. Treasury obligations
maturing in 397 days or less. The average maturity of the U.S. Treasury
obligations in the Fund's portfolio, computed on a dollar-weighted basis, will
be 90 days or less.
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. The Fund or its
custodian will 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.
As a matter of investment practice, which can be changed without shareholder
approval, repurchase agreements providing for settlement in more than seven days
after notice, along with illiquid obligations, will be limited to not more than
10% of the Fund's net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3%
of the total outstanding voting stock of any investment company, invest more
than 5% of its total assets in any one investment company, or invest more than
10% of its total assets in investment companies in general. The Fund will only
invest in other investment companies that are money market funds having
investment objectives and policies similar to its own and primarily for the
purpose of investing short-term cash which has not yet been invested in other
portfolio instruments. The adviser to the Fund will waive its investment
advisory fee on assets invested in securities of open-end investment companies.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase short-term
U.S. Treasury obligations 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.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term basis to broker/dealers,
banks, or other institutional borrowers of securities. The Fund will only enter
into loan arrangements with broker/dealers, banks, or other institutions which
the adviser has determined are creditworthy under guidelines established by the
Trustees, and will receive collateral in the form of cash or U.S. Treasury
securities equal to at least 100% of the value of the securities loaned at all
times.
INVESTMENT LIMITATION
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a percentage
of its cash value with an agreement to buy it back on a set date) except, under
certain circumstances, the Fund may borrow in amounts up to one-third of the
value of its total assets. This investment limitation cannot be changed
without shareholder approval.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and the Combined Statement of Additional of Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. The Fund will
invest more than 5% of its assets in any one issuer only under the circumstances
permitted by Rule 2a-7. The Fund may change these operational policies to
reflect changes in the laws and regulations without the approval of its
shareholders.
THE BILTMORE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Board of Trustees is 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,
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 Board of 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 Fund's Adviser receives an annual investment advisory
fee equal to .50 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. is a national banking association,
which offers a broad range of financial services, including commercial and
consumer loans, corporate, institutional and personal trust services,
demand and time deposit accounts, letters of credit and international
financial services.
Wachovia Investment Management Group 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., together with its affiliates, Wachovia Bank of Georgia,
N.A. and The South Carolina National Bank, 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.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is 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.
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 and the separate classes. 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 transfer agent, dividend disbursing agent, and
portfolio accounting services:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<C> <S>
.145 of 1% on the first $400 million
.120 of 1% on the next $300 million
.095 of 1% on the next $300 million
.070 of 1% in excess of $1 billion
</TABLE>
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 for the securities and cash of the Fund. Under the
Custodian Agreement, Wachovia Bank of North Carolina, N.A. 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 Wachovia Bank of North
Carolina, N.A. 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, Pittsburgh, PA, a subsidiary of Federated
Investors, is 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 portfolio investments of the
Fund.
LEGAL SERVICES. Legal services for the Fund are provided by Kirkpatrick &
Lockhart, Washington, D.C. Piper & Marbury, Washington, D.C., serves as counsel
to the disinterested Trustees.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND AND INSTITUTIONAL SHARES
Holders of Institutional Shares pay their allocable portion of Fund and Trust
expenses. The Trust expenses for which holders of Institutional Shares pay their
allocable portion include, but are not limited to: the cost of organizing the
Trust and continuing its existence; registering the Trust; Trustees' fees;
auditors' fees; the cost of meetings of Trustees; legal fees of the Trust;
association membership dues; and such non-recurring and extraordinary items as
may arise.
Each Fund's expenses for which holders of shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund
under state and federal law; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise.
At present, no expenses are allocated to Institutional Shares as a class.
However, the Trustees reserve the right to allocate certain other expenses to
the shareholders of a particular class as they deem appropriate ("Class
Expenses"). In any case, Class Expenses would be limited to: transfer agent fees
as identified by the transfer agent as attributable to holders of Institutional
Shares; printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders; registration fees paid to the Securities and Exchange Commission
and registration fees paid to states; expenses related to administrative
personnel and services as required to support holders of Institutional Shares;
legal fees relating solely to Institutional Shares; and Trustees' fees incurred
as a result of issues relating solely to Institutional Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Institutional Shares at
$1.00 by valuing the portfolio securities using the amortized cost method. The
net asset value per share is determined by adding the interest of the shares in
the value of all securities and other assets of the Fund, subtracting the
interest of the Institutional Shares in liabilities of the Fund and those
attributable to Institutional Shares, and dividing the remainder by the total
number of Institutional Shares outstanding. The Fund, of course, cannot
guarantee that its net asset value will always remain at $1.00 per share.
INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Institutional Shares are sold on days on which the New York Stock Exchange and
the Federal Reserve Wire System are open for business. Institutional Shares may
be purchased by or through the Wachovia Banks. Texas residents must purchase,
exchange, and redeem shares through Federated Securities Corp. at
1-800-618-8573. The Fund and the distributor reserve the right to reject any
purchase request.
THROUGH THE WACHOVIA BANKS. To place an order to purchase Institutional Shares
of the Fund, customers of the Wachovia Banks may telephone, send written
instructions, or place 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, 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, 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 communicated to the Wachovia Banks by 11:00 a.m. (Eastern time) and
payment by federal funds must be received by the Wachovia Banks before 4:00 p.m.
(Eastern time) on the same day as the purchase order in order to earn dividends
for that day. Institutional Shares cannot be purchased on days 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.
VIA A SWEEP ACCOUNT. If you are investing in the Fund as part of a Wachovia
Bank sweep account program, automatic purchases and redemptions will be made by
the Wachovia Bank on your behalf pursuant to the sweep agreement you signed as
part of your trust account with the Wachovia Banks.
MINIMUM INVESTMENT REQUIRED
Investors should consult their account agreement with the Wachovia Banks for any
applicable minimum investment. Minimum investment requirements may vary under
different sweep agreements.
WHAT SHARES COST
Institutional Shares are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Fund.
The net asset value is determined at 12:00 noon and 4:00 p.m. (Eastern time),
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) on 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.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued.
Federated Services Company provides the Wachovia Banks, as shareholders of
record, with detailed statements on a monthly basis that include account
balances, information on each purchase or redemption, and a report of dividends
paid during the month. These statements will serve as confirmations of all
transactions in the shareholders' account for the statement period.
Investors purchasing through the Wachovia Banks will receive account statements
from those institutions periodically as required by the relevant account
agreement.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested on
payment dates in additional Institutional Shares of the Fund unless cash
payments are requested by writing to the Wachovia Banks.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If for some extraordinary reason the
Fund realizes net long-term capital gains, it will distribute them at least once
every 12 months.
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder may exchange Institutional Shares of one fund for Institutional
Shares of any other fund that does not assess a sales charge on the basis of
their respective net asset values by calling or writing to his account officer
at the Wachovia Banks. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. Institutional Shares
purchased by check are eligible for exchange after the purchase check has
cleared, which could take up to ten calendar days. The exchange feature applies
to Institutional Shares of each fund that does not assess a sales charge as of
the effective offering date of each fund's Institutional Shares.
Orders to exchange Institutional Shares of one fund for Institutional Shares of
any of the other Biltmore Funds that do not assess a sales charge will be
executed by redeeming the Institutional Shares owned at net asset value next
determined after receipt of the order and purchasing Institutional Shares of any
such other Biltmore Funds at the net asset value determined after the proceeds
from such redemption become available. Orders for exchanges received by the Fund
after 12:00 noon but prior to 4:00 p.m. (Eastern time) on any day the Trust is
open for business will be executed at the price determined at 4:00 p.m. (Eastern
time) that day. Orders for exchanges received after 4:00 p.m. (Eastern time) on
any business day will be executed at the price determined at 12:00 noon (Eastern
time) on the next business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege of any shareholder, provided the
shareholder is given 60 days' written notice.
An exchange order must comply with the requirements for a redemption and
purchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial investment requirement
imposed by the relevant account agreement. An exchange constitutes a sale for
federal income tax purposes.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Before the exchange, a shareholder
should review a prospectus of the fund for which the exchange is being made.
REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The Fund redeems Institutional Shares at their net asset value next determined
after the Wachovia Banks receive the redemption request. Redemptions will be
made on days on which the Fund computes its net asset value. Requests for
redemption can be made in person, by telephone, or by writing to your 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 the Wachovia Banks and whose
account agreement with the Wachovia Banks permits telephone redemption may
redeem Institutional Shares by telephoning his account officer. For calls
received by the Wachovia Banks before 11:00 a.m. (Eastern time) proceeds will
normally be wired the same day to the shareholder's account at the Wachovia
Banks or a check will be sent to the address of record. Those shares will not be
entitled to the dividend declared that day. For calls received by the Wachovia
Banks after 11:00 a.m. (Eastern time) proceeds will normally be wired or a check
mailed the following business day. Those shares will be entitled to the dividend
declared on the day the redemption request was received. In no event will
proceeds be paid or credited more than seven days after a proper request for
redemption has been received. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
such a case should occur, another method of redemption should be considered.
An authorization permitting the Wachovia Banks to accept telephone requests is
included as part of your account agreement. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Institutional Share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All shares of
all classes of each fund in the Trust have equal voting rights, except that, in
matters affecting only a particular fund or class, only shares of that fund or
class are entitled to vote. As of January 7, 1994, Wachovia Trust Services,
Winston-Salem, North Carolina, acting in various capacities for numerous
accounts, was the owner of record of approximately 61,242,754 Institutional
Shares (100%) 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.
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.
Trustees may be removed by the Trustees or shareholders at a special meeting. A
special meeting of 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 the 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 prohibits 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 customer. The
Fund's investment adviser 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 and custody
agreements 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.
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 will 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.
Dividends of the Funds representing net interest income on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
Unless otherwise exempt, shareholders will be subject to federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional 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 yield and effective yield for
Institutional Shares.
The yield of Institutional Shares represents the annualized rate of income
earned on an investment in Institutional Shares over a seven-day period. It is
the annualized dividends earned during the period on the investment shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield but, when annualized, the income earned by an investment in Institutional
Shares is assumed to be reinvested daily. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Shares after reinvesting all distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
OTHER CLASSES OF SHARES
Investment Shares are sold to customers of the Wachovia Banks who are not
eligible to purchase Institutional Shares and customers of Wachovia Securities,
Inc. Investment Shares are subject to a minimum initial investment of $1,000.
Investment Shares are sold at net asset value and are distributed pursuant to a
Rule 12b-1 Plan adopted by The Biltmore Funds whereby the distributor is paid a
maximum fee of 0.40 of 1% of the Investment Shares' average daily net assets.
Institutional Shares are distributed without a Rule 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares than from
another class of shares.
The amount of dividends payable to Institutional Shares will be greater than
those payable to Investment Shares by the difference between class expenses and
distribution expenses borne by shares of each respective class. The stated
advisory fee is the same for both classes of shares of the Fund.
BILTMORE U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young Independent Auditors, on page
23.
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1993*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.01
- -----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.01)
--------
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
--------
- -----------------------------------------------------------------------------------------------
TOTAL RETURN** 1.42%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses 0.65%(a)
- -----------------------------------------------------------------------------------------------
Net investment income 2.50%(a)
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.73%(a)
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $16,941
- -----------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 12, 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) Computed on an annualized basis.
(b) The expense decrease is reflected in both the expense and net investment
income ratios shown above (Note 5).
(See Notes, which are an integral part of the Financial Statements)
BILTMORE U.S. TREASURY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
- -------------- --------------------------------------------------------------------------------- --------------
U.S. GOVERNMENT OBLIGATIONS--43.2%
- -------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS
---------------------------------------------------------------------------------
$ 36,000,000 2/10/94-10/20/94 $ 35,573,602
--------------------------------------------------------------------------------- --------------
*REPURCHASE AGREEMENTS--57.0%
- -------------------------------------------------------------------------------------------------
3,000,000 Barclays De Zoete Wedd, Inc., 3.18%, dated 11/30/93, due 12/1/93 3,000,000
---------------------------------------------------------------------------------
3,000,000 Carroll McEntee & McGinley Inc, 3.20%, dated 11/30/93, due
12/1/93 3,000,000
---------------------------------------------------------------------------------
17,871,523 Daiwa Securities America, Inc., 3.22%, dated 11/30/93,
due 12/1/93 17,871,523
---------------------------------------------------------------------------------
3,000,000 Merrill Lynch, Pierce, Fenner & Smith Inc. 3.15%, dated 11/30/93, due 12/1/93 3,000,000
---------------------------------------------------------------------------------
3,000,000 Nomura Securities, International, Inc., 3.13%, dated 11/30/93, due 12/1/93 3,000,000
---------------------------------------------------------------------------------
17,000,000 PaineWebber, Inc., 3.23%, dated 11/30/93, due 12/1/93 17,000,000
--------------------------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 46,871,523
--------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 82,445,125\
--------------------------------------------------------------------------------- --------------
</TABLE>
\ Also represents cost for federal tax purposes.
* Repurchase agreements are fully collateralized by U.S. Treasury obligations.
Note: The categories of investments are shown as a percentage of net assets
($82,294,360) at November 30, 1993.
(See Notes, which are an integral part of the Financial Statements)
BILTMORE U.S. TREASURY MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments in repurchase agreements (Note 2B) $ 46,871,523
- ---------------------------------------------------------------------------------
Investments in securities 35,573,602
- --------------------------------------------------------------------------------- --------------
Total investments, at amortized cost and value (Note 2A and 2B) $ 82,445,125
- -------------------------------------------------------------------------------------------------
Interest receivable 4,178
- -------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 28,561
- ------------------------------------------------------------------------------------------------- --------------
Total assets 82,477,864
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Dividends payable 183,504
- --------------------------------------------------------------------------------- --------------
Total liabilities 183,504
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 82,294,360 shares of beneficial interest outstanding $ 82,294,360
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- -------------------------------------------------------------------------------------------------
Institutional Shares ($65,352,944 / 65,352,944 shares of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------- --------------
Investment Shares ($16,941,416 / 16,941,416 shares of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes, which are an integral part of the Financial Statements).
BILTMORE U.S. TREASURY MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 2,099,428
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 333,904
- --------------------------------------------------------------------------------------
Administrative personnel and services fee (Note 5) 88,313
- --------------------------------------------------------------------------------------
Recordkeeper fees (Note 5) 33,110
- --------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees (Note 5) 22,492
- --------------------------------------------------------------------------------------
Custodian fees (Note 5) 13,358
- --------------------------------------------------------------------------------------
Distribution fees (Note 5) 11,831
- --------------------------------------------------------------------------------------
Printing and postage 11,681
- --------------------------------------------------------------------------------------
Legal 9,862
- --------------------------------------------------------------------------------------
Registration fees 29,239
- --------------------------------------------------------------------------------------
Auditing fees 19,175
- --------------------------------------------------------------------------------------
Trustees' fees 10,902
- --------------------------------------------------------------------------------------
Insurance premiums 1,199
- --------------------------------------------------------------------------------------
Miscellaneous 34,072
- -------------------------------------------------------------------------------------- -----------
Total expenses 619,138
- --------------------------------------------------------------------------------------
Deduct--
- --------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 276,657
- -------------------------------------------------------------------------
Waiver of administrative personnel and service fees (Note 5) 71,133
- -------------------------------------------------------------------------
Waiver of custodian fees (Note 5) 13,358
- -------------------------------------------------------------------------
Waiver of distribution fees (Note 5) 2,966
- -------------------------------------------------------------------------
Reimbursement of other operating expenses by Administrator (Note 5) 55,602 419,716
- ------------------------------------------------------------------------- ----------- -----------
Net expenses 199,422
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 1,900,006
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes, which are an integral part of the Financial Statements).
BILTMORE U.S. TREASURY MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C>
1993 1992*
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 1,900,006 $ 926,987
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------
Institutional shares (1,826,489) (926,987)
- -----------------------------------------------------------------------------
Investment shares (73,517) --
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distribution to shareholders (1,900,006) (926,987)
- ----------------------------------------------------------------------------- ---------------- ----------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------------------------
Proceeds from sale of shares 288,944,990 211,639,475
- -----------------------------------------------------------------------------
Cost of shares redeemed (262,058,559) (156,231,546)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from fund share transactions 26,886,431 55,407,929
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets 26,886,431 55,407,929
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 55,407,929 --
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period $ 82,294,360 $ 55,407,929
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
*For the period from May 7, 1992 (date of initial public investment) to
November 30, 1992.
(See Notes, which are an integral part of the Financial Statements).
BILTMORE U.S. TREASURY MONEY MARKET 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 Biltmore U.S.
Treasury Money Market Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio of the Trust
are segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
Biltmore U.S. Treasury Money Market Fund offers two classes of shares
("Institutional Shares" and "Investment Shares"). Investment Shares are
identical in all respects to Institutional Shares, except that Investment Shares
are sold pursuant to a distribution plan (the "Plan") adopted in accordance with
Rule 12b-1 under the Investment Company Act of 1940, as amended. Under the Plan,
the Fund may pay Federated Securities Corp. a fee at an annual rate up to 0.40%
of 1% of the average aggregate daily net asset value of Investment Shares to
finance any activity which is principally intended to result in the sale of
Investment Shares.
(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--The Board of Trustees ("Trustees") has determined
that the best method currently available for valuing portfolio securities
is amortized cost. The Fund's use of the amortized cost method to value its
portfolio securities is conditioned on its compliance with Rule 2a-7 under
the Investment Company Act of 1940.
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. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest and discount earned (net of premium), including original
issue discount as required by the Internal Revenue Code (the "Code"), plus
net realized gains if any, on portfolio securities.
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
or excise 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 the
registration of its shares in its first 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
The Fund computes its net income daily and, immediately prior to the calculation
of its net asset value at the close of business, declares and records dividends
to shareholders of record at the time of the previous computation of the Fund's
net asset value. Payment of dividends is made monthly in cash or in additional
shares at the net asset value on the payable date.
(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) for each
class of shares. At November 30, 1993, capital paid-in for the U.S. Treasury
Money Market Fund aggregated $82,294,360. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C>
1993 1992*
INSTITUTIONAL SHARES
Shares outstanding, beginning of period 55,407,929 --
- ----------------------------------------------------------------------
Shares sold 268,967,543 211,639,475
- ----------------------------------------------------------------------
Shares redeemed (259,022,528) (156,231,546)
- ---------------------------------------------------------------------- ---------------- ------------
Shares outstanding, end of period 65,352,944 55,407,929
- ---------------------------------------------------------------------- ---------------- ------------
<CAPTION>
YEAR ENDED
NOVEMBER 30, 1993**
INVESTMENT SHARES
Shares outstanding, beginning of period --
- ----------------------------------------------------------------------
Shares sold 19,977,447
- ----------------------------------------------------------------------
Shares redeemed (3,036,031)
- ---------------------------------------------------------------------- ----------------
Shares outstanding, end of period 16,941,416
- ---------------------------------------------------------------------- ----------------
</TABLE>
* For the period from February 19, 1992 (start of business) to November 30,
1992.
** For the period from May 12, 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 .50 of 1%
of the Fund's average aggregate daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee or reimburse certain operating expenses of
the Funds in excess of limitations imposed by certain states. The Adviser can
modify or terminate the voluntary waiver or reimbursement at any time at its
sole discretion. For the year ended November 30, 1993, the Adviser earned an
investment advisory fee of $333,904, of which $276,657 was voluntarily waived.
Federated Administrative Services ("FAS") provides the Fund with administrative
personnel and services, and receives an annual administrative fee equal to .145
of 1% on the first $400 million of average aggregate daily net assets of the
Trust; .120 of 1% of the next $300 million; .095 of 1% of the next $300
million; and .070 of 1% of average aggregate daily net assets in excess of $1
billion. FAS may voluntarily waive a portion of its fee or reimburse certain
operating expenses of the Fund. For the year ended November 30, 1993, FAS
earned an administrative fee from the Fund of $88,313, of which $71,133 was
voluntarily waived. In addition, FAS reimbursed $55,602 of other operating
expenses. FAS can modify or terminate the voluntary reimbursement at any time
at its sole discretion.
Organization expenses of the Fund ($33,032) were borne initially by FAS. The
Fund has agreed to reimburse FAS for the organization expenses initially borne
by FAS during the five year period following the date the Fund's registration
statement first became effective. During the year ended November 30, 1993, the
Fund paid $6,506 pursuant to this agreement.
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 Trust , .015 of 1% of average aggregate daily net assets from $250
million to $500 million; and .01 of 1% of 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 year ended November 30, 1993, the Custodian earned $13,358,
all of which was voluntarily waived.
Federated Services Company ("FSC") is transfer agent for the shares of the Fund
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 fees. For the year ended November 30,
1993, FSC earned transfer and dividend disbursing agent fees and recordkeeper
fees of $22,492 and $33,110, respectively.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. The Trust will compensate
Federated Securities Corp., the principal distributor, from the assets of the
Fund to finance any activity which is principally intended to result in the sale
of Investment Shares. The Plan provides that the Fund may incur distribution
expenses up to 0.40 of 1% of the average daily net assets of the Investment
Shares, annually, to compensate Federated Securities Corp. During the fiscal
year ended November 30, 1993, Federated Securities Corp. earned fees of $11,831
of which $2,966 was voluntarily waived.
Certain Officers of the Trust are Officers and Directors of Federated Securities
Corp. FAS and FSC.
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 U.S. Treasury Money Market Fund (one
of the portfolios comprising The Biltmore Funds) as of November 30, 1993, and
the related statement of operations for the year then ended and the statement of
changes in net assets for the year then ended and from February 19, 1992 (start
of business) to November 30, 1992 and financial highlights (see pages 2 and 14
of this prospectus) for the periods presented therein. 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 audits.
We conducted our audits 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 audits provide 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 U.S. Treasury Money Market Fund of The Biltmore Funds at November 30,
1993, and the results of its operations for the year then ended, changes in its
net assets for the year then ended and for the period from February 19, 1992 to
November 30, 1992, and financial highlights for each of the periods presented
therein, in conformity with generally accepted accounting principles.
ERNST
& YOUNG
Pittsburgh, Pennsylvania
January 14, 1994
THIS PAGE INTENTIONALLY LEFT BLANK
THIS PAGE INTENTIONALLY LEFT BLANK
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Biltmore U.S. Treasury Money Market Fund
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Wachovia Investment Management Group 301 North Main Street
Winston-Salem, N.C. 27150
- ---------------------------------------------------------------------------------------------------------------------
Custodian
Wachovia Bank of North Carolina, N.A. Wachovia Trust Operations
301 North Main Street
Winston-Salem, N.C. 27150
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Kirkpatrick & Lockhart 1800 M Street, N.W.
Washington, D.C. 20036-5891
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Piper & Marbury 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
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2020205A-IS (1/94)
BILTMORE U.S. TREASURY MONEY MARKET FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
INVESTMENT SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectus for the Institutional Shares and Investment
Shares of Biltmore U.S. Treasury Money Market Fund (the "Fund"), dated
January 31, 1994. This Combined Statement is not a prospectus itself.
To receive a copy of either prospectus, write to Biltmore U.S.
Treasury Money Market Fund or call your Wachovia Bank account officer.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1994
FEDERATED SECURITIES CORP.
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Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
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GENERAL INFORMATION ABOUT THE FUND 1
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INVESTMENT OBJECTIVE AND POLICIES 1
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Types of Investments 1
When-Issued and Delayed Delivery
Transactions 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
Investment Limitations 1
THE BILTMORE FUNDS MANAGEMENT 3
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Officers and Trustees 3
Fund Ownership 4
Trustee Liability 4
INVESTMENT ADVISORY SERVICES 4
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Adviser to the Fund 4
Advisory Fees 4
ADMINISTRATIVE SERVICES 5
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BROKERAGE TRANSACTIONS 5
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PURCHASING SHARES 5
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Distribution Plan (Investment Shares Only) 5
Conversion to Federal Funds 6
EXCHANGING SECURITIES FOR FUND SHARES 6
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DETERMINING NET ASSET VALUE 6
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Use of the Amortized Cost Method 6
REDEEMING SHARES 7
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Redemption in Kind 7
TAX STATUS 8
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The Fund's Tax Status 8
Shareholders' Tax Status 8
YIELD 8
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EFFECTIVE YIELD 8
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PERFORMANCE COMPARISONS 9
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GENERAL INFORMATION ABOUT THE FUND
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The Fund is a portfolio in The Biltmore Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust dated
November 19, 1991.
Shares of the Fund are offered in two classes, Institutional Shares and
Investment Shares (individually and collectively referred to as "Shares" as the
context may require). This Combined Statement of Additional Information relates
to both classes of the above-mentioned Shares.
INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide current income consistent with
stability of principal and liquidity. The investment objective cannot be changed
without approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests only in short-term U.S. Treasury obligations which mature in
397 days or less.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. 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, assets of the Fund sufficient to make payment for the 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
more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject to
repurchase agreements, and these securities are 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 Trust's Board of
Trustees (the "Trustees").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are 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 assets are marked to market daily and
are maintained until the transaction has been settled.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of its total assets including the amount
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 or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.
INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing or holding U.S. government securities, including
repurchase agreements, permitted by its investment objective and
policies.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase 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 U.S. Treasury 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.")
Except as noted, the above limitations cannot be changed without shareholder
approval. The Fund does not consider the issuance of separate classes of shares
to involve the issuance of "senior securities within the meaning of the
investment limitation set forth above. The following limitations may be changed
without shareholder approval. Shareholders will be notified before any material
change in those limitations becomes effective.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of its total assets in any one investment
company, or invest more than 10% of its total assets in investment
companies in general. The Fund will limit its investments in the
securities of other investment companies to those of money market funds
having investment objectives and policies similar to its own. The Fund
will purchase securities of closed-end investment companies only in open
market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, reorganization or acquisition of
assets. While it is the Fund's investment adviser's policy to waive its
investment advisory fee on assets invested in securities of open-end
investment companies, it should be noted that investment companies incur
certain expenses such as custodian and transfer agent fees, and therefore
any investment by the Fund in shares of another investment company would
be subject to such duplicate expenses.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice.
INVESTING IN MINERALS
The Fund will not purchase oil, gas, or other mineral exploration or
development programs or leases.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE FUND
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 0.5 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund will not purchase any securities while borrowings in excess of 5% of
the value of its total assets are outstanding.
The Fund does not expect to borrow money, pledge securities, or invest in
reverse repurchase agreements in excess of 5% of the value of its net assets, or
invest in securities of closed-end investment companies, during the coming
fiscal year.
THE BILTMORE FUNDS MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees of the Trust are listed with their addresses, 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, and Federated
Administrative Services.
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<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS 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 & Co., 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; Vice President and
and Assistant Assistant Treasurer of certain investment companies for which Federated
Treasurer Securities Corp. is the principal distributor; formerly Associate
Corporate Counsel Federated Investors.
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 January 7, 1994, the following shareholder of record owned 5% or more of
the outstanding Institutional Shares of the Fund: Wachovia Trust Services,
Winston-Salem, North Carolina, owned approximately 61,242,753 Institutional
Shares (100%).
As of January 7, 1994, the following shareholders of record owned 5% or more of
the outstanding Investment Shares of the Fund: The South Carolina National Bank,
Winston-Salem, North Carolina, owned approximately 998,112 Investment Shares
(6%); and Wachovia Brokerage Services, Winston-Salem, North Carolina, owned
approximately 16,150,263 Investment Shares (94%).
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
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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 prospectuses.
For the fiscal year ended November 30, 1993, and for the period from February
19, 1992 (start of business) to November 30, 1992, the Adviser earned $333,904
and $142,878, respectively of which $276,657 and $142,878, respectively, were
voluntarily waived. In addition, the Fund's adviser reimbursed $9,693 of other
operating expenses for the period from February 19, 1992 (start of business) to
November 30, 1992.
STATE EXPENSE LIMITATION
The Adviser has undertaken to comply with the expense limitation
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.
ADMINISTRATIVE SERVICES
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Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectuses.
For the fiscal year ended November 30, 1993, and for the period from February
19, 1992 (start of business) to November 30, 1992, Federated Administrative
Services earned $88,313 and $25,104, respectively, of which $71,133 and $25,104,
respectively, were voluntarily waived. In addition, for the fiscal year ended
November 30, 1993 and for the period from February 19, 1992 (start of business)
to November 30, 1992, Federated Administrative Services reimbursed $55,602 and
$16,331, respectively, of other operating expenses.
BROKERAGE TRANSACTIONS
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When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. The
Adviser determines in good faith that commissions charged by such persons are
reasonable in relation 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 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.
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.
PURCHASING SHARES
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Shares are sold at their net asset value without a sales charge on days Wachovia
Banks of North Carolina, N.A., the New York Stock Exchange and the Federal
Reserve Wire System are open for business. The procedure for purchasing Shares
is explained in the respective prospectus under "Investing in Institutional
Shares" and "Investing in Investment Shares."
DISTRIBUTION PLAN (INVESTMENT SHARES ONLY)
With respect to the Investment Shares class of the Fund, the Trust has adopted a
plan (the "Plan") pursuant to Rule 12b-1 which was promulgated by the Securities
and Exchange Commission pursuant to the Investment Company Act of 1940, as
amended (the "1940 Act"). The Plan provides for payment of fees to Federated
Securities Corp. to finance any activity which is principally intended to result
in the sale of the Fund's Investment Shares subject to the Plan. Such activities
may include the advertising and marketing of Investment Shares; preparing,
printing, and distributing prospectuses and sales literature to prospective
shareholders,
brokers, or administrators; and implementing and operating the Plan. Pursuant to
the Plan, Federated Securities Corp. may pay fees to brokers for distribution
and administrative services and to administrators for administrative services as
to Investment Shares. The administrative services are provided by a
representative who has knowledge of the shareholder's particular circumstances
and goals, and include, but are not limited to: communicating account openings;
communicating account closings; entering purchase transactions; entering
redemption transactions; providing or arranging to provide accounting support
for all transactions, wiring funds and receiving funds for Investment Share
purchases and redemptions, confirming and reconciling all transactions,
reviewing the activity in Fund accounts and providing training and supervision
of broker personnel; posting and reinvesting dividends to Fund accounts or
arranging for this service to be performed by the Fund's transfer agent; and
maintaining and distributing current copies of prospectuses and shareholder
reports to the beneficial owners of Investment Shares and prospective
shareholders.
The Trustees expect that the adoption of the Plan will result in the sale of
sufficient number of Investment Shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
For the fiscal year ended November 30, 1993, brokers and administrators
(financial institutions) received fees in the amount of $11,831, of which $2,966
was voluntarily waived pursuant to the Plan.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. The Wachovia Banks (as defined
in the prospectus) act as the shareholder's agent in depositing checks and
converting them to federal funds.
EXCHANGING SECURITIES FOR FUND SHARES
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The Fund has no present intention of accepting securities in exchange for
Shares. However, if the Fund should allow such exchanges, it will do so only
upon the prior approval of the Fund and only upon a determination by the Fund
and its investment 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 requirement of 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 Shares on the day the securities are valued. One Share 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.
TAX CONSEQUENCES
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.
DETERMINING NET ASSET VALUE
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The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the respective
prospectus of Institutional Shares and Investment Shares.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under the amortized cost method,
portfolio instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with the provisions of Rule 2a-7 (the
"Rule") promulgated by the Securities and Exchange Commission under the 1940
Act. Under the Rule, the Trustees must establish procedures reasonably designed
to stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding 397 days on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
The Fund acquires instruments subject to demand features and standby commitments
to enhance the instrument's liquidity. The Fund treats demand features and
standby commitments as a part of the underlying instruments, because the Fund
does not acquire them for speculative purposes and cannot transfer them
separately from the underlying instruments. Therefore, although the Rule defines
demand features and standby commitments as "puts," the Fund does not consider
them to be separate investments for the purposes of its investment policies.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks. The
Rule also requires the Fund to maintain a dollar-weighted average
portfolio maturity (not more than 90 days) appropriate to the objective
of maintaining a stable net asset value of $1.00 per share. In addition,
no instruments with a remaining maturity of more than 397 days can be
purchased by the Fund. Should the disposition of a portfolio security
result in a dollar-weighted average portfolio maturity of more than 90
days, the Fund will invest its available cash to reduce the average
maturity to 90 days or less as soon as possible. Shares of investment
companies purchased by the Fund will meet these same criteria and will
have investment policies consistent with the Rule.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio. In periods of
declining interest rates, the indicated daily yield on shares of the Fund
computed by dividing the annualized daily income on the Fund's portfolio by the
net asset value computed as above, may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the indicated daily yield on
shares of the Fund computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market prices and
estimates.
REDEEMING SHARES
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The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectus under "Redeeming Institutional Shares" and "Redeeming
Investment Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem Shares for any one shareholder in cash only up to
the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day
period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that payments should be in kind. In such a case, the Fund
will pay all or a portion of the remainder of the redemption in portfolio
instruments, valued in the same way as the Fund determines net asset
value. The portfolio instruments will be selected in a manner that the Trustees
deem fair and equitable.
Redemption in kind is not as liquid as cash redemption. If redemption is made in
kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction cost.
TAX STATUS
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THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and any short-term
capital gains received as cash or additional Shares. No portion of any income
dividend paid by the Fund is eligible for the dividends received deduction
available to corporations. These dividends and any short-term capital gains are
taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If for
some extraordinary reason the Fund realizes net long-term capital gains,
it will distribute them at least once every 12 months.
YIELD
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The Fund's yield for the seven-day period ended November 30, 1993 was 2.81% for
Institutional Shares. The yield for Investment Shares was 2.51% for the same
period.
The Fund calculates its yield for both classes of Shares daily, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
determining the net change in the value of a hypothetical account with a
balance
of one share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of Shares, the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD
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The Fund's effective yield for the seven-day period ended November 30, 1993 was
2.85% for Institutional Shares. The effective yield for Investment Shares was
2.54% for the same period.
The Fund's effective yield for both classes of Shares is computed by compounding
the unannualized base period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
PERFORMANCE COMPARISONS
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The performance of both classes of Shares depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in the expenses of the Fund of either class of Shares; and
the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute net asset value. The financial
publications and/or indices which the Fund uses in advertising may include:
SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most representative
yields for selected securities, issued by the U.S. Treasury, maturing in 30
days.
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in the offering price over a specific period of time.
From time to time, the Fund will quote its Lipper ranking in the "short-term
U.S. Treasury funds" category in advertising and sales literature.
SHEARSON LEHMAN TREASURY BOND INDEX comprised entirely of U.S. Treasury
obligations. Flower bonds and foreign issues are excluded.
MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day compound (effective) yield.
From time to time, the Fund will quote its Money ranking in advertising and
sales literature.
BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
reporting
service which publishes weekly average rates of 50 leading bank and thrift
institution money market deposit accounts. The rates published in the index are
averages of the personal account rates offered on the Wednesday prior to the
date of publication by ten of the largest banks and thrifts in each of the five
largest Standard Metropolitan Statistical Areas. Account minimums range upward
from $2,500 in each institution and compounding methods vary. If more than one
rate is offered, the lowest rate is used. Rates are subject to change at any
time specified by the institution.
IBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of
money market funds on a weekly basis and, through its Money Market Insight
publication, reports monthly and 12-month-to-date investment results for the
same money funds.
Advertisements and other sales literature for either class of Shares may quote
total returns, which are calculated on standardized base periods. Those total
returns also represent the historic change in the value of an investment in
either class of Shares based on the monthly reinvestment of dividends over a
specified period of time.
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