1933 Act File No. 33-44590
1940 Act File No. 811-6504
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 15 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 16 X
THE BILTMORE FUNDS
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on January 31, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on January 31, 1995; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Donald W. Smith, Esquire Alan C. Porter, Esquire
Kirkpatrick & Lockhart Piper & Marbury
1800 M. Street, N.W. 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-5891 Washington, D.C. 20036-2430
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of THE BILTMORE FUNDS
which is comprised of eleven portfolios: (1) Biltmore Balanced Fund,
(2) Biltmore Equity Fund, (3) Biltmore Equity Index Fund, (4) Biltmore
Fixed Income Fund, (5) Biltmore Special Values Fund, (6) Biltmore Short-
Term Fixed Income Fund, (7) Biltmore Money Market Fund (Institutional
and Investment Shares); (8) Biltmore Tax-Free Money Market Fund
(Institutional and Investment Shares); (9) Biltmore U.S. Treasury Money
Market Fund (Institutional and Investment Shares), (10) Biltmore Prime
Cash Management Fund (Institutional Shares), (11) Biltmore Quantitative
Equity Fund, and (12) Biltmore Emerging Markets Fund, relates to all of
the portfolios except Biltmore Emerging Markets Fund, and is comprised
of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page (1-12) Cover Page.
Item 2. Synopsis (1-12) Summary of Fund Expenses.
Item 3. Condensed Financial
Information (1-11) Financial Highlights.
Item 4. General Description of
Registrant (1-12) General Information;
Investment Objective; Investment
Policies; Investment Limitations; (7-
10) Regulatory Compliance; (1,2,4,5)
Investment Risks; (3,5) Investment
Considerations; Debt Considerations;
(1) Equity Investment
Considerations; (12) Risk
Characteristics of Foreign
Securities; Risk Characteristics of
Emerging Markets; Appendix; (11)
Portfolio Turnover.
Item 5. Management of the Fund (1-12) The Biltmore Funds
Information; Management of The
Trust; Distribution of
(Institutional/Investment) Shares;
(7-9, Investment Shares only)
Distribution Plan; (1-4,6,11,12) and
(7-10, Investment Shares only)
Administrative Arrangements; (1-4,
6,11,12) Shareholder Servicing
Arrangements; (1-12) Administration
of the Fund; Legal Services;
Independent Auditors; Expenses of
the Fund (and Institutional/
Investment Shares); (1-6,11,12)
Brokerage Transactions.
Item 6. Capital Stock and Other
Securities (1-12) Dividends; Capital Gains;
Shareholder Information;
Voting Rights; Massachusetts
Partnership Law; Tax Information;
(8) State and Local Taxes; (1-12)
Effect of Banking Laws; (7,8,9)
Other Classes of Shares.
Item 7. Purchase of Securities Being
Offered (1-12) Net Asset Value; Investing in
(the Fund/Institutional/Investment)
Shares; Share Purchases; (1-6,11)
Through Wachovia Brokerage Service;
By Mail; By Wire; (12) Through
Authorized Broker-Dealers; Through
Wachovia Securities, Inc.;
(1-6,11,12) Through the Trust
Divisions of The Wachovia Banks;
(7-10) Through The Wachovia Banks;
(7-10) Via a Sweep Account; (1-12)
Minimum Investment Required; What
Shares Cost; (1-6,11,12) Sales
Charge Reallowance, Reducing the
Sales Charge, Quantity Discounts and
Accumulated Purchases, Letter of
Intent, Reinvestment Privilege,
Concurrent Purchases, Systematic
Investment Program; (1-6,11)
Exchanging Securities for Fund
Shares; Exchange Privilege; (1-11)
Certificates and Confirmations; (12)
Subaccounting Services; (7-10)
Exchanges.
Item 8. Redemption or Repurchase (1-12) Redeeming
(Institutional/Investment) Shares;
By Telephone; (1-6,11) and (7-10,
Investment Shares Only) Through
Wachovia Brokerage Service; By Mail;
(7-10, Investment Shares Only)
Through the Wachovia Banks; Through
Service Organizations; (1-6, 11,12
and 7-10, Investment Shares Only)
Accounts With Low Balances; (7-10,
(7-10) Redemption In Kind; (1-
4,6,12) Systematic Withdrawal
Program.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page (1-12) Cover Page.
Item 11. Table of Contents (1-12) Table of Contents.
Item 12. General Information and
History (1-12) General Information About the
Fund.
Item 13. Investment Objectives and
Policies (1-12) Investment Objective and
Policies; Investment Limitations;
(8) Investment Risks.
Item 14. Management of the Fund (1-12) The Biltmore Funds
Management.
Item 15. Control Persons and Principal
Holders of Securities Not Applicable.
Item 16. Investment Advisory and Other
Services (1-12) Investment Advisory Services;
Administrative Services; (1-6,11)
Administrative Arrangements.
Item 17. Brokerage Allocation (1-12) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not Applicable
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered (1-12) Purchasing (Fund/
Institutional/Investment) Shares;
Determining Net Asset Value;
Redeeming (Institutional/Investment)
Shares; (1-6,11,12) Redemption in
Kind; Determining Market Value of
Securities.
Item 20. Tax Status (1-12) Tax Status.
Item 21. Underwriters (7,8,10, Investment Shares only)
Distribution Plan.
Item 22. Calculation of Performance
Data (1-10) Effective Yield; (1-12)
Yield; (8) Tax-Equivalent Yield, (1-
6,11,12) Total Return; (1-12)
Performance Comparisons; (4,6)
Duration; (11) Standard & Poor's
Corporation.
Item 23. Financial Statements (1-11) Filed in Part A; (12) to be
filed by amendment.
COMBINED PROSPECTUS
JANUARY 31, 1995
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.
BILTMORE MONEY MARKET FUND
BILTMORE TAX-FREE MONEY MARKET FUND
BILTMORE U.S. TREASURY MONEY MARKET FUND
(PORTFOLIOS OF THE BILTMORE FUNDS)
INVESTMENT SHARES
Each Fund has also filed a Combined Statement of Additional Information for
Investment Shares and Institutional Shares, dated January 31, 1995, 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, obtain other information, or make
inquiries about the Funds, by calling 1-800-994-4414 or writing to The Biltmore
Service Center, 101 Greystone Boulevard, SC-9215, Columbia, South Carolina
29226, or contacting 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.
================================================================================
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 7
Acceptable Investments 7
U.S. Government Obligations 8
Variable Rate Demand Notes 8
Bank Instruments 8
Short-Term Credit Facilities 8
Ratings 8
Restricted and Illiquid Securities 8
Investment Risks 9
Tax-Free Fund 9
Investment Objective 9
Investment Policies 9
Acceptable Investments 9
Municipal Securities 10
Variable Rate Demand Notes 10
Participation Interests 10
Municipal Leases 10
Ratings 10
Restricted and Illiquid Securities 11
Temporary Investments 11
Investment Risks 11
U.S. Treasury Fund 11
Investment Objective 11
Investment Policies 11
Acceptable Investments 12
All Funds 12
Investing in Securities of Other
Investment Companies 12
Repurchase Agreements 12
When-Issued and Delayed Delivery
Transactions 12
Money Market and Tax-Free Funds 12
Concentration of Investments 12
Demand Features 12
Credit Enhancement 13
Money Market and U.S. Treasury Funds 13
Lending of Portfolio Securities 13
Money Market Fund 13
Investment Limitations 13
Tax-Free Fund 13
Investment Limitations 13
U.S. Treasury Fund 14
Investment Limitation 14
Regulatory Compliance (All Funds) 14
- ---------------------------------------------------
THE BILTMORE FUNDS INFORMATION 14
Management of the Trust 14
Board of Trustees 14
Investment Adviser 14
Advisory Fees 14
Adviser's Background 14
Distribution of Investment Shares 15
Distribution Plan 15
Administrative Arrangements 15
Administration of the Funds 16
Administrative Services 16
Custodian 16
Transfer Agent, Dividend Disbursing
Agent and Portfolio Accounting
Services 16
Legal Services 16
Independent Auditors 16
Expenses of the Funds and Investment
Shares 16
- ---------------------------------------------------
NET ASSET VALUE 17
- ---------------------------------------------------
INVESTING IN INVESTMENT SHARES 17
Share Purchases 17
Through Wachovia Investments, Inc. 17
By Mail 17
By Wire 17
Through the Wachovia Banks or
Other Service Organizations 17
Minimum Investment Required 18
What Shares Cost 18
Certificates and Confirmations 18
Dividends 19
Capital Gains 19
- ---------------------------------------------------
EXCHANGES 19
================================================================================
================================================================================
TABLE OF CONTENTS (CONT'D)
- ---------------------------------------------------
REDEEMING INVESTMENT SHARES 19
Through Wachovia Investments, Inc. 19
By Telephone 20
By Mail 20
Through the Wachovia Banks 20
By Telephone 20
Via Sweep Agreement 20
Through Service Organizations 21
By Telephone 21
Accounts with Low Balances 21
- ---------------------------------------------------
SHAREHOLDER INFORMATION 21
Voting Rights 21
Massachusetts Business Trusts 21
- ---------------------------------------------------
EFFECT OF BANKING LAWS 22
- ---------------------------------------------------
TAX INFORMATION 22
Money Market and U.S. Treasury Funds 22
Tax-Free Fund 23
State and Local Taxes 23
- ---------------------------------------------------
PERFORMANCE INFORMATION 23
- ---------------------------------------------------
OTHER CLASSES OF SHARES 24
- ---------------------------------------------------
BILTMORE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 25
- ---------------------------------------------------
BILTMORE TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 26
- ---------------------------------------------------
BILTMORE U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 27
- ---------------------------------------------------
FINANCIAL STATEMENTS--BILTMORE MONEY MARKET FUND 28
- ---------------------------------------------------
BILTMORE TAX-FREE MONEY MARKET FUND 33
- ---------------------------------------------------
BILTMORE U.S. TREASURY MONEY MARKET FUND 42
- ---------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 49
- ---------------------------------------------------
ADDRESSES BACK COVER
================================================================================
BILTMORE MONEY MARKET FUND
SUMMARY OF FUND EXPENSES
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <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
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.16%
12b-1 Fees (after waiver) (2) 0.30%
Other Expenses (after waiver & assumption) (3) 0.22%
Total Investment Shares Operating Expenses (after waivers & assumption) (4) 0.68%
</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 incur
12b-1 payments of 0.30% of average daily net assets.
(3) Other Expenses would have been 0.28% absent the voluntary waiver and the
voluntary assumption by the administrator. The administrator may terminate
the voluntary waiver and voluntary assumption at any time at its sole
discretion.
(4) The Annual Investment Shares Operating Expenses would have been 1.18%,
absent the voluntary waivers and assumption 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. $7 $22 $38 $85
</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
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <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
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.05%
12b-1 Fees (after waiver) (2) 0.30%
Other Expenses 0.27%
Total Investment Shares Operating Expenses (after waivers) (3) 0.62%
</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 incur
12b-1 payments of 0.30% of average daily net assets.
(3) The Annual Investment Shares Operating Expenses were 0.68% for the fiscal
year ended November 30, 1994. The Annual Investment Shares Operating
Expenses in the table above reflect an anticipated reduction in the
voluntary waiver of the administrative fee for the fiscal year ending
November 30, 1995. The Annual Investment Shares Operating Expenses are
expected to be 1.17% 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 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. As shown in the table above, the Fund charges
no redemption fees for Investment Shares. $6 $20 $35 $77
</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
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <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
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.05%
12b-1 Fees (after waiver) (2) 0.30%
Other Expenses 0.27%
Total Investment Shares Operating Expenses (after waivers) (3) 0.62%
</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 incur
12b-1 payments of 0.30% of average daily net assets.
(3) The Annual Investment Shares Operating Expenses were 0.66% for the fiscal
year ended November 30, 1994. The Annual Investment Shares Operating
Expenses in the table above reflect an anticipated reduction in the
voluntary waivers of the administrative fee for the fiscal year ending
November 30, 1995. The Annual Investment Shares Operating Expenses are
expected to be 1.17%, absent the voluntary waiver 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 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 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 $35 $77
</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 LLP, Independent Auditors, on
page 49.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993 1992*
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.03 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 $ 1.00
--------- --------- ---------
Total Return** 3.46% 2.74% 1.48%
Ratios to Average Net Assets
Expenses 0.68% 0.55% 0.48%(a)
Net investment income 3.44% 2.70% 3.44%(a)
Expense waiver/reimbursement (b) 0.50% 0.66% 0.75%(a)
Supplemental Data
Net assets, end of period (000 omitted) $ 56,105 $ 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
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
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 LLP, Independent Auditors, on
page 49.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993 1992*
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.02 0.02 0.01
Less distributions
Dividends to shareholders from net investment income (0.02) (0.02) (0.01)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
--------- --------- ---------
Total Return** 2.11% 1.99% 1.29%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.68% 0.59% 0.50%(a)
Net investment income 2.11% 1.98% 2.37%(a)
Expense waiver/reimbursement (b) 0.55% 0.70% 0.88%(a)
Supplemental Data
Net assets, end of period (000 omitted) $42,820 $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
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE U.S. TREASURY MONEY MARKET FUND FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 49.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993*
<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** 3.39% 1.42%
Ratios to Average Net Assets
Expenses 0.66% 0.65%(a)
Net investment income 3.42% 2.50%(a)
Expense waiver/reimbursement (b) 0.61% 0.73%(a)
Supplemental Data
Net assets, end of period (000 omitted) $46,396 $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 contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) The voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
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 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
Investments, Inc., through Wachovia Bank of North Carolina, N.A., Wachovia Bank
of Georgia, N.A., Wachovia Bank of South Carolina, N.A. (formerly known as 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 Emerging
Markets 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, 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: Farm Credit System, including
the National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks; Federal Home
Loan Mortgage Corporation; Federal National Mortgage Association; Government
National Mortgage Association; and Student Loan Marketing Association.
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 Ratings Group ("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" in 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, 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" in 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-1+,
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" in 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.
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.
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 the Funds purchase securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Funds to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Funds may pay more or less than the market value of the
securities on the settlement date.
The Funds may dispose of a commitment prior to settlement if the Funds'
investment adviser deems it appropriate to do so. In addition, the Funds may
enter into transactions to sell purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Funds may realize short-term profits or losses
upon the sale of such commitments.
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. There is the risk that when lending portfolio securities, the securities
may not be available to the Funds on a timely basis and the Funds may,
therefore, lose the opportunity to sell the securities at a desirable price. In
addition, in the event that a borrower of securities would file for bankruptcy
or become insolvent, disposition of the securities may be delayed pending court
action.
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 any 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 LIMITATION
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.
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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.
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., together with its affiliates, Wachovia Bank of
Georgia, N.A. and Wachovia Bank of South Carolina, N.A., have been managing
trust assets for
over 100 years, with approximately $17.3 billion in managed assets as of
September 30, 1994. Wachovia Investment Management Group has served as
investment adviser for The Biltmore Funds since March 9, 1992. Wachovia Bank of
North Carolina, N.A., also serves as investment adviser to the Biltmore North
Carolina Municipal Bond Fund, a portfolio of The Biltmore Municipal Funds,
another investment company. As part of their regular banking operations, the
Wachovia Banks may make loans to public companies. Thus, it may be possible,
from time to time, for the Funds to hold or acquire the securities of issuers
which are also lending clients of the Wachovia Banks. The lending relationship
will not be a factor in the selection of securities.
DISTRIBUTION OF INVESTMENT SHARES
Federated Securities Corp. is the distributor (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, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Funds with the
administrative personnel and services necessary to operate the Funds. Such
services include the preparation of filings with the Securities and Exchange
Commission and other regulatory authorities, assistance with respect to meetings
of the Trustees, shareholder servicing and accounting services, and other
administrative services. Federated Administrative Services provides these at an
annual rate, computed and payable daily, as specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds
Administrative Fee and The Biltmore Municipal Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year for the Funds and each of
the other portfolios of The Biltmore Funds shall aggregate at least $75,000.
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 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 based upon the average daily net assets of the
Funds and which is payable monthly. The Custodian will also charge transaction
fees and out-of-pocket expenses.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Pittsburgh, Pennsylvania, 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' portfolios 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 independent Trustees.
INDEPENDENT AUDITORS. The independent auditors are Ernst & Young LLP,
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.
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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.
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INVESTING IN INVESTMENT SHARES
SHARE PURCHASES
Investment Shares are sold on days on which the Wachovia Banks, the New York
Stock Exchange and the Federal Reserve Wire System are open for business.
Investment Shares may be purchased through Wachovia Investments, Inc., 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 INVESTMENTS, INC. Customers of Wachovia Investments, Inc. or
Wachovia Brokerage Service may place an order to purchase Investment Shares by
telephoning The Biltmore Service Center at 1-800-994-4414, sending written
instructions, or placing an order in person. Payment may be made by check, by
wire of federal funds (the customer's bank sends money to the Funds' bank
through the Federal Reserve Wire System) or by debiting a customer's account at
Wachovia Investments, Inc. Purchase orders for the Tax-Free Fund must be
communicated to Wachovia Investments, Inc. before 10:00 a.m. (Eastern time), and
purchase oders for the Money Market Fund and the U.S. Treasury Fund must be
communicated to Wachovia Investments, Inc. before 11:00 a.m. (Eastern time).
Payment by federal funds must be received by Wachovia Investments, Inc. before
4:00 p.m. (Eastern time) on the same day as the order to earn dividends that
day. Wachovia Investments, Inc., a wholly-owned subsidiary of Wachovia
Corporation, is a registered broker/dealer and member of the National
Association of Securities Dealers, Inc. Wachovia Brokerage Service is a business
unit of Wachovia Investments, Inc.
By Mail. To purchase Investment Shares of a Fund by mail, send a check made
payable to the appropriate Fund to The Biltmore Service Center, 101 Greystone
Boulevard, SC-9215, Columbia, South Carolina 29226. Orders by mail are
considered received after payment by check is converted by Wachovia Investments,
Inc. into federal funds. This is normally the next business day after Wachovia
Investments, Inc. receives the check.
By Wire. To purchase Investment Shares of a Fund by wire, wire funds as follows:
Wachovia Investments, 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 communicated by the times
specified above for the Funds, and the wire must be received by Wachovia
Investments, Inc. 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 the
Wachovia Banks, 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 10:00 a.m. (Eastern time), in the case of the Tax-Free Fund,
and by 11:00 a.m. (Eastern time), in the case of the Money Market and U.S.
Treasury Funds. 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 the
Wachovia Banks, 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 noon (Eastern time) 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 unless
requested in writing to the appropriate Fund.
Federated Services Company provides Wachovia Investments, Inc., 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 Investments, Inc., 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 Investments, Inc., 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.
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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, by
telephoning 1-800-
994-4414, or by writing to The Biltmore Service Center, 101 Greystone Boulevard,
SC-9215, Columbia, South Carolina 29226. 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 the net asset value next determined
after receipt of the order, and purchasing Investment Shares of such other Fund
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.
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REDEEMING INVESTMENT SHARES
THROUGH WACHOVIA INVESTMENTS,INC.
Investment Shares are redeemed at their net asset value next determined after
Wachovia Investments, Inc. 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 The Biltmore
Service Center, 101 Greystone Boulevard, SC-9215, Columbia, South Carolina
29226. Telephone or
written requests for redemption must be received in proper form by Wachovia
Investments, Inc. 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 Investments, Inc. may
redeem Investment Shares by telephoning The Biltmore Service Center at
1-800-994-4414. Shareholders wishing to redeem by telephone will be required to
complete a telephone redemption authorization form available through Wachovia
Investments, Inc. For calls received by Wachovia Investments, Inc. before 10:00
a.m. (Eastern time), for the Tax-Free Fund, and 11:00 a.m. (Eastern time), for
the Money Market Fund and U.S. Treasury Fund, proceeds will normally be credited
the same day to the shareholder's brokerage account at Wachovia Investments,
Inc. Those Investment Shares will not be entitled to the dividend declared that
day. For calls received by Wachovia Investments, Inc. after 10:00 a.m. (Eastern
time), in the case of the Tax-Free Money Market Fund, and 11:00 a.m. (Eastern
time) in the case of the Money Market Fund and the U.S. Treasury Fund, 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 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 Investments, Inc. may
redeem Investment Shares by sending a written request to The Biltmore Service
Center, 101 Greystone Boulevard, SC-9215, Columbia, South Carolina 29226. 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 Investments, Inc. (at
1-800-994-4414) 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 10:00 a.m. (Eastern time), for the Tax-Free Fund, and
11:00 a.m. (Eastern time), for the Money Market Fund and U.S. Treasury Fund,
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 10:00 a.m. (Eastern time), in the
case of the Tax-Free Fund, and 11:00 a.m. (Eastern time), in the case of the
Money Market Fund and the U.S. Treasury Fund, 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 10:00 a.m. (Eastern time), in the case
of the Tax-Free Fund, and 11:00 a.m. (Eastern time), in the case of the Money
Market Fund and U.S. Treasury Fund, will normally be paid the same day but will
not earn that day's dividend. Redemption requests received by a Service
Organization after 10:00 a.m. (Eastern time), in the case of the Tax-Free Fund,
and 11:00 a.m. (Eastern time), in the case of the Money Market Fund and U.S.
Treasury Fund, 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.
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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 6, 1995, the Wachovia Banks and their
various affiliates and subsidiaries, acting in various capacities for numerous
accounts, were the owner of record of in excess of 25% of the outstanding Shares
of the Funds, 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 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, 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 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 intend to 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 performance 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 LLP, Independent Auditors, on
page 49.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993 1992*
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.04 0.03 0.02
Less distributions
Dividends to shareholders from net investment income (0.04) (0.03) (0.02)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
--------- --------- ---------
Total Return** 3.77% 3.05% 1.71%
Ratios to Average Net Assets
Expenses 0.38% 0.25% 0.14%(a)
Net investment income 3.74% 3.00% 3.38%(a)
Expense waiver/reimbursement (b) 0.40% 0.56% 0.65%(a)
Supplemental Data
Net assets, end of period (000 omitted) $129,233 $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 contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
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 LLP, Independent Auditors, on
page 49.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993 1992*
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.02 0.02 0.01
Less distributions
Dividends to shareholders from net investment income (0.02) (0.02) (0.01)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
--------- --------- ---------
Total Return** 2.42% 2.30% 1.49%
Ratios to Average Net Assets
Expenses 0.38% 0.29% 0.16%(a)
Net investment income 2.41% 2.28% 2.71%(a)
Expense waiver/reimbursement (b) 0.45% 0.60% 0.78%(a)
Supplemental Data
Net assets, end of period (000 omitted) $93,867 $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 contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
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 LLP, Independent Auditors, on
page 49.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993 1992*
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.04 0.03 0.02
Less distributions
Dividends to shareholders from net investment income (0.04) (0.03) (0.02)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
--------- --------- ---------
Total Return** 3.70% 2.91% 1.90%
Ratios to Average Net Assets
Expenses 0.36% 0.28% 0.17%(a)
Net investment income 3.72% 2.87% 3.24%(a)
Expense waiver/reimbursement (b) 0.51% 0.63% 0.71%(a)
Supplemental Data
Net assets, end of period (000 omitted) $87,531 $65,353 $55,408
</TABLE>
* Reflects operations for the period from May 7, 1992 (date of initial public
investment) to
November 30, 1992.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE MONEY MARKET FUND PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Bankers' Acceptance--1.1%
$ 2,000,000 Mellon Bank, 4.88%, 12/22/94 $ 1,994,307
--------------
Certificates of Deposit--36.7%
5,000,000 ABN-AMRO Bank, 5.78%, 3/16/95 5,001,799
4,000,000 Bank of New York, 5.25%, 5/4/95 3,985,480
4,000,000 CIBC New York, 5.05%, 12/5/94 4,000,000
5,000,000 Commonwealth Bank of Australia, 4.98%, 12/30/94 5,000,344
5,000,000 Deutsche Bank, Yankee, 5.76%, 4/6/95 4,999,375
5,000,000 Credit Suisse, Yankee, 5.21%, 3/3/95 4,998,029
9,000,000 National Westminster Bank, 5.14%, 12/19/94 9,000,178
8,000,000 Rabobank, Yankee, 5.09%-5.97%, 2/1/95-2/28/95 7,998,537
9,000,000 Societe Generale Bank, 5.20%-5.55%, 1/31/95-2/28/95 8,997,515
9,000,000 Swiss Bank of New York, 5.50%, 1/13/95 9,000,000
5,000,000 Union Bank of Switzerland, Yankee, 6.02%, 5/15/95 5,000,445
--------------
Total Certificates of Deposit 67,981,702
--------------
*Commercial Paper--36.5%
FINANCE-AUTOMOTIVE--4.8%
9,000,000 Ford Motor Credit Corp., 5.57%, 1/9/95 8,945,693
--------------
FINANCE-MISCELLANEOUS--3.2%
6,000,000 TransAmerica Finance Corp., 5.97%, 2/17/95 5,922,390
--------------
FINANCE-OIL--7.5%
8,000,000 Chevron Oil Finance Co., 5.18%, 12/12/94 7,987,338
6,000,000 Texaco, Inc., 5.62%, 1/13/95 5,959,723
--------------
Total 13,947,061
--------------
FINANCE-RETAIL--12.9%
9,000,000 American General Finance Corp., 5.75%, 1/27/95 8,918,063
8,000,000 Associates Corp. of North America, 5.35%, 12/15/94 7,983,356
7,000,000 MCA Funding Corp., 5.07%-5.17%, 1/12/95-2/6/95 6,951,181
--------------
Total 23,852,600
--------------
FINANCE-TELECOMMUNICATIONS--4.3%
8,000,000 Bellsouth Capital Funding Corp., 5.00%-5.49%, 12/5/94-2/6/95 7,956,908
--------------
</TABLE>
================================================================================
BILTMORE MONEY MARKET FUND
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
*Commercial Paper--continued
FOOD & BEVERAGE--3.8%
$ 7,000,000 Sara Lee Corp., 4.70%, 12/2/94 $ 6,999,086
--------------
Total Commercial Paper 67,623,738
--------------
Time Deposits--12.9%
FINANCE-BANKING--12.9%
8,000,000 First Union Nassau Bank, 5.81%, 12/1/94 8,000,000
8,000,000 NBD Bank, Canada, 5.75%, 12/1/94 8,000,000
8,000,000 Toronto-Dominion Bank, 5.75%, 12/1/94 8,000,000
--------------
Total Time Deposits 24,000,000
--------------
**Variable Rate Notes--9.7%
FINANCE-BANKING--7.0%
5,000,000 Boatmens National Bank, St. Louis, 5.72%, 8/16/95 5,000,000
3,000,000 Northern Trust Co., 5.75%, 7/20/95 2,990,917
5,000,000 PNC Bank, Kentucky, 5.69%, 5/12/95 4,999,421
--------------
Total 12,990,338
--------------
FOOD & BEVERAGE--2.7%
5,000,000 Coca-Cola Co., 6.10%, 8/29/95 5,000,000
--------------
Total Variable Rate Notes 17,990,338
--------------
***Repurchase Agreement--7.9%
14,715,632 Goldman Sachs, 5.65%, dated 11/30/94, due 12/1/94 14,715,632
--------------
Total Investments, at amortized cost and value $ 194,305,717+
--------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
** Denotes variable rate securities which show current rate and next demand
date.
*** Repurchase agreement is fully collateralized by U.S. Treasury 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
($185,337,876) at November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE MONEY MARKET FUND STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments, at amortized cost and value $ 194,305,717
Interest receivable 837,025
Deferred expenses 14,467
--------------
Total assets 195,157,209
Liabilities:
Payable for investments purchased $ 9,016,713
Dividends payable 743,199
Accrued expenses 59,421
------------
Total liabilities 9,819,333
--------------
Net Assets for 185,337,876 shares of beneficial interest outstanding $ 185,337,876
--------------
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Institutional Shares ($129,232,911 / 129,232,911 shares of beneficial interest
outstanding) $1.00
--------------
Investment Shares ($56,104,965 / 56,104,965 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, 1994
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest income $ 7,076,136
Expenses:
Investment advisory fee $ 859,936
Trustees' fees 4,481
Administrative personnel and services fees 170,963
Custodian fees 34,397
Transfer and dividend disbursing agent fees and expenses 55,002
Fund share registration costs 52,444
Auditing fees 15,514
Legal fees 27,234
Printing and postage 23,938
Portfolio accounting fees 56,919
Insurance premiums 14,500
Distribution services fees 127,921
Miscellaneous 19,875
------------
Total expenses 1,463,124
Deduct--
Waiver of investment advisory fee $ 587,479
Waiver of administrative personnel and services fees 46,534
Waiver of distribution services fees 31,980
Reimbursement of other operating expenses by Administrator 52,852 718,845
---------- ------------
Net expenses 744,279
------------
Net investment income $ 6,331,857
------------
</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, 1994 1993
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 6,331,857 $ 4,207,488
--------------- ---------------
Distributions to Shareholders--
Dividends to shareholders from net investment income:
Institutional Shares (5,146,447) (4,068,438)
Investment Shares (1,185,410) (139,050)
--------------- ---------------
Change in net assets from distributions to shareholders (6,331,857) (4,207,488)
--------------- ---------------
Fund Share (Principal) Transactions--
Net proceeds from sales of shares 479,663,256 523,338,578
Cost of shares redeemed (481,257,539) (424,210,993)
--------------- ---------------
Change in net assets from Fund share transactions (1,594,283) 99,127,585
--------------- ---------------
Change in net assets (1,594,283) 99,127,585
Net Assets:
Beginning of period 186,932,159 87,804,574
--------------- ---------------
End of period $ 185,337,876 $ 186,932,159
--------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Short-Term Municipal Securities--96.3%
ALABAMA--6.0%
$ 3,210,000 Alabama, HFA, Weekly VRDNs Revenue Refunding Bonds (Series A &
D)/(SouthTrust Bank of Alabama LOC) A-1 $ 3,210,000
5,000,000 Birmingham, AL, Weekly VRDNs GO UT Refunding Bonds (Series
1992-A)/(First Alabama Bank LOC) SP-1+ 5,000,000
--------------
Total 8,210,000
--------------
ARKANSAS--3.1%
1,300,000 Arkansas Hospital Equipment Finance Authority, Weekly VRDNs
Revenue Bonds (Credit Suisse LOC) A-1+ 1,300,000
725,000 Fayetteville, AR Public Facility, Weekly VRDNs Revenue
Refunding Bonds (Charter Vista Hospital)/(Mitsubishi Bank Ltd.
LOC) VMIG1 725,000
2,200,000 University of Arkansas, Weekly VRDNs Revenue Bonds
(Law & Medical School Project)/(First Union LOC) A-1+ 2,200,000
--------------
Total 4,225,000
--------------
CALIFORNIA--0.7%
1,000,000 Orange County, CA, Monthly VRDNs Revenue Bonds
(Series B) RANs and TANs MIG1 1,000,000
--------------
CONNECTICUT--1.6%
2,200,000 Connecticut State Economic Recovery Notes, Weekly VRDNs GO UT
Refunding Bonds (Series B)/(Industrial Bank Japan SPA) VMIG1 2,200,000
--------------
FLORIDA--13.3%
1,800,000 Bay County, FL, Hospital System Revenue, Daily VRDNs (Bay
Medical Center Project)/(Citibank, NY LOC) MIG1 1,800,000
5,000,000 Broward County, FL, HFA, Weekly VRDNs Revenue Bonds (Welleby
Apt. Project)/(Security Pacific National Bank LOC) VMIG1 5,000,000
4,100,000 Collier County, FL, HFA, Weekly VRDNs Revenue Bonds (River
Beach Project)/(Morgan Guaranty LOC) VMIG1 4,100,000
900,000 Florida Escambia County Facility Authority, IDR, Monthly VRDNs
Revenue Refunding Bonds (Florida Convalescent Center
Project)/(Series A)/(Toronto Dominion LOC) P-1 900,000
1,500,000 Martin County, FL, School District, 4.35% TANs, 6/30/95 MIG1 1,503,761
2,000,000 Palm Beach County, FL, School District, 4.75%, 9/13/95 MIG1 2,012,053
</TABLE>
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Short-Term Municipal Securities--continued
FLORIDA--CONTINUED
$ 850,000 Polk County, FL, IDA, Monthly VRDNs Revenue Refunding Bonds
(Florida Convalescent Center Project)/(Toronto Dominion LOC) P-1 $ 850,000
2,000,000 St. Lucie County, FL, 3.20% (Florida Power & Light Project),
1/30/95 VMIG1 2,000,000
--------------
Total 18,165,814
--------------
GEORGIA--12.0%
3,000,000 Burke County, GA, Development Pollution Authority, 3.60%-3.80%
Revenue Refunding Bonds (Oglethorpe Power Corp.
Project)/(Series A), 1/24/95-2/23/95 (Credit Suisse LOC) P-1 3,000,000
4,000,000 Cobb County, GA, 3.50% GO UT Bonds, TANs, 12/30/94 SP-1+ 4,001,865
5,000,000 De Kalb Private Hospital Authority, GA Weekly VRDNs (Engleston
Childrens' Hospital)/(Series B)/(Trust Company Bank LOC) A-1+ 5,000,000
1,500,000 Georgia State, 6.75% GO UT Bonds (Series E), 12/1/95 1,529,940
1,895,000 Marietta, GA, HFA, VRDNs Revenue Bonds (Falls at Bells
Ferry)/(Guardian S&L LOC) VMIG1 1,895,000
1,000,000 Newton County, GA, IDA, Weekly VRDNs Refunding Bonds (John H.
Harland Co. Project)/(NationsBank, GA LOC) A-1 1,000,000
--------------
Total 16,426,805
--------------
ILLINOIS--8.1%
1,000,000 Chicago, IL, School Finance Authority, 7.75% GO UT Refunding
Bonds, 6/1/95 AAA 1,038,744
3,000,000 Illinois Development Finance Authority Revenue, Weekly VRDNs
(Aurora Central Catholic High School)/(Northern Trust Co. LOC) AA+ 3,000,000
1,000,000 Illinois Development Finance Authority Revenue, Weekly VRDNs
Refunding Bonds (Catholic Charities Housing)/ (Series
B)/(National Westminster LOC) VMIG1 1,000,000
1,500,000 Illinois Development Finance Authority Revenue, Weekly VRDNs
(Little City Foundation Special Facilities)/(LaSalle National
Bank LOC) AA+ 1,500,000
1,500,000 Illinois Development Finance Authority Revenue, Weekly VRDNs
(St. Ignatius College Prep.)/(Northern Trust Co. LOC) A-1+ 1,500,000
</TABLE>
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Short-Term Municipal Securities--continued
ILLINOIS--CONTINUED
$ 3,000,000 Illinois State Toll Highway Authority, Weekly VRDNs Revenue
Refunding Bonds (Series B)/(Societe Generale LOC) VMIG1 $ 3,000,000
--------------
Total 11,038,744
--------------
INDIANA--1.7%
2,300,000 Indianapolis, IN, Weekly VRDNs Revenue Refunding Bonds (Canal
Square Project)/(Societe Generale LOC) VMIG1 2,300,000
--------------
IOWA--0.5%
600,000 Indianola, IA, IDR, Monthly VRDNs Revenue Bonds
(HY-VEE Foods)/(Rabobank Nederland LOC) A-1+ 600,000
--------------
KANSAS--1.6%
2,175,000 Topeka, KS, 4.50% GO UT Bonds (Series A), 6/1/95 MIG1 2,183,828
--------------
KENTUCKY--0.7%
900,000 City of Georgetown, KY, Educational Institutional Weekly VRDNs
Revenue Bonds (Georgetown College Project)/(PNC Bank, KY LOC) VMIG1 900,000
--------------
LOUISIANA--5.9%
1,700,000 Calcasieu Parish, LA, Weekly VRDNs Revenue Bonds (Citgo
Petroleum Corp.)/(Sumitomo Bank LOC) A1 1,700,000
2,800,000 Lake Charles, LA Harbor & Terminal District, Weekly VRDNs
Revenue Bonds (Citgo Petroleum Corp.)/(National Westminster
Bank LOC) P-1 2,800,000
3,600,000 Louisiana State Recovery District Sales Tax Revenue, Daily
VRDNs (Swiss Bank SPA) VMIG1 3,600,000
--------------
Total 8,100,000
--------------
MARYLAND--4.4%
6,000,000 Maryland State Health and Higher Education Facility Anne
Arundel Hospital, Weekly VRDNs Revenue Bonds
(Series B)/(Mellon Bank LOC) VMIG1 6,000,000
--------------
</TABLE>
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Short-Term Municipal Securities--continued
MASSACHUSETTS--3.4%
$ 1,600,000 Massachusetts State, Daily VRDNs GO UT Bonds
(Series D)/(ABN-AMRO LOC) VMIG1 $ 1,600,000
3,000,000 Massachusetts Municipal Wholesale Electric Co., Weekly VRDNs
Supply System Revenue Refunding Bonds (Series C)/(Canadian
Imperial Bank LOC) A-1+ 3,000,000
--------------
Total 4,600,000
--------------
MINNESOTA--1.5%
2,020,000 Minnesota State, 6.60% GO UT Refunding Bonds, 8/1/95 Aa1 2,053,251
--------------
NEW YORK--0.7%
1,000,000 New York, NY, Daily VRDNs GO UT Refunding Bonds (Morgan
Guaranty LOC) VMIG1 1,000,000
--------------
NORTH CAROLINA--1.8%
2,500,000 North Carolina Eastern Municipal Power, 3.55% Revenue Bonds
(Series B), 1/9/95, (UBS & Morgan Guaranty LOC) A-1+ 2,500,000
--------------
OHIO--0.7%
1,000,000 Centerville, OH, Healthcare Revenue, Weekly VRDNs (Bethany
Lutheran Village Project)/(PNC Bank LOC) VMIG1 1,000,000
--------------
PENNSYLVANIA--6.3%
3,600,000 Allegheny County, PA, Port Authority, 4.10% GANs, 7/3/95 (PNC
Bank LOC) MIG1 3,600,111
2,000,000 Pennsylvania State University, 3.00%, 12/5/94 SP-1+ 2,000,057
2,000,000 Philadelphia, PA, 4.75% GO UT Bonds (Series A) RANs and TANs,
6/15/95, (Canadian Imperial Bank LOC) MIG1 2,008,800
1,000,000 Sewickley Valley Hospital Authority, PA, 3.00% Revenue
Refunding Bonds (Series B), 12/15/94 (PNC Bank LOC) VMIG1 1,000,139
--------------
Total 8,609,107
--------------
TENNESSEE--7.4%
3,000,000 Metro Government Nashville & Davidson County, TN, IDB, Weekly
VRDNs Revenue Bonds (Arbor Crest)/(Series B)/ (Chemical Bank,
NY LOC) VMIG1 3,000,000
2,000,000 Metro Government Nashville & Davidson County, TN, Health and
Education Facilities, Weekly VRDNs Revenue Refunding Bonds
(West Meade Place Project)/(NationsBank, GA LOC) A-1 2,000,000
</TABLE>
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Short-Term Municipal Securities--continued
TENNESSEE--CONTINUED
$ 5,100,000 Tennessee State, Weekly VRDNs GO UT Bonds (Series B) BANs VMIG1 $ 5,100,000
--------------
Total 10,100,000
--------------
TEXAS--7.3%
1,000,000 Fort Worth, TX, 8.70% GO LT Refunding Bonds, 3/1/95 AAA 1,013,366
3,000,000 Lower Neches Valley Authority, TX, 3.50% Revenue Refunding
Bonds (Chevron USA, Inc. Project), 2/15/95 A-1+ 3,000,000
1,000,000 San Antonio, TX, 8.30% GO LT Refunding Bonds, 8/1/95 AAA 1,027,885
1,860,000 **San Antonio, TX, Electric & Gas Revenue, 9.60%, 2/1/95 AAA 1,907,317
3,000,000 Texas State, Weekly VRDNs MIG1 3,000,000
--------------
Total 9,948,568
--------------
VIRGINIA--4.0%
1,500,000 **Harrisonburg, VA, HFA, 2.75% Revenue Bonds (Rolling Brook
Village Apartments)/(Series A)/(Guardian S&L LOC),
2/1/95 VMIG1 1,500,000
3,000,000 Peninsula Ports Authority, VA, Daily VRDNs Revenue Refunding
Bonds (Port Facility-Shell Oil Co.) AAA 3,000,000
1,000,000 Virginia State, HSG Dev. Auth., 4.25% Revenue Bonds (Series
D), 7/12/95 VMIG1 1,000,000
--------------
Total 5,500,000
--------------
WASHINGTON--2.2%
3,000,000 Port Anacortes, WA, IDA, 3.95% Revenue Refunding Bonds (Texaco
Project), 2/15/95 P-1 3,000,000
--------------
WISCONSIN--0.7%
1,000,000 West Allis Milwaukee, WI, 5.00% GO UT Bonds, RANs & TANs,
8/22/95 MIG1 1,006,631
--------------
WYOMING--0.7%
1,000,000 **Unita County, WY, Pollution Control Revenue, 3.75% (Chevron
USA, Inc. Project), 6/15/95 P-1 1,000,000
--------------
Total Short-Term Municipal Securities 131,667,748
--------------
</TABLE>
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Regulated Investment Companies--4.4%
5,932,526 Fidelity Tax-Exempt Money Market Fund Instruments
Portfolio (at net asset value) $ 5,932,526
--------------
Total Investments, at amortized cost and value $ 137,600,274+
--------------
</TABLE>
On December 6, 1994, Orange County, California filed for protection under
Chapter 9 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court in Santa
Ana, California. On December 7, 1994, Wachovia Corp. purchased the indicated
security from the Fund's portfolio of investments at its amortized cost,
resulting in no loss to the Fund or its shareholders.
+ Also represents cost for federal tax purposes.
* Please refer to the Appendix of the Combined Statement of Additional
Information for an explanation of the credit ratings. Current credit
ratings are unaudited.
** Denotes variable rate securities which show current rate and next
demand date.
Note: The categories of investments are shown as a percentage of net assets
($136,687,018) at
November 30, 1994.
The following abbreviations are used throughout this portfolio:
BANs--Bond Anticipation Notes
GANs--Grant Anticipation Notes
GO--General Obligation
HFA--Housing Finance Authority
IDA--Industrial Development Authority
IDB--Industrial Development Board
IDR--Industrial Development Revenue
LOC--Letter(s) of Credit
LT--Limited Tax
RANs--Revenue Anticipation Notes
SPA--Standby Purchase Agreement
TANs--Tax Anticipation Notes
UT--Unlimited Tax
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments, at amortized cost and value $ 137,600,274
Cash 17,117
Interest receivable 972,051
Deferred expenses 11,321
--------------
Total assets 138,600,763
Liabilities:
Payable for investments purchased $ 1,533,878
Dividends payable 342,201
Accrued expenses 37,666
------------
Total liabilities 1,913,745
--------------
Net Assets for 136,687,018 shares of beneficial interest outstanding $ 136,687,018
--------------
Net Asset Value, Offering Price, and Redemption Proceeds Per Share:
Institutional Shares ($93,866,997 / 93,866,997 shares of beneficial interest
outstanding) $1.00
--------------
Investment Shares ($42,820,021 / 42,820,021 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, 1994
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest income $ 3,466,650
Expenses:
Investment advisory fee $ 620,752
Trustees' fees 5,447
Administrative personnel and services fees 124,799
Custodian fees 24,830
Transfer and dividend disbursing agent fees and expenses 52,855
Fund share registration costs 35,102
Auditing fees 15,373
Legal fees 18,482
Printing and postage 39,391
Portfolio accounting fees 51,896
Insurance premiums 13,213
Distribution services fee 139,886
Miscellaneous 16,448
------------
Total expenses 1,158,474
Deduct--
Waiver of investment advisory fee $ 463,428
Waiver of administrative personnel and services fees 31,039
Waiver of distribution services fee 34,972
Reimbursement of other operating expenses by administrator 57,028 586,467
---------- ------------
Net expenses 572,007
------------
Net investment income $ 2,894,643
------------
</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, 1994 1993
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 2,894,643 $ 1,687,496
--------------- ---------------
Distributions to Shareholders--
Dividends to shareholders from net investment income:
Institutional Shares (2,150,380) (1,400,375)
Investment Shares (744,263) (287,121)
--------------- ---------------
Change in net assets from distributions to shareholders (2,894,643) (1,687,496)
--------------- ---------------
Fund Share (Principal) Transactions--
Proceeds from sale of shares 263,497,759 202,842,602
Cost of shares redeemed (210,055,320) (186,567,848)
--------------- ---------------
Change in net assets from Fund share transactions 53,442,439 16,274,754
--------------- ---------------
Change in net assets 53,442,439 16,274,754
Net Assets:
Beginning of period 83,244,579 66,969,825
--------------- ---------------
End of period $ 136,687,018 $ 83,244,579
--------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE U.S. TREASURY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations--48.9%
U.S. TREASURY BILLS--48.9%
$ 66,000,000 1/5/95-3/9/95 $ 65,453,242
--------------
*Repurchase Agreements--51.5%
31,980,653 Goldman Sachs & Co., 5.65%, dated 11/30/94, due 12/1/94 31,980,653
31,000,000 Daiwa Securities America, Inc., 5.72%, dated 11/30/94, due 12/1/94 31,000,000
6,000,000 Morgan Stanley & Co., 5.65%, dated 11/30/94, due 12/1/94 6,000,000
--------------
Total Repurchase Agreements 68,980,653
--------------
Total Investments, at amortized cost and value $ 134,433,895+
--------------
</TABLE>
+ Also represents cost for federal tax purposes.
* Repurchase agreements are fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
Note: The categories of investments are shown as a percentage of net assets
($133,927,588) at November 30, 1994.
(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, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments in repurchase agreements $ 68,980,653
Investments in securities 65,453,242
-------------
Total investments, at amortized cost and value $ 134,433,895
Interest receivable 10,886
Deferred expenses 9,104
--------------
Total assets 134,453,885
Liabilities:
Dividends payable 462,413
Accrued expenses 63,884
-------------
Total liabilities 526,297
--------------
Net Assets for 133,927,588 shares of beneficial interest outstanding $ 133,927,588
--------------
Net Asset Value, Offering Price, and Redemption Proceeds Per Share:
Institutional Shares ($87,531,434 / 87,531,434 shares of beneficial interest
outstanding) $1.00
--------------
Investment Shares ($46,396,154 / 46,396,154 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, 1994
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest income $ 4,087,226
Expenses:
Investment advisory fee $ 501,363
Trustees' fees 3,381
Administrative personnel and services fees 98,959
Custodian fees 20,054
Transfer and dividend disbursing agent fees and expenses 57,810
Fund share registration costs 42,008
Auditing fees 15,400
Legal fees 13,525
Printing and postage 38,030
Portfolio accounting fees 51,353
Insurance premiums 12,948
Distribution services fees 104,760
Miscellaneous 15,534
----------
Total expenses 975,125
Deduct--
Waiver of investment advisory fee $ 432,458
Waiver of administrative personnel and services fees 25,319
Waiver of distribution services fees 26,139
Reimbursement of other operating expenses by Administrator 57,893 541,809
---------- ----------
Net expenses 433,316
------------
Net investment income $ 3,653,910
------------
</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, 1994 1993
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 3,653,910 $ 1,900,006
--------------- ---------------
Distributions to Shareholders--
Dividends to shareholders from net investment income:
Institutional Shares (2,707,306) (1,826,489)
Investment Shares (946,604) (73,517)
--------------- ---------------
Change in net assets from distributions to shareholders (3,653,910) (1,900,006)
--------------- ---------------
Fund Share (Principal) Transactions--
Proceeds from sale of shares 448,524,970 288,944,990
Cost of shares redeemed (396,891,742) (262,058,559)
--------------- ---------------
Change in net assets from Fund share transactions 51,633,228 26,886,431
--------------- ---------------
Change in net assets 51,633,228 26,886,431
Net Assets:
Beginning of period 82,294,360 55,407,929
--------------- ---------------
End of period $ 133,927,588 $ 82,294,360
--------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE MONEY MARKET FUNDS
COMBINED NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
(1) ORGANIZATION
The Biltmore Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end, management investment company.
The Trust consists of eleven diversified portfolios. The financial statements
included herein present those of the Biltmore Money Market Fund (Money Market
Fund), Biltmore Tax-Free Money Market Fund (Tax-Free Fund), and Biltmore U.S.
Treasury Money Market Fund (U.S. Treasury Fund), (each referred to as "Fund,"
and collectively as the "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 the Act's Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Funds' use of the amortized cost method to value
their portfolio securities is in accordance with Rule 2a-7 under the Act.
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 collateral to ensure the value of collateral at
least equals the principal amount of the repurchase transaction including
accrued interest.
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' adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
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 substantially all of their income. Accordingly, no
provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in
when-issued or delayed delivery transactions. The Funds record when-issued
securities on the trade date and 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 each 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 not to exceed a period of five
years from each Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
================================================================================
BILTMORE MONEY MARKET FUNDS
(3) 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, 1994, capital paid-in for the Money Market
Fund, Tax-Free Fund and U.S. Treasury Fund aggregated $185,337,876,
$136,687,018, and $133,927,588, respectively. Transactions in Fund shares were
as follows:
<TABLE>
<CAPTION>
Money Market Fund
<S> <C> <C>
Institutional Shares Year Ended
November 30, 1994 1993
- --------------------------------------------------------------------------------------------------------
Shares sold 385,548,512 508,765,112
Shares redeemed (433,405,663) (416,373,470)
----------- -----------
Net change resulting from Institutional Share transactions (47,857,151) 92,391,642
----------- -----------
<CAPTION>
Tax-Free Fund
Institutional Shares Year Ended
November 30, 1994 1993
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Shares sold 175,432,174 157,797,806
Shares redeemed (140,833,740) (160,161,423)
----------- -----------
Net change resulting from Institutional Share transactions 34,598,434 (2,363,617)
----------- -----------
<CAPTION>
U.S. Treasury Fund
Institutional Shares Year Ended
November 30, 1994 1993
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Shares sold 337,402,499 268,967,543
Shares redeemed (315,224,009) (259,022,528)
----------- -----------
Net change resulting from Institutional Share transactions 22,178,490 9,945,015
----------- -----------
<CAPTION>
Money Market Fund
Investment Shares Year Ended November
30, 1994 1993
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Shares sold 94,114,744 14,573,466
Shares redeemed (47,851,876) (7,837,523)
----------- -----------
Net change resulting from Investment Share transactions 46,262,868 6,735,943
----------- -----------
Total net change resulting from Fund share transactions (1,594,283) 99,127,585
----------- -----------
<CAPTION>
Tax Free Fund
Investment Shares Year Ended November
30, 1994 1993
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Shares sold 88,065,585 45,044,796
Shares redeemed (69,221,580) (26,406,425)
----------- -----------
Net change resulting from Investment Share transactions 18,844,005 18,638,371
----------- -----------
Total net change resulting from Fund share transactions 53,442,439 16,274,754
----------- -----------
<CAPTION>
U.S. Treasury Fund
Investment Shares Year Ended November
30, 1994 1993*
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Shares sold 111,122,471 19,977,447
Shares redeemed (81,667,733) (3,036,031)
----------- -----------
Net change resulting from Investment Share transactions 29,454,738 16,941,416
----------- -----------
Total net change resulting from Fund share transactions 51,633,228 26,886,431
----------- -----------
</TABLE>
*_ For the period from May 12, 1993 (date of initial public investment) to
November 30, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Wachovia Investment Management Group, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.50 of 1% of each Fund's
================================================================================
BILTMORE MONEY MARKET FUNDS
average daily net assets. The Adviser may voluntarily choose to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Funds
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust and The Biltmore Municipal
Funds for the period. FAS may voluntarily choose to waive a portion of its fee
and reimburse a portion of each Fund's other operating expenses. FAS can modify
or terminate the voluntary waiver and reimbursement at any time at its sole
discretion.
DISTRIBUTION PLAN--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, each Fund
will compensate Federated Securities Corp. ("FSC"), the principal distributor,
from its net assets to finance activities intended to result in the sale of each
Fund's Investment Shares. The Plan provides that each Fund may incur
distribution expenses up to 0.40 of 1% of the average daily net assets of its
Investment Shares, annually, to compensate FSC. The distributor may voluntarily
choose to waive a portion of its fee. The distributor can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Funds for which it is paid a fee. The FServ fee is based on the size, type,
and number of accounts and transactions made by shareholders.
FServ also maintains the Funds' accounting records for which it is paid a fee.
The fee is based on the level of the Funds' average net assets for the period,
plus out-of-pocket expenses.
Wachovia Bank of North Carolina, N.A. is the Funds' custodian for which it is
paid a fee. The fee is based on the level of each Fund's average net assets for
the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses for 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 organizational expenses during the five year period following the
date that each Fund's registration statement became effective. For the fiscal
year ended November 30, 1994, the Money Market Fund, Tax-Free Fund and U.S.
Treasury Fund paid $13,270, $12,360 and $9,718, respectively, pursuant to this
agreement.
Certain of the Officers of the Trust are Officers and Directors or Trustees of
the above companies.
================================================================================
REPORT OF ERNST & YOUNG LLP, 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, 1994, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended and the financial highlights (see
pages 4, 5, 6, 25, 26, & 27 of this prospectus) for the periods presented. 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, 1994, 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, 1994, and
the results of their operations for the year then ended, changes in their net
assets for each of the two years in the period then ended, and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 12, 1995
================================================================================
ADDRESSES
- --------------------------------------------------------------------------------
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, Federated Services Company
AND PORTFOLIO ACCOUNTING SERVICES 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 LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
- --------------------------------------------------------------------------------
THE BILTMORE SERVICE CENTER 101 Greystone Boulevard,
SC-9215
Columbia, South Carolina 29226
- --------------------------------------------------------------------------------
BILTMORE MONEY MARKET FUND
BILTMORE TAX-FREE MONEY MARKET FUND
BILTMORE U.S. TREASURY MONEY MARKET FUND
DIVERSIFIED PORTFOLIOS OF THE BILTMORE FUNDS
An Open-End Management Investment Company
090297201
090297409
090297888
January 31, 1995 3042106A (1/95)
PROSPECTUS
JANUARY 31, 1995
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 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 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.
BILTMORE
U.S. TREASURY MONEY MARKET FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
The Fund has also filed a Combined Statement of Additional Information for
Institutional Shares and Investment Shares, dated January 31, 1995, 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.
================================================================================
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 3
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 4
- ---------------------------------------------------
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 5
Administration of the Fund 5
Administrative Services 5
Custodian 6
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 6
Legal Services 6
Independent Auditors 6
Expenses of the Fund
and Institutional Shares 6
- ---------------------------------------------------
NET ASSET VALUE 6
- ---------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 7
Share Purchases 7
Through the Wachovia Banks 7
Via a Sweep Account 7
Minimum Investment Required 7
What Shares Cost 7
Certificates and Confirmations 7
Dividends 8
Capital Gains 8
- ---------------------------------------------------
EXCHANGES 8
- ---------------------------------------------------
REDEEMING INSTITUTIONAL SHARES 8
By Telephone 8
- ---------------------------------------------------
SHAREHOLDER INFORMATION 9
Voting Rights 9
Massachusetts Business Trusts 9
- ---------------------------------------------------
EFFECT OF BANKING LAWS 9
- ---------------------------------------------------
TAX INFORMATION 10
- ---------------------------------------------------
PERFORMANCE INFORMATION 10
- ---------------------------------------------------
OTHER CLASSES OF SHARES 11
- ---------------------------------------------------
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 12
- ---------------------------------------------------
FINANCIAL STATEMENTS 13
- ---------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 20
- ---------------------------------------------------
ADDRESSES BACK COVER
================================================================================
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver) (1) 0.05%
12b-1 Fees None
Other Expenses 0.27%
Total Institutional Shares Operating Expenses (after waiver) (2) 0.32%
</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 Annual Institutional Shares Operating Expenses were 0.36% for the
fiscal year ended
November 30, 1994. The Annual Institutional Shares Operating Expenses in
the table above reflect an anticipated reduction in the voluntary waiver
of the administrative fee for the fiscal year ending November 30, 1995.
The Annual Institutional Shares Operating Expenses are expected to be
0.77%, 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 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 Institutional Shares."
<TABLE>
<S> <C> <C> <C> <C>
Example 1 year 3 years 5 years 10 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period. As noted in the table above, the Fund charges
no redemption fees for Institutional Shares. $3 $10 $18 $41
</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, LLP, Independent Auditors on
page 20.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993 1992*
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.04 0.03 0.02
Less distributions
Dividends to shareholders from net investment income (0.04) (0.03) (0.02)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
--------- --------- ---------
Total return** 3.70% 2.91% 1.90%
Ratios to Average Net Assets
Expenses 0.36% 0.28% 0.17%(a)
Net investment income 3.72% 2.87% 3.24%(a)
Expense waiver/reimbursement (b) 0.51% 0.63% 0.71%(a)
Supplemental Data
Net assets, end of period (000 omitted) $87,531 $65,353 $55,408
</TABLE>
* Reflects operations for the period from May 7, 1992 (date of initial public
investment) to November 30, 1993.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
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 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., Wachovia Bank of South Carolina, N.A. and their affiliates
(collectively, the "Wachovia Banks"). Institutional Shares are offered only to
accounts held by the Wachovia Banks in a fiduciary, advisory, 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 Emerging
Markets 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 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 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 securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.
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 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. Treasury securities equal to at least 100% of the value of the securities
loaned at all times.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
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 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 Wachovia Bank
of South Carolina, N.A., have been managing trust assets for over 100 years,
with approximately $17.3 billion in managed assets as of September 30, 1994.
Wachovia Investment Management Group has served as investment adviser to The
Biltmore Funds since March 9, 1992. Wachovia Bank of North Carolina, N.A. also
serves as investment adviser to the Biltmore North Carolina Municipal Bond Fund,
a portfolio of The Biltmore Municipal Funds, another investment company. As part
of their regular banking operations, the Wachovia Banks may make loans to public
companies. Thus, it may be possible, from time to time, for the Fund to hold or
acquire the securities of issuers which are also lending clients of the Wachovia
Banks. The lending relationship will not be a factor in the selection of
securities.
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, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with the
administrative personnel and services necessary to operate the Fund. Such
services include the preparation of filings with the Securities and Exchange
Commission and other regulatory authorities, assistance with respect to meetings
of the Trustees, shareholder servicing and accounting services, and other
administrative services. Federated Administrative Services provides these at an
annual rate, computed and payable daily, as specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds
Administrative Fee and The Biltmore Municipal Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year for the Fund and for each
of the other portfolios of The Biltmore Funds shall aggregate at least $75,000.
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, 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 based upon the average daily net assets of the Fund
and which is payable monthly. 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, Pennsylvania, 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 independent Trustees.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young
LLP, 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 the
Wachovia Banks, 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) 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 unless
required in writing to the Fund.
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' accounts 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 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. 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 6, 1995, the Wachovia Banks and their
various affiliates and subsidiaries, acting in various capacities for numerous
accounts, were the owner of record of in excess of 25% of the outstanding Shares
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, 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 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.
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 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 Fund 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 Investments,
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 Trust, 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 EACH PERIOD)
Reference is made to the Report of Ernst & Young, LLP, Independent Auditors on
page 20.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993*
<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** 3.39% 1.42%
Ratios to Average Net Assets
Expenses 0.66% 0.65%(a)
Net investment income 3.42% 2.50%(a)
Expense waiver/reimbursement (b) 0.61% 0.73%(a)
Supplemental Data
Net assets, end of period (000 omitted) $46,396 $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
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE U.S. TREASURY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations--48.9%
U.S. TREASURY BILLS--48.9%
$ 66,000,000 1/5/95-3/9/95 $ 65,453,242
--------------
*Repurchase Agreements--51.5%
31,980,653 Goldman Sachs & Co., 5.65%, dated 11/30/94, due 12/1/94 31,980,653
31,000,000 Daiwa Securities America, Inc., 5.72%, dated 11/30/94, due 12/1/94 31,000,000
6,000,000 Morgan Stanley & Co., 5.65%, dated 11/30/94, due 12/1/94 6,000,000
--------------
Total Repurchase Agreements 68,980,653
--------------
Total Investments, at amortized cost and value $ 134,433,895+
--------------
</TABLE>
+ Also represents cost for federal tax purposes.
* Repurchase agreements are fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
Note: The categories of investments are shown as a percentage of net assets
($133,927,588) at November 30, 1994.
(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, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments in repurchase agreements $ 68,980,653
Investments in securities 65,453,242
-------------
Total investments, at amortized cost and value $ 134,433,895
Interest receivable 10,886
Deferred expenses 9,104
--------------
Total assets 134,453,885
--------------
Liabilities:
Dividends payable 462,413
Accrued expenses 63,884
-------------
Total liabilities 526,297
--------------
Net Assets for 133,927,588 shares of beneficial interest outstanding $ 133,927,588
--------------
Net Asset Value, Offering Price, and Redemption Proceeds Per Share:
Institutional Shares ($87,531,434 / 87,531,434 shares of beneficial interest
outstanding) $1.00
--------------
Investment Shares ($46,396,154 / 46,396,154 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, 1994
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest income $ 4,087,226
Expenses:
Investment advisory fee $ 501,363
Trustees' fees 3,381
Administrative personnel and services fees 98,959
Custodian fees 20,054
Transfer and dividend disbursing agent fees and expenses 57,810
Fund share registration costs 42,008
Auditing fees 15,400
Legal fees 13,525
Printing and postage 38,030
Portfolio accounting fees 51,353
Insurance premiums 12,948
Distribution services fees 104,760
Miscellaneous 15,534
----------
Total expenses 975,125
Deduct--
Waiver of investment advisory fee $ 432,458
Waiver of administrative personnel and services fees 25,319
Waiver of distribution services fees 26,139
Reimbursement of other operating expenses
by Administrator 57,893 541,809
---------- ----------
Net expenses 433,316
------------
Net investment income $ 3,653,910
------------
</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, 1994 1993
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 3,653,910 $ 1,900,006
--------------- ---------------
Distributions to Shareholders--
Dividends to shareholders from net investment income:
Institutional Shares (2,707,306) (1,826,489)
Investment Shares (946,604) (73,517)
--------------- ---------------
Change in net assets resulting from distribution
to shareholders (3,653,910) (1,900,006)
--------------- ---------------
Fund Share (Principal) Transactions--
Proceeds from sale of shares 448,524,970 288,944,990
Cost of shares redeemed (396,891,742) (262,058,559)
--------------- ---------------
Change in net assets from Fund share transactions 51,633,228 26,886,431
--------------- ---------------
Change in net assets 51,633,228 26,886,431
Net Assets:
Beginning of period 82,294,360 55,407,929
--------------- ---------------
End of period $ 133,927,588 $ 82,294,360
--------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE U.S. TREASURY MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
(1) ORGANIZATION
The Biltmore Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of eleven diversified portfolios. The financial statements
included herein present only those of the Biltmore U.S. Treasury Money Market
Fund (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
The 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 the Act's Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
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 collateral to ensure the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
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").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distribution to shareholders 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 substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. DEFERRED EXPENSES--Costs incurred by the Fund with respect to registration
of its shares in its first year, excluding the initial expense of
registering the shares, have been deferred and are being amortized using
the straight-line method not to exceed a period of five years from the
Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
================================================================================
BILTMORE U.S. TREASURY MONEY MARKET FUND
(3) 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, 1994, capital paid-in aggregated $133,927,588.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Institutional Shares
Shares sold 337,402,499 268,967,543
Shares redeemed (315,224,009) (259,022,528)
-------------- --------------
Net change resulting from Institutional Share transactions 22,178,490 9,945,015
-------------- --------------
<CAPTION>
Year Ended November 30, 1994 1993*
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Investment Shares
Shares sold 111,122,471 19,977,447
Shares redeemed (81,667,733) (3,036,031)
-------------- --------------
Net change resulting from Investment Share transactions 29,454,738 16,941,416
-------------- --------------
Total net change resulting from Fund share transactions 51,633,228 26,886,431
-------------- --------------
</TABLE>
*For the period from May 12, 1993 (date of initial public investment) to
November 30, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Wachovia Investment Management Group, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.50 of 1% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive a portion of its fee. The
Adviser can modify or terminate the voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust and The Biltmore Municipal
Funds for the period. FAS may voluntarily choose to waive a portion of its fee
and reimburse certain operating expenses of the Fund. FAS can modify or
terminate this voluntary waiver and reimbursement at any time at its sole
discretion.
DISTRIBUTION PLAN--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's 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 FSC. FSC may voluntarily choose to
waive a portion of its fee. The distributor can modify or terminate this
voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Funds for which it is paid a fee. The fee is based on the size, type, and
number of accounts and transactions made by shareholders.
FServ also maintains the Fund's accounting records for which it is paid a fee.
The FServ fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
Wachovia Bank of North Carolina, N.A. is the Fund's custodian. The FServ fee is
based on the level of the Fund's average net assets for the period, plus
out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($33,032) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following May 4, 1992
================================================================================
BILTMORE U.S. TREASURY MONEY MARKET FUND
(the date the Fund became effective). For the fiscal year ended November 30,
1994, the Fund paid $9,718 pursuant to this agreement.
Certain of the Officers of the Trust are Officers and Directors or Trustees of
the above companies.
================================================================================
REPORT OF ERNST & YOUNG LLP, 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, 1994, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights (see pages 2 and 12 of this prospectus) for the periods
presented. 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, 1994, 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,
1994, and the results of its operations for the year then ended, changes in its
net assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 12, 1995
================================================================================
ADDRESSES
- --------------------------------------------------------------------------------
BILTMORE U.S. TREASURY MONEY MARKET FUND Federated Investors Tower
INSTITUTIONAL SHARES 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, Federated Services Company
AND PORTFOLIO ACCOUNTING SERVICES 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 LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
- --------------------------------------------------------------------------------
BILTMORE U.S. TREASURY MONEY MARKET FUND
INSTITUTIONAL SHARES
A DIVERSIFIED PORTFOLIO OF THE BILTMORE FUNDS
An Open-End, Management Investment Company
090297706
January 31, 1995 2020205A-IS (1/95)
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"), a portfolio in The Biltmore Funds (the "Trust"), dated
January 31, 1995. This Combined Statement is not a prospectus
itself. To receive a copy of either prospectus, write to the Fund,
call The Biltmore Service Center toll-free at 1-800-994-4414, or
contact your Wachovia Bank account officer.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
Investment Limitations 1
The Biltmore Funds Management 3
Officers and Trustees 3
Fund Ownership 4
Trustees Compensation 5
Trustee Liability 5
Investment Advisory Services 5
Adviser to the Fund 5
Advisory Fees 6
Administrative Services 6
Brokerage Transactions 6
Purchasing Shares 7
Distribution Plan (Investment
Shares Only) 7
Conversion to Federal Funds 7
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
Shareholders' Tax Status 9
Yield 9
Effective Yield 10
Performance Comparisons 10
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.
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. Capitalized terms not otherwise defined in this Statement have
the same meaning assigned in the prospectus.
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 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 or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
Repurchase Agreements
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 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.
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 1/2 of 1% of the issuer's
securities, together own more than 5% of the issuer's securities.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
The Fund 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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan, having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment, to be "cash items."
The Biltmore Funds Management
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, or Federated Administrative Services.
James A. Hanley
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Malcolm T. Hopkins
Trustee
Private investor and consultant; Director, the Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution);
Director MAPCO, Inc. (diversified energy); Director, Metropolitan Series
Funds, Inc. and MetLife Portfolios, Inc. (investment companies);
Director, Kinder-Care Learning Centers, Inc. (child care); Director, U.S.
Home Corporation (residential builder and land development); and
Director, EMCOR Group, Inc. (engineering and construction).
Samuel E. Hudgins
Trustee
President, Percival Hudgins & Company, Inc. (investment
bankers/financial consultants); Director, Atlantic American Corporation
(insurance holding company); Director, Bankers Fidelity Life Insurance
Company; Director and Vice Chairman, Leath Furniture, Inc. (retail
furniture); President, Atlantic American Corporation (until 1988);
Director, Vice Chairman and Chief Executive Officer, Rhodes, Inc. (retail
furniture) (until 1988); Chairman and Director, Atlantic American Life
Insurance Co., Georgia Casualty & Surety Company, and Bankers Fidelity
Life Insurance (until 1988).
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel
company); formerly, Vice Chairman, Massachusetts Mutual Life Insurance
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 Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary and Trustee,
Federated Administrative Services; Executive Vice President and Director,
Federated Securities Corp.
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly Associate
Corporate Counsel, Federated Investors; Vice President and Assistant
Treasurer for certain investment companies for which Federated Securities
Corp. is the principal distributor.
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 6, 1995, the following shareholder of record owned 5% or
more of the outstanding Institutional Shares of the Fund: Wachovia Bank
of North Carolina, Winston-Salem, North Carolina, on behalf of certain
underlying accounts, owned approximately 91,976,638 Shares (100%).
As of January 6, 1995, the following shareholders of record owned 5% or
more of the outstanding Investment Shares of the Fund: Wachovia Bank of
North Carolina, Winston-Salem, North Carolina, on behalf of certain
underlying accounts, owned approximately 21,463,089 Shares (43.31%);
Wachovia Brokerage Services, Winston-Salem, North Carolina, on behalf of
certain underlying accounts, owned approximately 20,756,208 Shares
(41.88%); and Wachovia Bank of Georgia, Atlanta, Georgia, on behalf of
certain underlying accounts, owned approximately 6,211,640 Shares
(12.53%).
Trustees Compensation
NAME AND AGGREGATE TOTAL COMPENSATION PAID
POSITION WITH THE COMPENSATION FROM TO THE TRUSTEES FROM THE TRUST
TRUST THE TRUST+ AND FUND COMPLEX #
James A. Hanley,
Trustee $22,086 $23,400 for the Trust and
one other investment company
Malcolm T. Hopkins,
Trustee $16,920 $18,000 for the Trust and
one other investment company
Samuel E. Hudgins,
Trustee $22,086 $23,400 for the Trust and
one other investment company
J. Berkley Ingram, Jr.
Trustee $16,920 $18,000 for the Trust and
one other investment company
D. Dean Kaylor,
Trustee $15,851 $16,875 for the Trust and
one other investment company
+The aggregate compensation is paid by the Trust, which is comprised of
twelve portfolios.
# The Fund Complex is comprised of 15 portfolios.
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.
Because of the internal controls maintained by the Wachovia Banks' to
restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Wachovia Banks or their
affiliates' lending relationships with an issuer
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectuses.
For the fiscal years ended November 30, 1994 and 1993, and for the
period from February 19, 1992 (start of business) to November 30, 1992,
the Adviser earned $501,363, $333,904 and $142,878, respectively, of
which $432,458, $276,657 and $142,878, respectively, were voluntarily
waived. In addition, the Fund's adviser reimbursed $9,693 of other Fund
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
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 years ended November 30, 1994 and 1993, and for the
period from February 19, 1992 (start of business) to November 30, 1992,
Federated Administrative Services earned $98,959, $88,313 and $25,104,
respectively, of which $25,319, $71,133 and $25,104, respectively, were
voluntarily waived. In addition, for the fiscal years ended November 30,
1994 and 1993, and for the period from February 19, 1992 (start of
business) to November 30, 1992, Federated Administrative Services
reimbursed $57,893, $55,602 and $16,331, respectively, of other Fund
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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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
Shares are sold at their net asset value without a sales charge on days
the Wachovia Banks, 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 years ended November 30, 1994 and 1993, brokers and
administrators (financial institutions) received fees in the amount of
$104,760 and $11,831, respectively, of which $26,139 and $2,966,
respectively, were 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 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 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 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 prospectuses.
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 Trust 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.
Redemption in kind is not as liquid as cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of
their securities and could incur transaction costs.
The Trust has elected to be governed by Rule 18f-1 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 class'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.
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:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
Shareholders' Tax Status
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, 1994, was
5.08% for Institutional Shares. The yield for Investment Shares was
4.78% 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:
o 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;
o 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
o 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,
1994, was 5.21% for Institutional Shares. The effective yield for
Investment Shares was 4.89% for the same period.
The Fund's effective yield for both classes of Shares is computed by
compounding the unannualized base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
Performance Comparisons
The performance of both classes of Shares depends upon such variables
as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in the expenses of the Fund or of either class of Shares;
and
o 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 offering price. The financial publications and/or indices which
the Fund uses in advertising may include:
o 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.
o Lipper Analytical Services, Inc. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any
change in the offering price over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the
"institutional short-term U.S. Treasury funds" and "short-term
U.S. Treasury funds" categories in advertising and sales
literature.
o 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.
o 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.
o 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.
090297-70-6
090297-40-9
2020205B (1/95)
PROSPECTUS
JANUARY 31, 1995
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 (THE ``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.
BILTMORE
MONEY MARKET FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
The Fund has also filed a Combined Statement of Additional Information for
Institutional Shares and Investment Shares, dated January 31, 1995 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.
================================================================================
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
U.S. Government Obligations 4
Variable Rate Demand Notes 4
Bank Instruments 4
Short-Term Credit Facilities 4
Ratings 4
Repurchase Agreements 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed Delivery
Transactions 5
Investing in Securities of Other
Investment Companies 6
Concentration of Investments 6
Lending of Portfolio Securities 6
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 7
Administrative Services 7
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 8
- ---------------------------------------------------
NET ASSET VALUE 8
- ---------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 9
Share Purchases 9
Through the Wachovia Banks 9
Via a Sweep Account 9
Minimum Investment Required 9
What Shares Cost 9
Certificates and Confirmations 9
Dividends 10
Capital Gains 10
- ---------------------------------------------------
EXCHANGES 10
- ---------------------------------------------------
REDEEMING INSTITUTIONAL SHARES 10
By Telephone 10
- ---------------------------------------------------
SHAREHOLDER INFORMATION 11
Voting Rights 11
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 LLP,
INDEPENDENT AUDITORS 23
- ---------------------------------------------------
ADDRESSES BACK COVER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver) (1) 0.16%
12b-1 Fees None
Other Expenses (after waiver & assumption) (2) 0.22%
Total Institutional Shares Operating Expenses (after waivers & assumption) (3) 0.38%
</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 0.50%.
(2) Other Expenses would have been 0.28% absent the voluntary waiver and the
voluntary assumption by the administrator. The administrator may terminate
the voluntary waiver and voluntary assumption at any time at its sole
discretion.
(3) The Annual Institutional Shares Operating Expenses would have been 0.78%
absent the voluntary waivers and assumption 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 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 Institutional Shares."
<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 invest-
ment, 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 $48
</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 LLP, Independent Auditors, on
page 23.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993 1992*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.04 0.03 0.02
Less distributions
Dividends to shareholders from net investment income (0.04) (0.03) (0.02)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
--------- --------- ---------
Total Return** 3.77% 3.05% 1.71%
Ratios to Average Net Assets
Expenses 0.38% 0.25% 0.14%(a)
Net investment income 3.74% 3.00% 3.38%(a)
Expense waiver/reimbursement (b) 0.40% 0.56% 0.65%(a)
Supplemental Data
Net assets, end of period (000 omitted) $129,233 $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
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
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 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., Wachovia Bank of South Carolina, N.A. (formerly known as 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, advisory 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 Emerging
Markets 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:
Farm Credit System, including the National Bank for Cooperatives, Farm Credit
Banks, and Banks for Cooperatives; Farmers Home Administration; Federal Home
Loan Banks; Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; and Student Loan
Marketing Association.
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 Ratings Group ("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 investment 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 securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.
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 Fund's 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. There is the risk that
when lending portfolio securities, the securities may not be available to the
Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell
the securities at a desirable price. In addition, in the event that a borrower
of securities would file for bankruptcy or become insolvent, disposition of the
securities may be delayed pending court action.
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 investment 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 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 Wachovia Bank
of South Carolina, N.A., have been managing trust assets for over 100 years,
with approximately $17.3 billion in managed assets as of September 30, 1994.
Wachovia Investment Management Group has served as investment adviser for The
Biltmore Funds since March 9, 1992. Wachovia Bank of North Carolina, N.A. also
serves as investment adviser to the Biltmore North Carolina Municipal Bond Fund,
a portfolio of The Biltmore Municipal Funds, another investment company. As part
of their regular banking operations, the Wachovia Banks may make loans to public
companies. Thus, it may be possible, from time to time, for the Fund to hold or
acquire the securities of issuers which are also lending clients of the Wachovia
Banks. The lending relationship will not be a factor in the selection of
securities.
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, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with the
administrative personnel and services necessary to operate the Fund. Such
services include the preparation of filings with the Securities and Exchange
Commission and other regulatory authorities, assistance with respect to
meetings of the Trustees, shareholder servicing and accounting services, and
other administrative services. Federated Administrative Services provides these
at an annual rate, computed and payable daily, as specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds
Administrative Fee and The Biltmore Municipal Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year for the Fund and for each
of the other portfolios of The Biltmore Funds shall aggregate at least $75,000.
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, 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 based upon the average daily net assets of the Fund
and which is payable monthly. 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, Pennsylvania, 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 independent Trustees.
INDEPENDENT AUDITORS. The independent auditors are Ernst & Young LLP,
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 the Wachovia Banks, 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 unless
requested in writing to the Fund.
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' accounts 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 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.
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 6, 1995, the Wachovia Banks and their
various affiliates and subsidiaries, acting in various capacities for numerous
accounts, were the owner of record of in excess of 25% of the outstanding shares
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.
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 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 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.
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 Investments,
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 Trust, 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 LLP, Independent Auditors, on
page 23.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993 1992*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.03 0.03 0.01
Less distributions
Dividends to shareholders from net investment income (0.03) (0.03) (0.01)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
--------- --------- ---------
Total Return** 3.46% 2.74% 1.48%
Ratios to Average Net Assets
Expenses 0.68% 0.55% 0.48%(a)
Net investment income 3.44% 2.70% 3.44%(a)
Expense waiver/reimbursement (b) 0.50% 0.66% 0.75%(a)
Supplemental Data
Net assets, end of period (000 omitted) $56,105 $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
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expenses and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE MONEY MARKET FUND PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Bankers' Acceptance--1.1%
$ 2,000,000 Mellon Bank, 4.88%, 12/22/94 $ 1,994,307
--------------
Certificates of Deposit--36.7%
5,000,000 ABN-AMRO Bank, 5.78%, 3/16/95 5,001,799
4,000,000 Bank of New York, 5.25%, 5/4/95 3,985,480
4,000,000 CIBC New York, 5.05%, 12/5/94 4,000,000
5,000,000 Commonwealth Bank of Australia, 4.98%, 12/30/94 5,000,344
5,000,000 Deutsche Bank, Yankee, 5.76%, 4/6/95 4,999,375
5,000,000 Credit Suisse, Yankee, 5.21%, 3/3/95 4,998,029
9,000,000 National Westminster Bank, 5.14%, 12/19/94 9,000,178
8,000,000 Rabobank, Yankee, 5.09%-5.97%, 2/1/95-2/28/95 7,998,537
9,000,000 Socie 1/3te Generale Bank, 5.20%-5.55%, 1/31/95-2/28/95 8,997,515
9,000,000 Swiss Bank of New York, 5.50%, 1/13/95 9,000,000
5,000,000 Union Bank of Switzerland, Yankee, 6.02%, 5/15/95 5,000,445
--------------
Total Certificates of Deposit 67,981,702
--------------
*Commercial Paper--36.5%
FINANCE-AUTOMOTIVE--4.8%
9,000,000 Ford Motor Credit Corp., 5.57%, 1/9/95 8,945,693
--------------
FINANCE-MISCELLANEOUS--3.2%
6,000,000 TransAmerica Finance Corp., 5.97%, 2/17/95 5,922,390
--------------
FINANCE-OIL--7.5%
8,000,000 Chevron Oil Finance Co., 5.18%, 12/12/94 7,987,338
6,000,000 Texaco, Inc., 5.62%, 1/13/95 5,959,723
--------------
Total 13,947,061
--------------
FINANCE-RETAIL--12.9%
9,000,000 American General Finance Corp., 5.75%, 1/27/95 8,918,063
8,000,000 Associates Corp. of North America, 5.35%, 12/15/94 7,983,356
7,000,000 MCA Funding Corp., 5.07%-5.17%, 1/12/95-2/6/95 6,951,181
--------------
Total 23,852,600
--------------
FINANCE-TELECOMMUNICATIONS--4.3%
8,000,000 BellSouth Capital Funding Corp., 5.00%-5.49%, 12/5/94-2/6/95 7,956,908
--------------
FOOD & BEVERAGE--3.8%
$ 7,000,000 Sara Lee Corp., 4.70%, 12/2/94 $ 6,999,086
--------------
Total Commercial Paper 67,623,738
--------------
Time Deposits--12.9%
FINANCE-BANKING--12.9%
8,000,000 First Union Nassau Bank, 5.81%, 12/1/94 8,000,000
8,000,000 NBD Bank, Canada, 5.75%, 12/1/94 8,000,000
8,000,000 Toronto-Dominion Bank, 5.75%, 12/1/94 8,000,000
--------------
Total Time Deposits 24,000,000
--------------
**Variable Rate Notes--9.7%
FINANCE-BANKING--7.0%
5,000,000 Boatmens National Bank, St. Louis, 5.72%, 8/16/95 5,000,000
3,000,000 Northern Trust Co., 5.75%, 7/20/95 2,990,917
5,000,000 PNC Bank, Kentucky, 5.69%, 5/12/95 4,999,421
--------------
Total 12,990,338
--------------
FOOD & BEVERAGE--2.7%
5,000,000 Coca-Cola Co., 6.10%, 8/29/95 5,000,000
--------------
Total Variable Rate Notes 17,990,338
--------------
***Repurchase Agreement--7.9%
14,715,632 Goldman Sachs, 5.65%, dated 11/30/94, due 12/1/94 14,715,632
--------------
Total Investments, at amortized cost and value $ 194,305,717+
--------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
** Denotes variable rate securities which show current rate and next demand
date.
*** Repurchase agreement is fully collateralized by U.S. Treasury 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
($185,337,876) at November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE MONEY MARKET FUND STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments, at amortized cost and value $ 194,305,717
Interest receivable 837,025
Deferred expenses 14,467
--------------
Total assets 195,157,209
Liabilities:
Payable for investments purchased $ 9,016,713
Dividends payable 743,199
Accrued expenses 59,421
------------
Total liabilities 9,819,333
--------------
Net Assets for 185,337,876 shares of beneficial interest outstanding $ 185,337,876
--------------
Net Asset Value, Offering Price, and Redemption Proceeds Per Share:
Institutional Shares ($129,232,911 / 129,232,911 shares of beneficial interest
outstanding) $1.00
--------------
Investment Shares ($56,104,965 / 56,104,965 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, 1994
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest income $ 7,076,136
Expenses:
Investment advisory fee $ 859,936
Trustees' fees 4,481
Administrative personnel and services fees 170,963
Custodian fees 34,397
Transfer and dividend disbursing agent fees and expenses 55,002
Fund share registration costs 52,444
Auditing fees 15,514
Legal fees 27,234
Printing and postage 23,938
Portfolio accounting fees 56,919
Insurance premiums 14,500
Distribution services fees 127,921
Miscellaneous 19,875
------------
Total expenses 1,463,124
Deduct--
Waiver of investment advisory fee $ 587,479
Waiver of administrative personnel and services fees 46,534
Waiver of distribution services fees 31,980
Reimbursement of other operating expenses by Administrator 52,852 718,845
---------- ------------
Net expenses 744,279
------------
Net investment income $ 6,331,857
------------
</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, 1994 1993
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 6,331,857 $ 4,207,488
--------------- ---------------
Distributions to Shareholders--
Dividends to shareholders from net investment income:
Institutional Shares (5,146,447) (4,068,438)
Investment Shares (1,185,410) (139,050)
--------------- ---------------
Change in net assets resulting from distributions to
shareholders (6,331,857) (4,207,488)
--------------- ---------------
Fund Share (Principal) Transactions--
Net proceeds from sale of shares 479,663,256 523,338,578
Cost of shares redeemed (481,257,539) (424,210,993)
--------------- ---------------
Change in net assets from Fund share transactions (1,594,283) 99,127,585
--------------- ---------------
Change in net assets (1,594,283) 99,127,585
Net Assets:
Beginning of period 186,932,159 87,804,574
--------------- ---------------
End of period $ 185,337,876 $ 186,932,159
--------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE MONEY MARKET FUND NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
(1) ORGANIZATION
The Biltmore Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end, management investment company.
The Trust consists of eleven diversified portfolios. The financial statements
included herein present only those of the Biltmore Money Market Fund (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The 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 the Act's Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
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 collateral to ensure the value of collateral at
least equals the principal amount of the repurchase transaction, including
accrued interest.
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").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
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 substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 not to exceed a period of five
years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
================================================================================
BILTMORE MONEY MARKET FUND
(3) 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, 1994, capital paid-in aggregated $185,337,876.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993
- --------------------------------------------------------------------------------------------------------
Institutional Shares
<S> <C> <C>
Shares sold 385,548,512 508,765,112
Shares redeemed (433,405,663) (416,373,470)
-------------- --------------
Net change resulting from Institutional Share transactions (47,857,151) 92,391,642
-------------- --------------
<CAPTION>
Year Ended November 30, 1994 1993
- --------------------------------------------------------------------------------------------------------
Investment Shares
<S> <C> <C>
Shares sold 94,114,744 14,573,466
Shares redeemed (47,851,876) (7,837,523)
-------------- --------------
Net change resulting from Investment Share transactions 46,262,868 6,735,943
-------------- --------------
Total net change resulting from Fund Share transactions (1,594,283) 99,127,585
-------------- --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Wachovia Investment Management Group, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.50 of 1% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive a portion of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust and The Biltmore Municipal
Funds for the period. FAS may voluntarily choose to waive a portion of its fee
and reimburse a portion of the Fund's other operating expenses. FAS can modify
or terminate the voluntary waiver and reimbursement at any time at its sole
discretion.
DISTRIBUTION PLAN--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's 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 FSC. The distributor may voluntarily
choose to waive a portion of its fee. The distributor can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund for which it is paid a fee. The FServ fee is based on the size, type
and number of accounts and transactions made by shareholders.
FServ also maintains the Fund's accounting records for which it is paid a fee.
The FServ fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
Wachovia Bank of North Carolina, N.A. is the Fund's custodian for which it is
paid a fee. The fee is based on the level of the Fund's average net assets for
the period, plus out-of-pocket expenses.
================================================================================
BILTMORE MONEY MARKET FUND
ORGANIZATIONAL EXPENSES--Organizational expenses ($65,357) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following May 4, 1992 (date the Fund became
effective). For the fiscal year ended November 30, 1994, the Fund paid $13,270
pursuant to this agreement.
Certain of the Officers of the Trust are Officers and Directors or Trustees of
the above companies.
================================================================================
REPORT OF ERNST & YOUNG LLP, 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, 1994, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights (see pages 2 and 14 of this prospectus) for the periods
presented. 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, 1994, 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, 1994, and the
results of its operations for the year then ended, changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
the periods presented, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 12, 1995
================================================================================
ADDRESSES
BILTMORE MONEY MARKET FUND Federated Investors Tower
INSTITUTIONAL SHARES 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, Federated Services Company
AND PORTFOLIO RECORDKEEPER 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 LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
- --------------------------------------------------------------------------------
BILTMORE MONEY MARKET FUND PROSPECTUS
A DIVERSIFIED PORTFOLIO OF THE BILTMORE FUNDS
An Open-End, Management Investment Company
090297102
January 31, 1995 2020203A-IS (1/95)
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"), a
portfolio in The Biltmore Funds (the "Trust"), dated January 31,
1995. This Combined Statement is not a prospectus itself. To
receive a copy of either prospectus, write to the Fund, call The
Biltmore Service Center toll-free at 1-800-994-4414, or contact
your Wachovia Bank account officer.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
Investment Limitations 2
The Biltmore Funds Management 4
Officers and Trustees 4
Fund Ownership 5
Trustees Compensation 6
Trustee Liability 6
Investment Advisory Services 6
Adviser to the Fund 6
Advisory Fees 7
Administrative Services 7
Brokerage Transactions 7
Purchasing Shares 8
Distribution Plan (Investment
Shares Only) 8
Conversion to Federal Funds 8
Determining Net Asset Value 9
Use of the Amortized Cost
Method 9
Redeeming Shares 10
Redemption in Kind 10
Tax Status 10
The Fund's Tax Status 10
Shareholders' Tax Status 10
Yield 10
Effective Yield 11
Performance Comparisons 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.
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. Capitalized terms not otherwise defined in this Statement shall
have the same meaning assigned in the prospectuses.
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:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
o 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:
o Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
o Farmers Home Administration;
o Federal Home Loan Banks;
o Federal Home Loan Mortgage Corporation;
o Federal National Mortgage Association;
o Government National Mortgage Association; and
o Student Loan Marketing Association.
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:
o Eurodollar Certificates of Deposit issued by foreign branches of
U.S. or foreign banks;
o Eurodollar Time Deposits, which are U.S. dollar-denominated
deposits in foreign branches of U.S. or foreign banks; and
o 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. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
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 by the Trust's 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.
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 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 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.
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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan, having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment , to be "cash items."
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.
James A. Hanley
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Malcolm T. Hopkins
Trustee
Private investor and consultant; Director, the Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution);
Director MAPCO, Inc. (diversified energy); Director, Metropolitan Series
Funds, Inc. and MetLife Portfolios, Inc. (investment companies);
Director, Kinder-Care Learning Centers, Inc. (child care); Director, U.S.
Home Corporation (residential builder and land development); and
Director, EMCOR Group, Inc. (engineering and construction).
Samuel E. Hudgins
Trustee
President, Percival Hudgins & Company, Inc. (investment
bankers/financial consultants); Director, Atlantic American Corporation
(insurance holding company); Director, Bankers Fidelity Life Insurance
Company; Director and Vice Chairman, Leath Furniture, Inc. (retail
furniture); President, Atlantic American Corporation (until 1988);
Director, Vice Chairman and Chief Executive Officer, Rhodes, Inc. (retail
furniture) (until 1988); Chairman and Director,
Atlantic American Life Insurance Co., Georgia Casualty & Surety Company,
and Bankers Fidelity Life Insurance (until 1988).
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel
company); formerly, Vice Chairman, Massachusetts Mutual Life Insurance
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 Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary and Trustee,
Federated Administrative Services; Executive Vice President and Director,
Federated Securities Corp.
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly, Associate
Corporate Counsel, Federated Investors; Vice President and Assistant
Treasurer for certain investment companies for which Federated Securities
Corp. is the principal distributor.
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 6, 1995, the following shareholder of record owned 5% or
more of the outstanding Institutional Shares of the Fund: Wachovia Bank
of North Carolina, Winston-Salem, North Carolina, on behalf of certain
underlying accounts, owned approximately 132,826,605 Shares (100%).
As of January 6, 1995, the following shareholders of record owned 5% or
more of the outstanding Investment Shares of the Fund: Wachovia Bank of
North Carolina, Winston-Salem, North Carolina, on behalf of certain
underlying accounts, owned approximately 37,867,419 Shares (52.80%);
Wachovia Brokerage Services, Winston-Salem, North Carolina, owned
approximately 28,846,980 Shares (40.22%); and Wachovia Bank of Georgia,
Atlanta, Georgia, on behalf of certain underlying accounts, owned
approximately 4,426,379 Shares (6.17%).
Trustees Compensation
NAME AND AGGREGATE TOTAL COMPENSATION PAID
POSITION WITH THE COMPENSATION FROM TO THE TRUSTEES FROM THE TRUST
TRUST THE TRUST+ AND FUND COMPLEX #
James A. Hanley,
Trustee $22,086 $23,400 for the Trust and
one other investment company
Malcolm T. Hopkins,
Trustee $16,920 $18,000 for the Trust and
one other investment company
Samuel E. Hudgins,
Trustee $22,086 $23,400 for the Trust and
one other investment company
J. Berkley Ingram, Jr.
Trustee $16,920 $18,000 for the Trust and
one other investment company
D. Dean Kaylor,
Trustee $15,851 $16,875 for the Trust and
one other investment company
+The aggregate compensation is paid by the Trust, which is comprised of
twelve portfolios.
# The Fund Complex is comprised of 15 portfolios.
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.
Because of the internal controls maintained by the Wachovia Banks to
restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Wachovia Banks' or their
affiliates' lending relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectuses.
For the fiscal years ended November 30, 1994 and 1993, and for the
period from June 2, 1992 (date of initial public investment) to November
30, 1992, the Adviser earned $859,936, $703,812 and $211,845,
respectively, of which $587,479, $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 a fee as described in the prospectuses.
For the fiscal years ended November 30, 1994 and 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
$170,963, $183,805 and $43,901, of which $46,534, $142,842 and $43,901,
respectively, were voluntarily waived. In addition, Federated
Administrative Services reimbursed $52,852, $67,462 and $17,500,
respectively, in other Fund 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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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
the Wachovia Banks, 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; 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 years ended November 30, 1994 and 1993, and for the
period from June 2, 1992 (date of initial public investment) to November
30, 1992, brokers and administrators (financial institutions) received
fees in the amount of $127,921, $20,582 and $2,258, respectively,
pursuant to the Plan, of which $31,980, $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 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 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.
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 1/2 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 Trust intends to redeem shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole
or in part by a distribution of securities from the Fund's portfolio.
To the extent available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in
a manner the Trustees determine to be fair and equitable.
Redemption in kind is not as liquid as cash redemption. If redemption
is made in kind, shareholders receiving their securities and selling
them before their maturity could receive less than the redemption value
of their securities and could incur transaction costs.
The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, which obligates the Fund to redeem shares for any
one shareholder in cash only up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period. Any redemption beyond
this amount will also be in cash unless the Trustees determine that
payments should be in kind.
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:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
Shareholders' Tax Status
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, 1994, was
5.27% for Institutional Shares. The yield for Investment Shares was
4.97% 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:
o 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;
o 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
o 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,
1994, was 5.41% for Institutional Shares. The effective yield for
Investment Shares was 5.09% for the same period.
The Fund's effective yield for both classes of Shares is computed by
compounding the unannualized base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
Performance Comparisons
The performance of both classes of Shares depends upon such variables
as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested; .
o changes in interest rates on money market instruments;
o changes in the expenses of the Fund or of either class of Shares;
and
o 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 offering price. The financial publications and/or indices which
the Fund uses in advertising may include:
o Lipper Analytical Services, Inc. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund
will quote its Lipper ranking in the" institutional money market
instruments funds" and "money market instruments funds" categories
in advertising and sales literature.
o 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.
o 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.
o 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.
090297-10-2
090297-20-1
2020203B (1/95)
PROSPECTUS
JANUARY 31, 1995
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 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 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.
BILTMORE TAX-FREE
MONEY MARKET FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
The Fund has also filed a Combined Statement of Additional Information for
Institutional Shares and Investment Shares, dated January 31, 1995, 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.
================================================================================
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
Municipal Securities 4
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 4
Investing in Securities of
Other Investment Companies 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed Delivery
Transactions 5
Temporary Investments 5
Investment Risks 6
Investment Limitations 6
Regulatory Compliance 6
- ---------------------------------------------------
THE BILTMORE FUNDS INFORMATION 6
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 7
Adviser's Background 7
Distribution of Institutional Shares 7
Administration of the Fund 7
Administrative Services 7
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 8
- ---------------------------------------------------
NET ASSET VALUE 8
- ---------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 8
Share Purchases 8
Through the Wachovia Banks 8
Via a Sweep Account 9
Minimum Investment Required 9
What Shares Cost 9
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
State and Local Taxes 12
- ---------------------------------------------------
PERFORMANCE INFORMATION 12
- ---------------------------------------------------
OTHER CLASSES OF SHARES 13
- ---------------------------------------------------
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 14
- ---------------------------------------------------
FINANCIAL STATEMENTS 15
- ---------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 26
- ---------------------------------------------------
ADDRESSES BACK COVER
================================================================================
SUMMARY OF FUND EXPENSES
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver) (1) 0.05%
12b-1 Fees None
Other Expenses 0.27%
Total Institutional Shares Operating Expenses (after waiver) (2) 0.32%
</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 Annual Institutional Shares Operating Expenses were 0.38% for the
fiscal year ended November 30, 1994. The Annual Institutional Shares
Operating Expenses in the table above reflect an anticipated reduction in
the voluntary waiver of the administrative fee for the fiscal year ending
November 30, 1995. The Annual Institutional Shares Operating Expenses are
expected to be 0.77%, 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 Institutional 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 Institutional Shares."
<TABLE>
<S> <C> <C> <C> <C>
EXAMPLE 1 year 3 years 5 years 10 years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period. As noted in the table above, the Fund charges
no redemption fees for Institutional Shares. $3 $10 $18 $41
</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 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 LLP, Independent Auditors, on
page 26.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993 1992*
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.02 0.02 0.01
Less distributions
Dividends to shareholders from net investment income (0.02) (0.02) (0.01)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
--------- --------- ---------
Total Return** 2.42% 2.30% 1.49%
Ratios to Average Net Assets
Expenses 0.38% 0.29% 0.16%(a)
Net investment income 2.41% 2.28% 2.71%(a)
Expense waiver/reimbursement (b) 0.45% 0.60% 0.78%(a)
Supplemental Data
Net assets, end of period (000 omitted) $93,867 $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
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expenses and net
investment income ratios shown above.
(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. 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., Wachovia Bank of South Carolina, N.A. (formerly known as 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, advisory, 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 Emerging
Markets Fund, Biltmore Equity Fund, Biltmore Equity Index Fund, Biltmore Fixed
Income Fund, Biltmore Money Market Fund (Institutional Shares and Investment
Shares), Biltmore Prime Cash Management Fund (Institutional Shares), 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, 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-1+,
or A-1 by Standard & Poor's Ratings Group ("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 securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.
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.
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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 Wachovia Bank
of South Carolina, N.A., have been managing trust assets for over 100 years,
with approximately $17.3 billion in managed assets as of September 30, 1994.
Wachovia Investment Management Group has served as investment adviser for The
Biltmore Funds since March 9, 1992. Wachovia Bank of North Carolina N.A. also
serves as investment adviser to the Biltmore North Carolina Municipal Bond Fund,
a portfolio of The Biltmore Municipal Funds, another investment company. As part
of their regular banking operations, the Wachovia Banks may make loans to public
companies. Thus, it may be possible, from time to time, for the Fund to hold or
acquire the securities of issuers which are also lending clients of the Wachovia
Banks. The lending relationship will not be a factor in the selection of
securities.
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, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with the
administrative personnel and services necessary to operate the Fund. Such
services include the preparation of filings with the Securities and Exchange
Commission and other regulatory authorities, assistance with respect to meetings
of the Trustees, shareholder servicing and accounting services, and other
administrative services. Federated Administrative Services provides these at an
annual rate, computed and payable daily, as specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily
Maximum Net Assets of
Administrative The Biltmore Funds and
Fee The Biltmore Municipal Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year for the Fund and for each
of the other portfolios of The Biltmore Funds shall aggregate at least $75,000.
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, 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 based upon the average daily net assets of the Fund
and which is payable monthly. 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, Pennsylvania, 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 independent Trustees.
INDEPENDENT AUDITORS. The independent auditors are Ernst & Young LLP,
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 the Wachovia Banks, 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) 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 unless
requested in writing to the Fund.
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' accounts 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 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 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. 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 6, 1995, the Wachovia Banks and their
various affiliates and subsidiaries, acting in various capacities for numerous
accounts, were the owner of record of in excess of 25% of the
outstanding Shares 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, 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 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.
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 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.
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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 Investments,
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 Trust, 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 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 LLP, Independent Auditors, on
page 26.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993 1992*
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.02 0.02 0.01
Less distributions
Dividends to shareholders from net investment income (0.02) (0.02) (0.01)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
--------- --------- ---------
Total Return** 2.11% 1.99% 1.29%
Ratios to Average Net Assets
Expenses 0.68% 0.59% 0.50%(a)
Net investment income 2.11% 1.98% 2.37%(a)
Expense waiver/reimbursement (b) 0.55% 0.70% 0.88%(a)
Supplemental Data
Net assets, end of period (000 omitted) $42,820 $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
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expenses and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Short-Term Municipal Securities--96.3%
ALABAMA--6.0%
$ 3,210,000 Alabama, HFA, Weekly VRDNs Revenue Refunding Bonds
(Series A & D)/(SouthTrust Bank of Alabama LOC) A-1 $ 3,210,000
5,000,000 Birmingham, AL, Weekly VRDNs GO UT Refunding Bonds
(Series 1992-A)/(First Alabama Bank LOC) SP-1+ 5,000,000
--------------
Total 8,210,000
--------------
ARKANSAS--3.1%
1,300,000 Arkansas Hospital Equipment Finance Authority, Weekly
VRDNs Revenue Refunding Bonds (Credit Suisse LOC) A1+ 1,300,000
725,000 Fayetteville, AR Public Facility, Weekly VRDNs Revenue
Refunding Bonds (Charter Vista Hospital)/(Mitsubishi Bank Ltd.
LOC) VMIG1 725,000
2,200,000 University of Arkansas, Weekly VRDNs Revenue Bonds
(Law & Medical School Project)/(First Union LOC) A-1+ 2,200,000
--------------
Total 4,225,000
--------------
CALIFORNIA--0.7%
1,000,000 Orange County, CA, Monthly VRDNs Revenue Bonds (Series B) RANs
and TANs MIG1 1,000,000
--------------
CONNECTICUT--1.6%
2,200,000 Connecticut State Economic Recovery Notes, Weekly VRDNs GO UT
Refunding Bonds (Series B)/(Industrial Bank Japan SPA) VMIG1 2,200,000
--------------
FLORIDA--13.3%
1,800,000 Bay County, FL, Hospital System Revenue, Daily VRDNs
(Bay Medical Center Project)/(Citibank, NY LOC) MIG1 1,800,000
5,000,000 Broward County, FL, HFA, Weekly VRDNs Revenue Bonds
(Welleby Apt. Project)/(Security Pacific National Bank LOC) VMIG1 5,000,000
4,100,000 Collier County, FL, HFA, Weekly VRDNs Revenue Bonds
(River Beach Project)/(Morgan Guaranty LOC) VMIG1 4,100,000
900,000 Florida Escambia County Facility Authority, IDR, Monthly VRDNs
Revenue Refunding Bonds (Florida Convalescent Center
Project)/(Series A)/(Toronto Dominion LOC) P-1 900,000
1,500,000 Martin County, FL School District, 4.35% TANs, 6/30/95 MIG1 1,503,761
2,000,000 Palm Beach County, FL School District, 4.75%, 9/13/95 MIG1 2,012,053
</TABLE>
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Short-Term Municipal Securities--continued
FLORIDA--CONTINUED
$ 850,000 Polk County, FL, IDA, Monthly VRDNs Revenue Refunding Bonds
(Florida Convalescent Center Project)/(Toronto Dominion LOC) P-1 $ 850,000
2,000,000 St. Lucie County, FL, 3.20% (Florida Power & Light
Project), 1/30/95 VMIG1 2,000,000
--------------
Total 18,165,814
--------------
GEORGIA--12.0%
3,000,000 Burke County, GA, Development Pollution Authority, 3.60%-3.80%,
Revenue Refunding Bonds (Oglethorpe Power Corp.
Project)/(Series A), 1/24/95-2/23/95 (Credit Suisse LOC) P-1 3,000,000
4,000,000 Cobb County, GA, 3.50% GO UT Bonds, TANs, 12/30/94 SP-1+ 4,001,865
5,000,000 De Kalb Private Hospital Authority, GA Weekly VRDNs (Engleston
Childrens' Hospital)/(Series B)/(Trust Company Bank LOC) A-1+ 5,000,000
1,500,000 Georgia State, 6.75% GO UT Bonds (Series E), 12/1/95 1,529,940
1,895,000 Marietta, GA, HFA, VRDNs Revenue Bonds (Falls at Bells
Ferry)/(Guardian S&L LOC) VMIG1 1,895,000
1,000,000 Newton County, GA, IDA, Weekly VRDNs Refunding Bonds (John H.
Harland Co. Project)/(NationsBank, GA LOC) A-1 1,000,000
--------------
Total 16,426,805
--------------
ILLINOIS--8.1%
1,000,000 Chicago, IL, School Finance Authority, 7.75% GO UT Refunding
Bonds, 6/1/95 AAA 1,038,744
3,000,000 Illinois Development Finance Authority Revenue, Weekly VRDNs
(Aurora Central Catholic High School)/(Northern Trust Co. LOC) AA+ 3,000,000
1,000,000 Illinois Development Finance Authority Revenue, Weekly VRDNs
Refunding Bonds (Catholic Charities Housing)/ (Series
B)/(National Westminister LOC) VMIG1 1,000,000
1,500,000 Illinois Development Finance Authority Revenue, Weekly VRDNs
(Little City Foundation Special Facilities)/(LaSalle National
Bank LOC) AA+ 1,500,000
1,500,000 Illinois Development Finance Authority Revenue, Weekly VRDNs
(St. Ignatius College Prep.)/(Northern Trust Co. LOC) A-1+ 1,500,000
3,000,000 Illinois State Toll Highway Authority, Weekly VRDNs Revenue
Refunding Bonds (Series B)/(Societe Generale LOC) VMIG1 3,000,000
--------------
Total 11,038,744
--------------
</TABLE>
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Short-Term Municipal Securities--continued
INDIANA--1.7%
$ 2,300,000 Indianapolis, IN, Weekly VRDNs Revenue Refunding Bonds (Canal
Square Project)/(Societe Generale LOC) VMIG1 $ 2,300,000
--------------
IOWA--0.5%
600,000 Indianola, IA, IDR Monthly VRDNs Revenue Bonds
(HY-VEE Foods)/(Rabobank Nederland LOC) A-1+ 600,000
--------------
KANSAS--1.6%
2,175,000 Topeka, KS, 4.50% GO UT Bonds (Series A), 6/1/95 MIG1 2,183,828
--------------
KENTUCKY--0.7%
900,000 City of Georgetown, KY, Educational Institutional Weekly VRDNs
Revenue Bonds (Georgetown College Project)/PNC Bank, KY LOC) VMIG1 900,000
--------------
LOUISIANA--5.9%
1,700,000 Calcasieu Parish, LA, Weekly VRDNs Revenue Bonds (Citgo
Petroleum Corp.)/(Sumitomo Bank LOC) A1 1,700,000
2,800,000 Lake Charles, LA Harbor & Terminal District, Weekly VRDNs
Revenue Bonds (Citgo Petroleum Corp.)/(National Westminister
Bank LOC) P-1 2,800,000
3,600,000 Louisiana State Recovery District Sales Tax Revenue, Daily
VRDNs (Swiss Bank SPA) VMIG1 3,600,000
--------------
Total 8,100,000
--------------
MARYLAND--4.4%
6,000,000 Maryland State Health and Higher Education Facility Anne
Arundel Hospital, Weekly VRDNs Revenue Bonds (Series B)/(Mellon
Bank LOC) VMIG1 6,000,000
--------------
MASSACHUSETTS--3.4%
1,600,000 Massachusetts State, Daily VRDNs GO UT Bonds (Series D)/
(ABN-AMRO LOC) VMIG1 1,600,000
3,000,000 Massachusetts Municipal Wholesale Electric Co., Weekly VRDNs
Supply System Revenue Refunding Bonds (Series C)/ (Canadian
Imperial Bank LOC) A-1+ 3,000,000
--------------
Total 4,600,000
--------------
MINNESOTA--1.5%
2,020,000 Minnesota State, 6.60% GO UT Refunding Bonds, 8/1/95 Aa1 2,053,251
--------------
</TABLE>
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Short-Term Municipal Securities--continued
NEW YORK--0.7%
$ 1,000,000 New York, NY, Daily VRDNs GO UT Refunding Bonds (Morgan
Guaranty LOC) VMIG1 $ 1,000,000
--------------
NORTH CAROLINA--1.8%
2,500,000 North Carolina Eastern Municipal Power, 3.55% Revenue Bonds
(Series B), 1/9/95, (UBS & Morgan Guaranty LOC) A-1+ 2,500,000
--------------
OHIO--0.7%
1,000,000 Centerville, OH, Healthcare Revenue, Weekly VRDNs (Bethany
Lutheran Village Project)/(PNC Bank LOC) VMIG1 1,000,000
--------------
PENNSYLVANIA--6.3%
3,600,000 Allegheny County, PA, Port Authority, 4.10% GANs,
7/3/95 (PNC Bank LOC) MIG1 3,600,111
2,000,000 Pennsylvania State University, 3.00%, 12/5/94 SP-1+ 2,000,057
2,000,000 Philadelphia, PA, 4.75% GO UT Bonds (Series A) RANs and TANs,
6/15/95, (Canadian Imperial Bank LOC) MIG1 2,008,800
1,000,000 Sewickley Valley Hospital Authority, PA, 3.00% Revenue
Refunding Bonds (Series B), 12/15/94, (PNC Bank LOC) VMIG1 1,000,139
--------------
Total 8,609,107
--------------
TENNESSEE--7.4%
3,000,000 Metro Government Nashville & Davidson County, TN, IDB, Weekly
VRDNs Revenue Bonds (Arbor Crest)/(Series B)/ (Chemical Bank,
NY LOC) VMIG1 3,000,000
2,000,000 Metro Government Nashville & Davidson County, TN, Health and
Education Facilities, Weekly VRDNs Revenue Refunding Bonds
(West Meade Place Project)/(NationsBank, GA LOC) A-1 2,000,000
5,100,000 Tennessee State, Weekly VRDNs GO UT Bonds (Series B) BANs VMIG1 5,100,000
--------------
Total 10,100,000
--------------
TEXAS--7.3%
1,000,000 Fort Worth, TX, 8.70% GO LT Refunding Bonds, 3/1/95 AAA 1,013,366
3,000,000 Lower Neches Valley Authority, TX, 3.50% Revenue Refunding
Bonds (Chevron USA, Inc. Project), 2/15/95 A-1+ 3,000,000
1,000,000 San Antonio, TX, 8.30% GO LT Refunding Bonds, 8/1/95 AAA 1,027,885
1,860,000 **San Antonio, TX, Electric & Gas Revenue, 9.60%, 2/1/95 AAA 1,907,317
</TABLE>
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Credit
Principal Rating:
Amount Moody's
or Shares or S&P* Value
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Short-Term Municipal Securities--continued
TEXAS--CONTINUED
$ 3,000,000 Texas State, Weekly VRDNs MIG1 $ 3,000,000
--------------
Total 9,948,568
--------------
VIRGINIA--4.0%
1,500,000 **Harrisonburg, VA, HFA, 2.75 % Revenue Bonds (Rolling Brook
Village Apartments)/(Series A)/(Guardian S&L LOC),
2/1/95 VMIG1 1,500,000
3,000,000 Peninsula Ports Authority, VA, Daily VRDNs Revenue Refunding
Bonds (Port Facility-Shell Oil Co.) AAA 3,000,000
1,000,000 Virginia State, HSG Dev. Auth., 4.25% Revenue Bonds
(Series D), 7/12/95 VMIG1 1,000,000
--------------
Total 5,500,000
--------------
WASHINGTON--2.2%
3,000,000 Port Anacortes, WA, IDA, 3.95% Revenue Refunding Bonds (Texaco
Project), 2/15/95 P-1 3,000,000
--------------
WISCONSIN--0.7%
1,000,000 West Allis Milwaukee, WI, 5.00% GO UT Bonds, RANs & TANs,
8/22/95 MIG1 1,006,631
--------------
WYOMING--0.7%
1,000,000 **Unita County, WY, Pollution Control Revenue, 3.75%
(Chevron USA, Inc. Project), 6/15/95 P-1 1,000,000
--------------
Total Short-Term Municipal Securities 131,667,748
--------------
Regulated Investment Companies--4.4%
5,932,526 Fidelity Tax-Exempt Money Market Fund Instruments
Portfolio (at net asset value) 5,932,526
--------------
Total Investments, at amortized cost and value $ 137,600,274+
--------------
</TABLE>
On December 6, 1994, 0range County, California filed for protection under
Chapter 9 of the United States Bankruptcy Code with the U.S. Bankruptcy Court
in Santa Ana, California. On December 7, 1994, Wachovia Corp. purchased the
indicated security from the Fund's portfolio of investments at its amortized
cost, resulting in no loss to the Fund or its shareholders.
+ Also represents cost for federal tax purposes.
* Please refer to the Appendix of the Statement of Additional
Information for an explanation of the credit ratings. Current credit
ratings are unaudited.
** Denotes variable rate securities which show current rate and next
demand date.
Note: The categories of investments are shown as a percentage of net assets
($136,687,018) at November 30, 1994.
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
The following abbreviations are used throughout this portfolio:
BANs--Bond Anticipation Notes
GANs--Grant Anticipation Notes
GO--General Obligation
HFA--Housing Finance Authority
IDA--Industrial Development Authority
IDB--Industrial Development Board
IDR--Industrial Development Revenue
LOC--Letter(s) of Credit
LT--Limited Tax
RANs--Revenue Anticipation Notes
SPA--Standby Purchase Agreement
TANs--Tax Anticipation Notes
UT--Unlimited Tax
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments, at amortized cost and value $ 137,600,274
Cash 17,117
Interest receivable 972,051
Deferred expenses 11,321
--------------
Total assets 138,600,763
Liabilities:
Payable for investments purchased $ 1,533,878
Dividends payable 342,201
Accrued expenses 37,666
------------
Total liabilities 1,913,745
--------------
Net Assets for 136,687,018 shares of beneficial interest outstanding $ 136,687,018
--------------
Net Asset Value, Offering Price, and Redemption Proceeds Per Share:
Institutional Shares ($93,866,997 / 93,866,997 shares of beneficial interest
outstanding) $1.00
--------------
Investment Shares ($42,820,021 / 42,820,021 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, 1994
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest income $ 3,466,650
Expenses:
Investment advisory fee $ 620,752
Trustees' fees 5,447
Administrative personnel and services fees 124,799
Custodian fees 24,830
Transfer and dividend disbursing agent fees and expenses 52,855
Fund share registration costs 35,102
Auditing fees 15,373
Legal fees 18,482
Printing and postage 39,391
Portfolio accounting fees 51,896
Insurance premiums 13,213
Distribution services fees 139,886
Miscellaneous 16,448
------------
Total expenses 1,158,474
Deduct--
Waiver of investment advisory fee $ 463,428
Waiver of administrative personnel and services fees 31,039
Waiver of distribution services fees 34,972
Reimbursement of other operating expenses
by Administrator 57,028 586,467
---------- ------------
Net expenses 572,007
------------
Net investment income $ 2,894,643
------------
</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, 1994 1993
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 2,894,643 $ 1,687,496
--------------- ---------------
Distributions to Shareholders--
Dividends to shareholders from net investment income:
Institutional Shares (2,150,380) (1,400,375)
Investment Shares (744,263) (287,121)
--------------- ---------------
Change in net assets from distributions to shareholders (2,894,643) (1,687,496)
--------------- ---------------
Fund Share (Principal) Transactions--
Proceeds from sale of shares 263,497,759 202,842,602
Cost of shares redeemed (210,055,320) (186,567,848)
--------------- ---------------
Change in net assets from Fund share transactions 53,442,439 16,274,754
--------------- ---------------
Change in net assets 53,442,439 16,274,754
Net Assets:
Beginning of period 83,244,579 66,969,825
--------------- ---------------
End of period $ 136,687,018 $ 83,244,579
--------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
(1) ORGANIZATION
The Biltmore Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end, management investment company.
The Trust consists of eleven diversified portfolios. The financial statements
included herein present only those of the Biltmore Tax-Free Money Market Fund
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The 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.
(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 Fund's use of amortized cost method to value its
portfolio securities is in accordance with Rule 2a-7 under the Act.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal income are necessary.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
E. 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 not to exceed a period of five
years from the Fund's commencement date.
F. OTHER--Investment transactions are accounted for on the trade date.
================================================================================
BILTMORE TAX-FREE MONEY MARKET FUND
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Board of Trustees (the "Trustees") to issue
an unlimited number of full and fractional shares of beneficial interest
(without par value) for each class of shares. At November 30, 1994, capital
paid-in aggregated $136,687,018. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Institutional Shares Year Ended November 30, 1994 1993
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Shares sold 175,432,174 157,797,806
Shares redeemed (140,833,740) (160,161,423)
-------------- --------------
Net change resulting from Institutional Share transactions 34,598,434 (2,363,617)
-------------- --------------
<CAPTION>
Investment Shares Year Ended November 30, 1994 1993
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Shares sold 88,065,585 45,044,796
Shares redeemed (69,221,580) (26,406,425)
-------------- --------------
Net change resulting from Investment Share transactions 18,844,005 18,638,371
-------------- --------------
Total net change resulting from Fund share transactions 53,442,439 16,274,754
-------------- --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Wachovia Investment Management Group, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.50 of 1% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive a portion of its fee. The
Adviser can modify or terminate the voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust and The Biltmore Municipal
Funds for the period. FAS may voluntarily choose to waive a portion of its fee
and reimburse a portion of the Fund's other operating expenses. FAS can modify
or terminate the voluntary waiver and reimbursement at any time at its sole
discretion.
DISTRIBUTION PLAN--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's 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 FSC. FSC may voluntarily choose to
waive a portion of its fee. FSC can modify or terminate the voluntary waiver at
any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund for which it is paid a fee. The FServ fee is based on the size, type
and number of accounts and transactions made by shareholders.
FServ also maintains the Fund's accounting records for which it is paid a fee.
The fee is based on the level of the Fund's average net assets for the period,
plus out-of-pocket expenses.
Wachovia Bank of North Carolina, N.A. is the Fund's custodian. The fee is based
on the level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($59,661) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following May 4, 1992 (the date the Fund became
effective). For the fiscal year ended November 30, 1994, the Fund paid $12,360
pursuant to this agreement.
Certain of the Officers of the Trust are Officers and Directors or Trustees of
the above companies.
================================================================================
REPORT OF ERNST & YOUNG LLP, 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, 1994, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights (see pages 2 and 14 of this prospectus) for the periods
presented. 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, 1994, 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 Tax-Free Money Market Fund of The Biltmore Funds at November 30, 1994,
and the results of its operations for the year then ended, changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for the periods presented, in conformity with general accepted
accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 12, 1995
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ADDRESSES
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BILTMORE TAX-FREE MONEY MARKET FUND Federated Investors Tower
INSTITUTIONAL SHARES Pittsburgh, Pennsylvania 15222-3779
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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, North Carolina 27150
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CUSTODIAN Wachovia Bank of North Carolina, N.A.
Wachovia Trust Operations
301 North Main Street
Winston-Salem, North Carolina 27150
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TRANSFER AGENT, DIVIDEND DISBURSING AGENT, Federated Services Company
AND PORTFOLIO RECORDKEEPER Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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COUNSEL TO THE BILTMORE FUNDS Kirkpatrick & Lockhart
1800 M Street, N.W.
Washington, D.C. 20036-5891
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COUNSEL TO THE INDEPENDENT TRUSTEES Piper & Marbury
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
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INDEPENDENT AUDITORS Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
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BILTMORE TAX-FREE MONEY MARKET FUND PROSPECTUS
A DIVERSIFIED PORTFOLIO OF THE BILTMORE FUNDS
An Open-End, Management Investment Company
090297300
January 31, 1995 2020206A-I&R (1/95)
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"), a portfolio in The Biltmore Funds (the "Trust"), dated
January 31, 1995. This Combined Statement is not a prospectus
itself. To receive a copy of either prospectus, write to the Fund,
call The Biltmore Service Center toll-free at 1-800-994-4414, or
contact your Wachovia Bank account officer.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Acceptable Investments 1
Investment Limitations 2
The Biltmore Funds Management 4
Officers and Trustees 4
Fund Ownership 5
Trustees Compensation 6
Trustee Liability 6
Investment Advisory Services 6
Adviser to the Fund 6
Advisory Fees 7
Administrative Services 7
Brokerage Transactions 7
Purchasing Shares 8
Distribution Plan (Investment
Shares Only) 8
Conversion to Federal Funds 8
Determining Net Asset Value 9
Use of the Amortized Cost
Method 9
Redeeming Shares 10
Redemption in Kind 10
Tax Status 10
The Fund's Tax Status 10
Yield 11
Tax-Equivalent Yield 11
Tax-Equivalency Table 12
Effective Yield 12
Performance Comparisons 12
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.
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. Capitalized terms not otherwise defined in this Statement have
the same meaning assigned in the prospectuses.
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 Fund's 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
Fund's 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 Investors Service, Standard
& Poor's Ratings Group or Fitch Investor's Service, Inc. change because
of changes in those organizations or in their rating systems, the Fund
will attempt to use comparable ratings as standards in accordance with
the investment policies described in the Fund's prospectuses.
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 or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
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.
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 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 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 1/2 of 1% of the issuer's
securities, together own more than 5% of the issuer's securities.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
The Fund 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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan, having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment, to be "cash items."
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.
James A. Hanley
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Malcolm T. Hopkins
Trustee
Private investor and consultant; Director, the Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution);
Director MAPCO, Inc. (diversified energy); Director, Metropolitan Series
Funds, Inc. and MetLife Portfolios, Inc. (investment companies);
Director, Kinder-Care Learning Centers, Inc. (child care); Director, U.S.
Home Corporation (residential builder and land development); and
Director, EMCOR Group, Inc. (engineering and construction).
Samuel E. Hudgins
Trustee
President, Percival Hudgins & Company, Inc. (investment
bankers/financial consultants); Director, Atlantic American Corporation
(insurance holding company); Director, Bankers Fidelity Life Insurance
Company; Director and Vice Chairman, Leath Furniture, Inc. (retail
furniture); President, Atlantic American Corporation(until 1988);
Director, Vice Chairman and Chief Executive Officer, Rhodes, Inc. (retail
furniture) (until 1988); Chairman and Director, Atlantic American Life
Insurance Co., Georgia Casualty & Surety Company, and Bankers Fidelity
Life Insurance (until 1988).
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel
company); formerly, Vice Chairman, Massachusetts Mutual Life Insurance
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 Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary and Trustee,
Federated Administrative Services; Executive Vice President and Director,
Federated Securities Corp.
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly, Associate
Corporate Counsel, Federated Investors; Vice President and Assistant
Treasurer for certain investment companies for which Federated Securities
Corp. is the principal distributor.
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 6, 1995, the following shareholder of record owned 5% or
more of the outstanding Institutional Shares of the Fund: Wachovia Bank
of North Carolina, Winston-Salem, North Carolina, on behalf of certain
underlying accounts, owned approximately 95,848,665 Shares (100%).
As of January 6, 1995, the following shareholders of record owned 5% or
more of the outstanding Investment Shares of the Fund: Wachovia Bank of
South Carolina, Columbia, South Carolina, on behalf of certain
underlying accounts, owned approximately 19,135,670 Shares (37.01%);
Wachovia Brokerage Services, Winston-Salem, North Carolina, on behalf of
certain underlying accounts, owned approximately 15,878,738 Shares
(30.71%); Wachovia Bank of Georgia, Atlanta, Georgia, on behalf of
certain underlying accounts, owned approximately 8,795,411 Shares
(17.01%) and Wachovia Bank of North Carolina, Winston-Salem, North
Carolina, on behalf of certain underlying accounts, owned approximately
7,889,085 Shares (15.26%).
Trustees Compensation
NAME AND AGGREGATE TOTAL COMPENSATION PAID
POSITION WITH THE COMPENSATION FROM TO THE TRUSTEES FROM THE TRUST
TRUST THE TRUST+ AND FUND COMPLEX #
James A. Hanley,
Trustee $22,086 $23,400 for the Trust and
one other investment company
Malcolm T. Hopkins,
Trustee $16,920 $18,000 for the Trust and
one other investment company
Samuel E. Hudgins,
Trustee $22,086 $23,400 for the Trust and
one other investment company
J. Berkley Ingram, Jr.
Trustee $16,920 $18,000 for the Trust and
one other investment company
D. Dean Kaylor,
Trustee $15,851 $16,875 for the Trust and
one other investment company
+The aggregate compensation is paid by the Trust, which is comprised of
twelve portfolios.
# The Fund Complex is comprised of 15 portfolios.
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.
Because of the internal controls maintained by the Wachovia Banks to
restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Wachovia Banks' or their
affiliates' lending relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
For the fiscal years ended November 30, 1994 and 1993, and for the
period from May 14, 1992 (date of initial public investment) to November
30, 1992, the Adviser earned $620,752, $380,443 and $148,370
respectively, of which $463,428, $297,388 and 148,370, respectively,
were voluntarily waived. In addition, for the period from May 14, 1992
(date of initial public investment) to November 30, 1992, the Adviser
reimbursed $21,924 of other Fund 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 a fee as
described in the prospectuses.
For the fiscal years ended November 30, 1994 and 1993, and for the
period from May 14, 1992 (date of initial public investment) to November
30, 1992, Federated Administrative Services earned $124,799, $100,161
and $20,406 , respectively, of which $31,039, $79,813 and $20,406,
respectively, were voluntarily waived. In addition, for the fiscal years
ended November 30, 1994 and 1993, and for the period from May 14, 1992
(date of initial public investment) to November 30, 1992, the Fund's
administrator reimbursed $57,028, $61,079 and $22,621, respectively, in
other Fund 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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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 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
the Wachovia Banks, 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 fiscal years ended November 30, 1994 and 1993, and for the
period from May 14, 1992 (date of initial public investment) to November
30, 1992, brokers and administrators (financial institutions) received
fees in the amount of $139,886, $59,172 and $5,513, respectively,
pursuant to the Plan, of which $34,972, $14,792 and $1,380, 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 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 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.
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 and have received the requisite rating from one or
more NRSROs. 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 Trust intends to redeem Shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole
or in part by a distribution of securities from the Fund's portfolio.
To the extent available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in
a manner the Trustees determine to be fair and equitable.
Redemption in kind is not as liquid as cash redemption. If redemption
is made in kind, shareholders receiving their securities and selling
them before their maturity could receive less than the redemption value
of their securities and could incur transaction costs.
The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, which obligates the Fund to redeem shares for any
one shareholder in cash only up to the lesser of $250,000 or 1% of the
class'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.
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:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Yield
The Fund's yield for Institutional Shares for the seven-day period ended
November 30, 1994, was 3.39%. The yield for the Investment Shares was
3.09% 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:
o 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;
o 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
o 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-equivalent yield for Institutional Shares for the seven-
day period ended November 30, 1994, was 4.91%. The Fund's tax-
equivalent yield for the Investment Shares was 4.48% 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.
Tax-Free Yield vs. Taxable Yield
FEDERAL INCOME TAX BRACKET:
15.00%28.00% 31.00% 36.00%
39.60%
Joint $1- $39,001 - $94,251 - $143,601 - OVER
Return 39,000 94,250 143,600 256,500 256,500
Single Return $1- $23,351 - $56,551 - $117,951 - OVER
23,350 56,550 117,950 256,500 $256,500
Tax-Exempt
Yield Taxable Yield Equivalent
2.50% 2.94% 3.47% 3.62% 2.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent.
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, 1994, was 3.44%. The effective yield for
the Investment Shares was 3.13% for the same period.
The Fund's effective yield for both classes of Shares is computed by
compounding the unannualized base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
Performance Comparisons
The performance of both classes of Shares depends upon such variables
as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in the expenses of the Fund of either class of Shares; and
o 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 offering price. The financial publications and/or indices which
the Fund uses in advertising may include:
o Lipper Analytical Services, Inc. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund
will quote its Lipper ranking in the "institutional tax exempt
money market funds" and "tax exempt money market funds"
categories in advertising and sales literature.
o 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.
o 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.
o 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.
o 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.
090297-30-0
090297-40-9
2020206B (1/94)
Prospectus
January 31, 1995
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.
BILTMORE
PRIME CASH MANAGEMENT FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
The Fund has also filed a Statement of Additional Information for Institutional
Shares, dated January 31, 1995, 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.
===================================================
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
Variable Rate Demand Notes 4
Bank Instruments 4
Short-Term Credit Facilities 4
Ratings 4
Repurchase Agreements 4
Credit Enhancement 4
Demand Features 4
Restricted and Illiquid Securities 5
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
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 7
Adviser's Background 7
Distribution of Institutional Shares 7
Administration of the Fund 7
Administrative Services 7
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 8
- ---------------------------------------------------
NET ASSET VALUE 8
- ---------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 8
Share Purchases 8
Through the Wachovia Banks 8
Via a Sweep Account 9
Minimum Investment Required 9
What Shares Cost 9
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
- ---------------------------------------------------
FINANCIAL STATEMENTS 13
- ---------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 20
- ---------------------------------------------------
ADDRESSES BACK COVER
- -----------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver) (1) 0.08%
12b-1 Fees None
Other Expenses (after waivers and assumption) (2) 0.10%
Total Fund Operating Expenses (after waivers and assumption) (3) 0.18%
</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 0.30%.
(2) Other expenses would have been 0.16%, absent the voluntary waivers by the
custodian and administrator and the voluntary assumption by the
administrator. The custodian and administrator can terminate these
voluntary waivers and assumption at any time at their sole discretion.
(3) Total Fund Operating Expenses would have been 0.46%, absent the voluntary
waivers and assumption described above in notes l and 2.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder 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>
<S> <C> <C> <C> <C>
Example 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return; and (2)
redemption at the end of each time period. As noted in
the table above, the Fund charges no redemption fees. $2 $6 $10 $23
</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 PRIME CASH MANAGEMENT FUND
FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 20.
<TABLE>
<CAPTION>
Period Ended November 30, 1994*
<S> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
Income from investment operations
Net investment income 0.04
Less distributions
Dividends to shareholders from net investment income (0.04)
-------
NET ASSET VALUE, END OF PERIOD $ 1.00
-------
Total return** 4.02%
Ratios to Average Net Assets
Expenses 0.18%(a)
Net investment income 4.31%(a)
Expense waiver/reimbursement (b) 0.28%(a)
Supplemental Data
Net assets, end of period (000 omitted) $816,008
</TABLE>
* Reflects operations for the period from December 2, 1993 (date of initial
public investment) to November 30, 1994.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
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., Wachovia Bank of South Carolina, (formerly known as 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, advisory, 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 Emerging
Markets 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, consult the Fund's
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 Ratings Group ("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 investment
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 securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund, may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.
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 Fund's 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. There is the risk that when lending portfolio securities, the
securities may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would file for
bankruptcy or become insolvent, disposition of the securities may be delayed
pending court action.
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 investment 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 Wachovia Bank
of South Carolina, N.A., have been managing trust assets for over 100 years,
with approximately $17.3 billion in managed assets as of September 30, 1994.
Wachovia Investment Management Group has served as investment adviser to The
Biltmore Funds since March 9, 1992. Wachovia Bank of North Carolina, N.A. also
serves as investment adviser to the Biltmore North Carolina Municipal Bond Fund,
a portfolio of The Biltmore Municipal Funds, another investment company. As part
of their regular banking operations, the Wachovia Banks may make loans to public
companies. Thus, it may be possible, from time to time, for the Fund to hold or
acquire the securities of issuers which are also lending clients of the Wachovia
Banks. The lending relationship will not be a factor in the selection of
securities.
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, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with the
administrative personnel and services necessary to operate the Fund. Such
services include the preparation of filings with the Securities and Exchange
Commission and other regulatory authorities, assistance with respect to meetings
of the Trustees, shareholder servicing and accounting services, and other
administrative services. Federated Administrative Services provides these at an
annual rate, computed and payable daily, as specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds
Administrative Fee and The Biltmore Municipal Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year for the Fund and for each
of the other portfolios of
The Biltmore Funds shall aggregate at least $75,000. 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, 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 based upon the average daily net assets of the Fund
and which is payable monthly. 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, Pennsylvania, 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 independent Trustees.
INDEPENDENT AUDITORS. The independent auditors are Ernst & Young LLP,
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 purchase order to earn dividends for that
day. Institutional Shares cannot be purchased on days on which the Wachovia
Banks, 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 unless
requested in writing to the Fund.
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' accounts 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 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. 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 6, 1995, the Wachovia Banks and their
various affiliates and subsidiaries, acting in various capacities for numerous
accounts, were the owner of record of in excess of 25% of the outstanding
Shares 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.
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 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.
[/R]
=============================================================================
BILTMORE PRIME CASH MANAGEMENT FUND PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Bankers' Acceptances--3.7%
$ 21,000,000 Deutsche Bank Financial, Inc., 5.35%-5.37%, 1/6/95 $ 20,887,430
9,000,000 First Union National Bank, 5.39%, 1/17/95 8,936,668
--------------
Total Bankers' Acceptances 29,824,098
--------------
*Commercial Paper--40.9%
ENERGY--4.9%
40,000,000 Texaco, Inc., 5.18%, 12/12/94 39,936,689
--------------
FINANCE--4.3%
15,000,000 Chevron Corp., 5.47%, 1/5/95 14,920,229
20,800,000 MCA Funding Corp., 5.07%-5.17%, 1/12/95-2/6/95 20,628,778
--------------
Total 35,549,007
--------------
FINANCE-AUTOMOTIVE--3.6%
30,000,000 Ford Motor Credit Corp., 5.84%, 1/30/95 29,708,000
--------------
FINANCE-COMMERCIAL--6.1%
25,000,000 General Electric Capital Corp., 5.08%-5.25%, 12/13/94-5/3/95 24,854,571
25,000,000 Commercial Credit Corp., 5.75%, 1/27/95 24,772,396
--------------
Total 49,626,967
--------------
FINANCE-ENERGY--3.1%
25,000,000 Chevron Oil Finance Co., 5.18%, 12/13/94 24,956,833
--------------
FINANCE-FOOD & BEVERAGE--1.8%
15,000,000 Bass Finance, 5.65%, 2/6/95 14,842,271
--------------
FINANCE-RETAIL--3.7%
30,000,000 Associates Corp., North America, 5.35%, 12/15/94 29,937,583
--------------
FINANCE-TELECOMMUNICATIONS--5.1%
42,000,000 Bellsouth Capital Funding Corp., 5.00%-5.49%, 12/5/94-2/6/95 41,822,075
--------------
FOOD & BEVERAGE--3.4%
10,000,000 PepsiCo, Inc., 5.71%, 2/3/95 9,898,489
18,000,000 Sara Lee Corp., 4.70%, 12/2/94 17,997,650
--------------
Total 27,896,139
--------------
INSURANCE--4.9%
40,000,000 American General Finance Corp., 5.62%-5.75%, 1/13/95-1/27/95 39,695,618
--------------
Total Commercial Paper 333,971,182
--------------
Certificates of Deposits--26.2%
$ 22,000,000 ABN Amro North America, 5.30%-5.65%, 1/23/95-3/16/95 $ 22,003,364
35,000,000 Credit Suisse, 5.21%-5.50%, 1/10/95-3/3/95 34,994,308
40,000,000 National Westminster Bank, 5.14%, 12/19/94 40,000,793
39,000,000 Rabobank, 3.67%-5.97%, 12/22/94-4/13/95 38,994,585
38,000,000 Socie 1/3te Generale, 4.90%-5.20%, 12/5/94-2/24/95 37,999,330
25,000,000 Swiss Bank Corp., 5.50%-5.53%, 1/10/95-1/13/95 25,000,000
15,000,000 Union Bank of Switzerland, 6.02%, 5/15/95 15,001,335
--------------
Total Certificates of Deposits 213,993,715
--------------
Notes--9.8%
37,000,000 Boatmens National Bank of St. Louis, 5.72%-5.73%, 6/14/95-8/16/95 37,000,000
8,000,000 CIT Group Holdings, Inc., 5.67%, 1/24/95 7,999,746
20,000,000 PNC Bank, Kentucky, Inc., 5.69%, 5/5/95 19,996,603
15,000,000 PepsiCo Inc., Medium Term Note, 5.715%, 4/13/95 15,000,000
--------------
Total Notes 79,996,349
--------------
Time Deposits--11.0%
30,000,000 First Union Bank, Nassau, 5.813%, 12/1/94 30,000,000
40,000,000 NBD Bank, N.A., 5.75%, 12/1/94 40,000,000
20,000,000 Toronto Dominion Bank, 5.75%, 12/1/94 20,000,000
--------------
Total Time Deposits 90,000,000
--------------
U.S. Government Obligations--0.1%
U.S. TREASURY BILLS
1,000,000 3/9/95 988,784
--------------
**Repurchase Agreement--8.3%
68,088,814 Goldman, Sachs & Co., 5.65%, dated 11/30/94, due 12/1/94 68,088,814
--------------
Total Investments, at amortized cost and value $ 816,862,942+
--------------
</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 agreement is fully collateralized by U.S. Treasury 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
($816,007,725) at November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
===============================================================================
BILTMORE PRIME CASH MANAGEMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments, at amortized cost and value $ 816,862,942
Interest receivable 2,803,092
Deferred expenses 252,865
--------------
Total assets 819,918,899
Liabilities:
Dividends payable $ 3,517,197
Accrued expenses 393,977
------------
Total liabilities 3,911,174
--------------
Net Assets for 816,007,725 shares of beneficial interest
outstanding $ 816,007,725
--------------
Net Asset Value, Offering Price, and Redemption Proceeds Per Share:
Institutional Shares ($816,007,725 / 816,007,725 shares of beneficial interest
outstanding) $1.00
--------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
===============================================================================
BILTMORE PRIME CASH MANAGEMENT FUND STATEMENT OF OPERATIONS
PERIOD ENDED NOVEMBER 30, 1994*
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest income $ 26,163,164
Expenses:
Investment advisory fee $ 1,748,930
Trustees' fees 22,861
Administrative personnel and services fees 556,490
Custodian fees 92,360
Transfer and dividend disbursing agent fees and expenses 33,082
Legal fees 19,088
Printing and postage 13,026
Portfolio accounting fees 91,051
Insurance premiums 14,442
Miscellaneous 71,111
------------
Total expenses 2,662,441
Deduct--
Waiver of investment advisory fee $ 1,288,670
Waiver of administrative personnel and services fees 264,629
Waiver of custodian fees 9,980
Reimbursement of other operating expenses by
Administrator 45,911 1,609,190
------------ ------------
Net expenses 1,053,251
-------------
Net investment income $ 25,109,913
-------------
</TABLE>
* For the period from December 2, 1993 (date of initial public investment) to
November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
===============================================================================
BILTMORE PRIME CASH MANAGEMENT FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period Ended November 30, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 25,109,913
---------------------
Distributions to Shareholders--
Dividends to shareholders from net investment income (25,109,913)
---------------------
Fund Share (Principal) Transactions--
Proceeds from sale of shares 1,747,708,257
Cost of shares redeemed (931,700,532)
---------------------
Change in net assets from Fund share transactions 816,007,725
---------------------
Change in net assets 816,007,725
Net Assets:
Beginning of period --
---------------------
End of period $ 816,007,725
---------------------
</TABLE>
* For the period from December 2, 1993 (date of initial public investment) to
November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
===============================================================================
BILTMORE PRIME CASH MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
(1) ORGANIZATION
The Biltmore Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end, management investment company.
The Trust consists of eleven diversified portfolios. The financial statements
included herein present only those of Biltmore Prime Cash Management Fund (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
one class of shares, Institutional 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. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
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 collateral to ensure the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
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").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
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 substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 not to exceed a period of five
years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) 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, 1994, capital paid-in aggregated $816,007,725. Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period Ended November 30, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------------------------
Shares sold 1,747,708,257
Shares redeemed (931,700 532)
---------------
Net change resulting from Fund share transactions 816,007,725
---------------
</TABLE>
* For the period from December 2, 1993 (date of initial public investment) to
November 30, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Wachovia Investment Management Group, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.30 of 1% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive a portion of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust and The Biltmore Municipal
Funds for the period. FAS may voluntarily choose to waive a portion of its fee
and reimburse a portion of the Fund's other operating expenses. FAS can modify
or terminate this voluntary waiver and reimbursement at any time at its sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund for which it is paid a fee. The FServ fee is based on the size, type,
and number of accounts and transactions made by shareholders.
FServ also maintains the Fund's accounting records for which it is paid a fee.
The fee is based on the level of the Fund's average net assets for the period,
plus out-of-pocket expenses.
Wachovia Bank of North Carolina, N.A. is the Fund's custodian. The fee is based
on the level of the Fund's average net assets for the period, plus out-of-pocket
expenses. The custodian may voluntarily choose to waive a portion of its fee.
The custodian can modify or terminate this voluntary waiver at any time at its
sole discretion.
ORGANIZATIONAL EXPENSES--Organizational expenses ($35,156) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following April 3, 1993 (the date the fund became
effective). For the fiscal year ended November 30, 1994, the Fund paid $4,688
pursuant to this agreement.
Certain of the Officers of the Trust are Officers and Directors or Trustees of
the above companies.
===============================================================================
REPORT OF ERNST & YOUNG LLP, 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 Prime Cash Management Fund (one of the
portfolios comprising The Biltmore Funds) as of November 30, 1994, the related
statement of operations, the statement of changes in net assets and the
financial highlights (see page 2 of this prospectus) for the period from
December 2, 1993 (date of initial public investment) to November 30, 1994. 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, 1994, 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 Prime Cash Management Fund of The Biltmore Funds at November 30, 1994,
and the results of its operations, the changes in its net assets and the
financial highlights for the period from December 2, 1993 (date of initial
public investment) to November 30, 1994, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 12, 1995
ADDRESSES
BILTMORE PRIME CASH MANAGEMENT FUND Federated Investors Tower
INSTITUTIONAL SHARES 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, Federated Services Company
AND PORTFOLIO ACCOUNTING SERVICES 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 LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
BILTMORE PRIME CASH MANAGEMENT FUND
INSTITUTIONAL SHARES
A DIVERSIFIED PORTFOLIO OF THE BILTMORE FUNDS
An Open-End, Management Investment Company
090297-80-5
January 31, 1995 2051406A-IS (1/95)
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"), a portfolio in The Biltmore Funds
(the "Trust"), dated January 31, 1995. This Statement is not a
prospectus itself. To receive a copy of the prospectus, write to
the Fund or call your Wachovia Bank account officer.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
Investment Limitations 2
The Biltmore Funds Management 4
Officers and Trustees 4
Fund Ownership 5
Trustees Compensation 6
Trustee Liability 6
Investment Advisory Services 6
Adviser to the Fund 6
Advisory Fees 7
Administrative Services 7
Brokerage Transactions 7
Purchasing Institutional Shares 8
Conversion to Federal Funds 8
Determining Net Asset Value 8
Use of the Amortized Cost
Method 8
Redeeming Institutional Shares 9
Redemption in Kind 9
Tax Status 10
The Fund's Tax Status 10
Shareholders' Tax Status 10
Yield 10
Effective Yield 10
Performance Comparisons 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.
Shares of the Fund are offered in one class, Institutional Shares. This
Statement of Additional Information relates to the Institutional Shares
of the Fund. Capitalized terms not otherwise defined in this Statement
have the same meaning assigned in the prospectus.
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:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
o 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:
o Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks, and Banks for Cooperatives;
o Farmers Home Administration;
o Federal Home Loan Banks;
o Federal Home Loan Mortgage Corporation;
o Federal National Mortgage Association;
o Government National Mortgage Association; and
o Student Loan Marketing Association.
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:
o Eurodollar Certificates of Deposit issued by foreign branches of
U.S. or foreign banks;
o Eurodollar Time Deposits, which are U.S. dollar-denominated
deposits in foreign branches of U.S. or foreign banks; and
o 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. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
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 by the Trust's 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.
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 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.
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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan, having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment, to be "cash items."
The Fund does not expect to borrow money 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.
James A. Hanley
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Malcolm T. Hopkins
Trustee
Private investor and consultant; Director, the Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution);
Director MAPCO, Inc. (diversified energy); Director, Metropolitan Series
Funds, Inc. and MetLife Portfolios, Inc. (investment companies);
Director, Kinder-Care Learning Centers, Inc. (child care); Director, U.S.
Home Corporation (residential builder and land development); and
Director, EMCOR Group, Inc. (engineering and construction).
Samuel E. Hudgins
Trustee
President, Percival Hudgins & Company, Inc. (investment
bankers/financial consultants); Director, Atlantic American Corporation
(insurance holding company); Director, Bankers Fidelity Life Insurance
Company; Director and Vice Chairman, Leath Furniture, Inc. (retail
furniture); President, Atlantic American Corporation (until 1988);
Director, Vice Chairman and Chief Executive Officer, Rhodes, Inc. (retail
furniture) (until 1988); Chairman and Director, Atlantic American Life
Insurance Co., Georgia Casualty & Surety Company, and Bankers Fidelity
Life Insurance (until 1988).
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel
company); formerly, Vice Chairman, Massachusetts Mutual Life Insurance
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 Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary and Trustee,
Federated Administrative Services; Executive Vice President and Director,
Federated Securities Corp.
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly, Associate
Corporate Counsel, Federated Investors; Vice President and Assistant
Treasurer for certain investment companies for which Federated Securities
Corp. is the principal distributor.
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 6, 1995, the following shareholder of record owned 5% or
more of the outstanding Institutional Shares of the Fund: Wachovia Bank
of North Carolina, Winston-Salem, North Carolina, owned approximately
870,087,536 shares (100%).
Trustees Compensation
NAME AND AGGREGATE TOTAL COMPENSATION
PAID
POSITION WITH THE COMPENSATION FROM TO THE TRUSTEES FROM
THE TRUST
TRUST THE TRUST+ AND FUND COMPLEX #
James A. Hanley,
Trustee $22,086 $23,400 for the Trust and
one other investment company
Malcolm T. Hopkins,
Trustee $16,920 $18,000 for the Trust and
one other investment company
Samuel E. Hudgins,
Trustee $22,086 $23,400 for the Trust and
one other investment company
J. Berkley Ingram, Jr.
Trustee $16,920 $18,000 for the Trust and
one other investment company
D. Dean Kaylor,
Trustee $15,851 $16,875 for the Trust and
one other investment company
+The aggregate compensation is paid by the Trust, which is comprised of
twelve portfolios.
# The Fund Complex is comprised of 15 portfolios.
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.
Because of the internal controls maintained by Wachovia Banks' to
restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Wachovia Banks' or their
affiliates' lending relationship with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
During the period from December 2, 1993 (date of initial public
investment) through November 30, 1994, the Adviser earned $1,748,930,
of which $1,288,670 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, which is a subsidiary of Federated
Investors, provides administrative personnel and services to the Fund
for a fee as described in the prospectus.
During the period from December 2, 1993 (date of initial public
investment) through November 30, 1994, the Fund incurred administrative
service costs of $556,490, of which $264,629 was voluntarily waived. In
addition, for the period ended November 30, 1994, FAS reimbursed $45,911
in other Fund 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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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 the Wachovia Banks, 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 act as the shareholders' 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 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 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 Trust intends to redeem shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole
or in part by a distribution of securities from the Fund's portfolio.
To the extent available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in
a manner the Trustees determine to be fair and equitable.
Redemption in kind is not as liquid as cash redemption. If redemption
is made in kind, shareholders receiving their securities and selling
them before their maturity could receive less than the redemption value
of their securities and could incur transaction costs.
The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, which obligates the Fund to redeem shares for any
one shareholder in cash only up to the lesser of $250,000 or 1% of the
class'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.
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:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
Shareholders' Tax Status
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, 1994, was
5.32%.
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:
o 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;
o 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
o 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 the seven-day period ended November 30,
1994, was 5.46%.
The Fund's effective yield for Institutional Shares is computed by
compounding the unannualized base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
Performance Comparisons
The performance of Institutional Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in the expenses of the Fund or of Institutional Shares;
and
o 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 offering price . The financial publications and/or indices which
the Fund uses in advertising may include:
o Lipper Analytical Services, Inc. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund
will quote its Lipper ranking in the "institutional money market
instruments funds" category in advertising and sales literature.
o 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.
o 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.
o 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.
090297-80-5
2051406B (1/95)
PROSPECTUS
JANUARY 31, 1995
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 midto
large-capitalization common stocks.
THE INVESTMENT COMPANY 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 (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.
BILTMORE
EQUITY FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
The Fund has also filed a Statement of Additional Information dated January 31,
1995 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, call
1-800-994-4414 or write The Biltmore Service Center, 101 Greystone Boulevard,
SC-9215, Columbia, South Carolina 29226.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
TABLE OF CONTENTS
- ---------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ---------------------------------------------------
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 4
Stock Index Futures and Options 5
Put and Call Options 5
Restricted and Illiquid Securities 5
Temporary Investments 5
Repurchase Agreements 6
When-Issued and Delayed
Delivery Transactions 6
Lending of Portfolio Securities 6
Investment Limitations 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 Shares 8
Administrative Arrangements 8
Shareholder Servicing Arrangements 8
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 9
Brokerage Transactions 9
Expenses of the Fund 9
- ---------------------------------------------------
NET ASSET VALUE 9
- ---------------------------------------------------
INVESTING IN THE FUND 9
Share Purchases 9
Through the Trust Divisions of the
Wachovia Banks 9
Through Wachovia Investments, Inc. 9
By Mail 10
By Wire 10
Through Authorized Broker/Dealers 10
Minimum Investment Required 10
What Shares Cost 10
Purchases at Net Asset Value 10
Sales Charge Reallowance 11
Reducing the Sales Charge 11
Quantity Discounts and Accumulated
Purchases 11
Letter of Intent 11
Reinvestment Privilege 11
Concurrent Purchases 11
Systematic Investment Program 12
Certificates and Confirmations 12
Subaccounting Services 12
Dividends 12
Capital Gains 12
Exchange Privilege 12
Exchange by Telephone 13
- ---------------------------------------------------
REDEEMING SHARES 13
By Telephone 13
By Mail 14
Signatures 14
Systematic Withdrawal Program 14
Accounts with Low Balances 14
- ---------------------------------------------------
SHAREHOLDER INFORMATION 14
Voting Rights 14
Massachusetts Business Trusts 15
- ---------------------------------------------------
EFFECT OF BANKING LAWS 15
- ---------------------------------------------------
TAX INFORMATION 16
- ---------------------------------------------------
PERFORMANCE INFORMATION 16
- ---------------------------------------------------
FINANCIAL STATEMENTS 17
- ---------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 28
- ---------------------------------------------------
ADDRESSES BACK COVER
================================================================================
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.60%
12b-1 Fees None
Other Expenses (after waiver and assumption) (2) 0.27%
Shareholder Servicing Agent Fee (3) 0.00%
Total Fund Operating Expenses (after waivers and assumption) (4) 0.87%
</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 0.70%.
(2) Other Expenses would have been 0.33% absent the voluntary waiver and
voluntary assumption by the administrator. The administrator can terminate
this voluntary waiver and assumption 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 time, the Fund will be able to pay up to
0.25 of 1% of the Fund's average daily net assets for shareholder servicing
agent fees. See "The Biltmore Funds Information."
(4) Total Fund Operating Expenses would have been 1.03%, absent the voluntary
waivers and assumption 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>
<S> <C> <C> <C> <C>
Example 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return;
(2) redemption at the end of each time period; and
(3) payment of the maximum sales load. As noted in
the table above, the Fund charges no redemption fees. $53 $72 $91 $147
</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 EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 28.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993*
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.28 $ 10.00
Income from investment operations
Net investment income 0.20 0.12
Net realized and unrealized gain (loss) on investments 0.12 0.25
--------- ---------
Total from investment operations 0.32 0.37
Less distributions
Dividends to shareholders from net investment income (0.20) (0.09)
Distributions to shareholders from net realized gain
on investment transactions (0.08) --
--------- ---------
Total distributions (0.28) (0.09)
--------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.32 $ 10.28
--------- ---------
Total Return** 3.10% 3.68%
Ratios to Average Net Assets
Expenses 0.87% 0.81%(a)
Net investment income 1.98% 2.18%(a)
Expense waiver/reimbursement (b) 0.16% 0.32%(a)
Supplemental Data
Net assets, end of period (000 omitted) $87,022 $61,997
Portfolio turnover rate 35% 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
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
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.
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 Emerging
Markets 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 Fund's investment
adviser's approach seeks undervalued stocks with improving prospects by
integrating two disciplines to capture both growth and value opportunities. The
Fund's investment 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 Depositary 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 Ratings Group ("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. The prices of
fixed income securities fluctuate inversely to the direction of interest rates.
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. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous. Settlement dates may be
a month or more after entering into these transactions, and the market values of
the securities purchased may vary from the purchase prices. Accordingly, the
Fund may pay more or less than the market value of the securities on the
settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter in transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or 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. There is the risk that when lending portfolio
securities, the securities may not be available to the Fund on a timely basis
and the Fund may, therefore, lose the opportunity to sell the securities at a
desirable price. In addition, in the event that a borrower of securities would
file for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
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., together with its affiliates, Wachovia Bank of
Georgia, N.A. and Wachovia Bank of South Carolina, N.A. (formerly known as The
South Carolina National Bank) (collectively, the "Wachovia Banks") have been
managing trust assets for over 100 years, with approximately $17.3 billion in
managed assets as of September 30, 1994. Wachovia Investment Management Group
has served as investment adviser to The Biltmore Funds since March 9, 1992.
Wachovia Bank of North Carolina, N.A., also serves as investment adviser of
Biltmore North Carolina Municipal Bond Fund, a portfolio of The Biltmore
Municipal Funds, another investment company. As part of their regular banking
operations, the Wachovia Banks may make loans to public companies. Thus, it may
be possible, from time to time, for the Fund to hold or acquire the securities
of issuers which are also lending clients of the Wachovia Banks. The lending
relationship will not be a factor in the selection of securities.
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 Senior Vice President of
Wachovia Bank of North Carolina, N.A. 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. He has
both bachelor 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. since
1983.
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, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is the Fund's shareholder servicing agent (the "Shareholder
Servicing Agent"). The Fund may pay the Shareholder Servicing Agent a fee based
on the average daily net asset value of shares for which it provides shareholder
services. These shareholder services include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance and communicating or facilitating purchases and redemptions of
shares. This fee will be computed at an annual rate equal to 0.25 of 1% of the
Fund's average daily net assets for which the Shareholder Servicing Agent
provides services; however, the Shareholder Servicing Agent may choose
voluntarily to waive all or a portion of its fee at any time or pay all or some
of its fees to financial institutions or other financial service providers.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services also provides the
Fund with the administrative personnel and services necessary to operate the
Fund. Such services include the preparation of filings with the Securities and
Exchange Commission and other regulatory authorities, assistance with respect to
meetings of the Trustees, shareholder servicing and accounting services, and
other administrative services. Federated Administrative Services provides these
at an annual rate, computed and payable daily, as specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds
Administrative Fee and The Biltmore Municipal Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year for the Fund and each of
the other portfolios of The Biltmore Funds shall aggregate at least $75,000.
Federated Administrative Services may choose voluntarily to waive or reimburse a
portion of its fee at any time.
CUSTODIAN. Wachovia Bank of North Carolina, N.A., Winston-Salem, North Carolina,
is custodian (the "Custodian") for the securities and cash of the Fund. Under
the Custodian Agreement, the Custodian holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. For the services to be provided to the Trust pursuant to the Custodian
Agreement, the Trust pays the Custodian an annual fee based upon the average
daily net assets of the Fund and which is payable monthly. 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, Pennsylvania, a subsidiary of Federated
Investors, 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 LLP,
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. and advised by the Adviser. 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
Fund 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, Wachovia Investments, Inc. or
authorized broker/dealers which have a sales agreement with the Distributor. All
purchase orders must be transmitted to the Fund by 5:00 p.m. (Eastern time).
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573. 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.
THROUGH THE TRUST DIVISIONS OF THE WACHOVIA BANKS. Trust customers of the
Wachovia Banks may place an order to purchase shares of the Fund by telephoning,
sending written instructions, or placing the order in person with their account
officer in accordance with the procedures established by the Wachovia Banks and
as set forth in the relevant account agreement.
Payment may be made to the Wachovia Banks by check, by wire of federal funds, or
by debiting a customer's account with the Wachovia Banks. Purchase orders must
normally be received by the Wachovia Banks by 3:00 p.m. (Eastern time), in order
for shares to be purchased at that day's price. It is the responsibility of the
Wachovia Banks to transmit orders promptly to the Fund. Shares of the Fund
cannot be purchased by wire on any day on which the Wachovia Banks, the New York
Stock Exchange and the Federal Reserve Wire System are not open for business.
THROUGH WACHOVIA INVESTMENTS, INC. Customers of Wachovia Investments, Inc. or
Wachovia Brokerage Service may place an order to purchase shares by telephoning
The Biltmore Service Center at 1-800-994-4414, sending written instructions, or
placing an order in person. Payment may be made by check, by wire of federal
funds (the customer's bank sends money to the Fund's bank through the Federal
Reserve Wire System) or by debiting a customer's account at Wachovia
Investments, Inc. Purchase orders must normally be received by Wachovia
Investments, Inc. before 3:30 p.m. (Eastern time). Wachovia Investments, Inc., a
wholly-owned subsidiary of Wachovia Corporation, is a registered broker/dealer
and member of the National Association of Securities Dealers, Inc. Wachovia
Brokerage Service is a business unit of Wachovia Investments, Inc.
BY MAIL. To purchase shares of the Fund through Wachovia Investments, Inc. by
mail, send a check made payable to Biltmore Equity Fund to The Biltmore Service
Center, 101 Greystone Boulevard, SC-9215, Columbia, South Carolina 29226. Orders
by mail are considered received after payment by check is converted by Wachovia
Investments, Inc. into federal funds. This is normally the next business day
after Wachovia Investments, Inc. receives the check.
BY WIRE. To purchase shares of the Fund through Wachovia Investments, Inc. by
wire, wire funds as follows:
Wachovia Investments, Inc.
ABA Number 0531-00494
Credit: 8735-001342
Further credit to: Biltmore Equity Fund
Re: (Customer name and brokerage account number)
Shares of the Fund cannot be purchased by wire on any day on which the Wachovia
Banks, the New York Stock Exchange and the Federal Reserve Wire System are not
open for business.
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of the Fund. Shares will be
purchased at the public offering price next determined after the Fund receives
the purchase request. Purchase requests through registered broker/dealers must
normally be received by the broker/dealer and transmitted to the Fund before
3:30 p.m. (Eastern time) in order for shares to be purchased at that day's
public offering price.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares of the Fund is $250. This amount may be
waived from time to time. Subsequent investments may be in amounts of $50 or
more.
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 a Sales Charge as a
Percentage of 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 Wachovia Banks for funds which are held in a fiduciary, advisory, 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 trusts, pension profit-sharing plans and individual retirement
accounts operated for such persons, may purchase shares of the Fund at net asset
value. In addition, trustees, officers, directors and employees of the
Distributor and its affiliates, and any bank or investment dealer who has a
sales agreement with the Distributor relating to the Fund, may also purchase
shares at their net asset value.
SALES CHARGE REALLOWANCE. For shares sold with a sales charge, the Wachovia
Banks or an affiliated broker or a dealer will receive up to 100% of the
applicable sales charge for purchases of Fund shares made directly through the
Wachovia Banks or such broker or dealer. Any portion of the sales charge which
is not paid to a dealer will be retained by the Distributor.
The sales charge for shares sold other than through Wachovia Investments, Inc.,
the Wachovia Banks or registered broker/dealers will be retained by the
Distributor. However, the Distributor, at its sole discretion, may uniformly
offer to pay cash, or promotional incentives in the form of trips to sales
seminars at luxury resorts, tickets or other items, to all dealers selling
shares of the Fund. Such payments will be predicated upon the amount of shares
of the Fund that are sold by the dealers.
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 in this
prospectus under the section entitled "What Shares Cost," larger purchases
reduce the sales charge paid. The Fund will combine purchases made on the same
day by the investor, 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
$90,000 and then purchases $10,000 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, the Wachovia Banks, Wachovia Investments,
Inc. 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 purchases.
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 up to 4.50% of the total amount intended to be purchased in escrow (in
shares of the Fund) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period, unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
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 the Fund at the next-determined net asset value without any sales
charge. The Wachovia Banks, Wachovia Investments, Inc. or the Distributor must
be notified by the shareholder in writing or by his financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder redeems
his shares in the Fund, there may be tax consequences.
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 and the portfolios in The Biltmore Municipal 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, the Wachovia Banks, Wachovia
Investments, Inc. or the Distributor must be notified by the agent placing the
order at the time the concurrent purchases are made. The sales charge will be
reduced after the purchase is confirmed.
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 Banks, Wachovia Investments,
Inc. or through the Distributor.
CERTIFICATES AND CONFIRMATIONS
As the transfer agent, Federated Services Company maintains a share account for
each shareholder of record. Share certificates are not issued unless requested
in writing to the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder of record. Annual statements are sent to report dividends paid
during the year.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the Transfer Agent's subaccounting system to
minimize their internal recordkeeping requirements. The Transfer Agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding shares of the Fund in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Fund shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the institution with regard to the services provided, the fees
charged for those services, and any restrictions and limitations imposed.
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 the three portfolios of The Biltmore Municipal Funds (Biltmore Georgia
Municipal Bond Fund, Biltmore North Carolina Municipal Bond Fund, and Biltmore
South Carolina Municipal Bond Fund), 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 contemplating
exchanges into The Biltmore Municipal Funds should consult their tax advisers,
since the tax advantages of each portfolio of The Biltmore Municipal Funds may
vary.
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 Fund, Wachovia
Investments, Inc., or in the case of customers of the Wachovia Banks, the
shareholder's account officer.
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 at net asset value.
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 Investments, Inc. 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 Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemptions
must be received in proper form and can be made through the Wachovia Banks,
Wachovia Investments, Inc., or directly to the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by calling the
Wachovia Banks (call toll-free 1-800-994-4414) to request the redemption.
Telephone redemption instructions may be recorded. Shares will be redeemed at
the net asset value next determined after the Fund receives the redemption
request from the Wachovia Banks. Redemption requests made through the Wachovia
Banks must be received by the Wachovia Banks before 3:00 p.m. (Eastern time) in
order for shares to be redeemed at that day's net asset value. The Wachovia
Banks are responsible for promptly submitting redemption requests and providing
proper written redemption instructions to the Fund. Registered broker/dealers
may charge customary fees and commissions for this service. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
of the Fund by phone by calling The Biltmore Service Center at 1-800-994-4414. A
shareholder who is a customer of the Wachovia Banks and whose account agreement
with the Wachovia Banks permits telephone redemption may redeem shares of the
Fund by telephoning his account officer. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request.
Redemption requests must be received by 4:00 p.m. (Eastern time) in order for
shares to be redeemed at that day's net asset value. In no event will proceeds
be credited more than seven days after a proper request for redemption has been
received. In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered.
BY MAIL. A shareholder may redeem Fund shares by sending a written request to
the Wachovia Banks. The written request should include the shareholder's name,
the Fund name, the account number, and the share or dollar amount requested. If
share certificates have been issued, they must be properly endorsed and should
be sent by registered or certified mail with the written request to the Fund.
Shareholders should call the Wachovia Banks for assistance in redeeming by mail.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
by sending a written request to Wachovia Investments, Inc. The written request
should include the shareholder's name and address, the Fund name, the brokerage
account number, and the share or dollar amount requested. Shareholders should
call Wachovia Investments, Inc. for assistance in redeeming by mail. Normally, a
check for the proceeds is mailed within five business days, 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 of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
a savings bank or savings and loan association whose deposits are insured by
the 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 his financial
institution. 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.
================================================================================
BILTMORE EQUITY FUND PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--84.5%
CAPITAL GOODS--9.2%
9,300 Ametek, Inc. $ 163,912
1,500 Caterpillar, Inc. 81,000
11,500 Dover Corp. 587,937
44 *Gardner Denver Machinery, Inc. 413
18,851 General Electric Co. 867,146
4,900 Georgia Pacific Corp. 350,350
23,919 Giddings & Lewis, Inc. 340,846
20,800 Halliburton Co. 725,400
35,150 Harsco Corp. 1,441,150
28,251 Honeywell, Inc. 826,342
36,321 Keystone International, Inc. 658,318
3,000 *Scotts Co. 44,250
13,200 Thermo Electron Corp. 580,800
37,012 York International 1,318,552
-------------
Total 7,986,416
-------------
CONSUMER DURABLES--1.6%
6,500 Chrysler Corp. 314,438
12,269 Ford Motor Co. 332,797
15,000 LADD Furniture, Inc. 90,000
4,100 Lawson Products, Inc. 102,500
15,581 Stanley Works 557,021
-------------
Total 1,396,756
-------------
CONSUMER NON-DURABLES--24.2%
28,528 Abbott Laboratories 909,330
8,700 American Brands, Inc. 307,762
16,457 American Home Products Co. 1,071,762
11,000 Avon Products, Inc. 680,625
1,500 Baxter International, Inc. 38,625
3,100 Becton, Dickinson & Co. 146,475
39,915 Bergen Brunswig Corp. Cl. A 773,353
19,782 Bristol-Myers Squibb Co. 1,142,411
1,100 Circuit City Stores, Inc. 27,087
11,937 Coca-Cola Co. 610,279
7,251 CPC International, Inc. 371,614
6,500 Dow Jones & Co. 188,500
</TABLE>
================================================================================
BILTMORE EQUITY FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
CONSUMER NON-DURABLES--CONTINUED
13,000 Dun & Bradstreet Corp. $ 687,375
4,000 Fingerhut Cos., Inc. 66,000
66,885 Fruit of the Loom, Inc. Cl. A 1,830,977
800 IBP, Inc. 26,900
38,000 *International Dairy Queen, Inc. Cl. A 646,000
38,062 Lee Enterprises, Inc. 1,279,835
4,800 Lilly (Eli) & Co. 300,600
13,000 Limited, Inc. 251,875
19,526 Loews Corp. 1,686,558
27,700 Melville Corp. 872,550
29,074 Merck & Co., Inc. 1,083,006
6,213 Nike Inc., Cl. B 396,855
18,628 PepsiCo, Inc. 658,966
3,600 Pfizer, Inc. 278,550
18,588 Philip Morris Cos., Inc. 1,110,633
37,419 Sara Lee Corp. 912,088
700 Sears, Roebuck & Co. 33,075
2,900 Service Corp., International 74,312
6,000 Stanhome, Inc. 196,500
1,900 Surgical Care Affiliates 36,575
18,485 *Toys "R" Us, Inc. 677,013
36,035 Unifi, Inc. 896,371
6,886 Unilever N.V. 768,650
1,400 UST, Inc. 38,675
-------------
Total 21,077,762
-------------
ENERGY--10.3%
19,573 Amoco Corp. 1,189,060
3,200 Atlantic Richfield Co. 331,200
19,600 Baker Hughes, Inc. 352,800
15,474 Coastal Corp. 398,456
10,000 Dresser Industries, Inc. 200,000
20,198 Exxon Corp. 1,219,454
27,282 MAPCO, Inc. 1,367,510
19,161 Phillips Petroleum Co. 632,313
19,331 Royal Dutch Petroleum Co. 2,099,830
</TABLE>
================================================================================
BILTMORE EQUITY FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
ENERGY--CONTINUED
21,381 Schlumberger, Ltd. $ 1,135,866
-------------
Total 8,926,489
-------------
FINANCE--10.3%
26,631 AMBAC, Inc. 922,098
26,100 American Express Co. 773,213
10,018 American International Group, Inc. 917,899
1,200 Citicorp 49,950
21,737 Federal Home Loan Mortgage Corp. 1,084,133
19,046 Federal National Mortgage Association 1,354,647
26,000 KeyCorp 633,750
3,220 Lehman Brothers Holdings 47,897
12,200 MBIA, Inc. 640,500
2,800 Morgan (J.P.) & Co., Inc. 164,500
7,800 Morgan Stanley Group, Inc. 461,175
16,527 Providian Corp. 499,942
9,200 Salomon, Inc. 333,500
5,900 SCE Corp. 82,600
7,700 SunTrust Banks, Inc. 362,862
2,800 United Asset Management Corp. 100,800
7,600 Unitrin, Inc. 332,500
1,300 Wells Fargo & Co. 187,688
-------------
Total 8,949,654
-------------
MATERIALS & SERVICES--9.6%
6,448 Aluminum Co. of America 526,318
2,200 Ball Corp. 61,875
13,377 Crane Co. 347,802
4,869 Dow Chemical Co. 311,616
7,000 Equifax, Inc. 180,250
35,031 *FMC Corp. 2,040,556
39,433 Hanson PLC 719,652
6,104 International Paper Co. 436,436
19,258 NCH Corp. 1,186,774
27,000 Potash Corp. Saskatchewan, Inc. 961,875
20,174 Praxair, Inc. 408,524
20,200 Sbarro, Inc. 451,975
2,600 Sigma Aldrich 90,025
</TABLE>
================================================================================
BILTMORE EQUITY FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
MATERIALS & SERVICES--CONTINUED
24,386 Sonoco Products Co. $ 515,154
1,500 St. Jude Medical, Inc. 59,813
2,200 *Zebra Technologies Corp. 82,500
-------------
Total 8,381,145
-------------
TECHNOLOGY--10.5%
16,711 American Telephone & Telegraph, Inc. 820,928
18,021 Avnet, Inc. 646,503
24,500 Boeing Co. 1,096,375
8,500 *Cisco Systems, Inc. 274,125
5,731 *Computer Sciences Corp. 264,342
8,500 *Cray Research, Inc. 156,187
32,800 *Digital Equipment Corp. 1,115,200
7,767 General Motors Corp., Cl. E 285,437
6,839 Hewlett-Packard Co. 670,222
4,600 International Business Machines, Inc. 325,450
29,325 MCI Communications Corp. 571,838
4,440 *Microsoft Corp. 279,165
11,257 Northern Telecom Ltd. 360,224
13,000 *Novell, Inc. 258,375
13,300 Raytheon Co. 836,237
11,754 Xerox Corp. 1,154,831
-------------
Total 9,115,439
-------------
TRANSPORTATION--1.1%
9,597 Conrail, Inc. 499,044
10,009 Delta Air Lines, Inc. 501,701
-------------
Total 1,000,745
-------------
UTILITIES--7.7%
1,600 *Airtouch Communications, Inc. 43,400
18,231 BellSouth Corp. 945,733
12,600 Carolina Power & Light Co. 337,050
40,400 GTE Corp. 1,237,250
22,154 NYNEX Corp. 833,544
12,900 Pacific Gas & Electric Co. 307,988
6,800 Pacific Telesis Group 197,200
37,110 Pennsylvania Power & Light Co. 742,200
12,288 Scana Corp. 532,992
</TABLE>
================================================================================
BILTMORE EQUITY FUND
<TABLE>
<CAPTION>
Shares or
Principal
Amount Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
UTILITIES--CONTINUED
6,900 Southern Co. $ 143,175
16,600 Telefonos de Mexico, ADR 879,800
14,400 U.S. West, Inc. 507,600
-------------
Total 6,707,932
-------------
Total Common Stocks (identified cost $73,346,847) 73,542,338
-------------
U.S. Treasury Obligations--1.3%
U.S. TREASURY BILLS
$ 1,175,000 12/15/94 (identified cost, $1,172,916) 1,172,838
-------------
**Repurchase Agreement--13.7%
11,912,389 Daiwa Securities America, Inc., 5.72%, dated 11/30/94, due 12/1/94
(at amortized cost) 11,912,389
-------------
Total Investments (identified cost, $86,432,152) $ 86,627,565+
-------------
</TABLE>
* Non-income producing securities.
** Repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
The cost of investments for federal tax purposes amounts to $86,618,523. The
net unrealized appreciation of investments on a federal tax basis amounts to
$9,042, which is comprised of $4,246,956 appreciation and $4,255,998
depreciation at November 30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($87,021,773) at November 30, 1994.
The following abbreviation is used in this portfolio:
ADR--American Depositary Receipts
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
Assets:
Investment in repurchase agreement $ 11,912,389
Investments in securities 74,715,176
-------------
Total investments, at amortized cost and value
(identified cost $86,432,152; tax cost $86,618,523) $ 86,627,565
Receivable for investments sold 559,076
Dividends receivable 230,896
Receivable for Fund shares sold 221,769
Interest receivable 1,893
Receivable for daily futures variation margin 1,819
Deferred expenses 15,569
-------------
Total assets 87,658,587
Liabilities:
Payable for investments purchased 535,103
Payable for Fund shares redeemed 16,397
Payable for daily futures variation margin 7,806
Accrued expenses 77,508
-------------
Total liabilities 636,814
-------------
Net Assets for 8,430,672 shares of beneficial interest outstanding $ 87,021,773
-------------
Net Assets Consist of:
Paid-in capital $ 84,771,793
Net unrealized appreciation (depreciation) of investments (net of
unrealized depreciation on futures contracts of $7,806) 187,608
Accumulated net realized gain (loss) on investments 1,748,207
Undistributed net investment income 314,165
-------------
Total Net Assets $ 87,021,773
-------------
Net Asset Value and Redemption Proceeds Per Share:
($87,021,773 / 8,430,672 shares of beneficial interest outstanding) $10.32
-------------
Computation of Offering Price:
Offering Price Per Share: (100/95.5 of $10.32)* $10.81
-------------
</TABLE>
<R/>
* See "What Shares Cost".
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE EQUITY FUND STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest income $ 379,725
Dividend income 1,702,801
------------
Total income 2,082,526
Expenses:
Investment advisory fee $ 511,439
Trustees' fees 521
Administrative personnel and services fees 75,000
Custodian fees 14,612
Transfer and dividend disbursing agent fees and expenses 34,059
Fund share registration costs 21,917
Auditing fees 16,116
Legal fees 4,754
Printing and postage 17,707
Portfolio accounting fees 49,468
Insurance premiums 5,255
Miscellaneous 1,866
----------
Total expenses 752,714
Deduct--
Waiver of investment advisory fee $ 73,062
Waiver of administrative personnel and services fees 2,936
Reimbursement of other operating expenses by Administrator 40,467 116,465
--------- ----------
Net expenses 636,249
------------
Net investment income 1,446,277
------------
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts:
Net realized gain (loss) on investments and futures contracts (identified cost basis) 1,790,525
Net change in unrealized appreciation (depreciation) on investments and futures contracts (922,981)
------------
Net realized and unrealized gain (loss) on investments and futures contracts 867,544
------------
Change in net assets resulting from operations $ 2,313,821
------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993*
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 1,446,277 $ 758,251
Net realized gain (loss) on investments and futures contracts
($1,927,035 and $473,233 net gain, respectively, as computed
for federal tax purposes) 1,790,525 431,177
Net change in unrealized appreciation (depreciation) on investments and
futures contracts (922,981) 1,110,589
-------------- --------------
Change in net assets resulting from operations 2,313,821 2,300,017
-------------- --------------
Distributions to Shareholders--
Dividends to shareholders from net investment income (1,351,595) (538,768)
Distributions to shareholders from net realized gain on investment
transactions and futures contracts (473,495) --
-------------- --------------
Change in net assets from distributions to shareholders (1,825,090) (538,768)
-------------- --------------
Fund Share (Principal) Transactions--
Proceeds from sale of shares 45,572,500 75,870,874
Net asset value of shares issued to shareholders in payment
of dividends declared 1,766,826 538,767
Cost of shares redeemed (22,803,523) (16,173,651)
-------------- --------------
Change in net assets from Fund share transactions 24,535,803 60,235,990
-------------- --------------
Change in net assets 25,024,534 61,997,239
Net Assets:
Beginning of period 61,997,239 --
-------------- --------------
End of period (including undistributed net investment income of $314,165
and $219,483, respectively) $ 87,021,773 $ 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, 1994
(1) ORGANIZATION
The Biltmore Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended, (the "Act") as an open-end, management investment company.
The Trust consists of eleven diversified portfolios. The financial statements
included herein present only those of the Biltmore Equity Fund (the "Fund"). The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on national securities exchanges. Unlisted securities and
short-term securities are generally valued at the prices provided by an
independent pricing service. Short-term securities with remaining
maturities of sixty days or less may be valued at amortized cost, which
approximates fair market 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 collateral to ensure the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
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").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code").
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 substantially all of its taxable income.
Accordingly, no provisions for federal income tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 not to exceed a period of five
years from the Fund's commencement date.
G. FUTURES CONTRACTS--Upon entering into a financial 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 to pay
to the broker an amount of cash equal to a specific dollar amount times the
difference between the closing value and the price at which the contract
was made. On a daily basis, the value of the financial futures contract is
determined and any difference between such value and the original futures
contract's 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.
================================================================================
BILTMORE EQUITY FUND
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 a change in the value of the
contract may not correlate with changes in the value of the underlying
securities.
At November 30, 1994, the Fund had outstanding futures contracts as set out
below:
<TABLE>
<CAPTION>
Net Unrealized
Contracts to Appreciation
Expiration Date Deliver/Receive Position (Depreciation)
<S> <C> <C> <C>
-----------------------------------------------------------------------------------
March 1995 5 S&P 500 Long ($7,806)
</TABLE>
H. OTHER--Investment transactions are accounted for on the trade date.
(3) 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, 1994 1993*
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Shares sold 4,415,092 7,567,265
Shares issued to shareholders in payment of dividends declared 170,048 52,851
Shares redeemed (2,185,478) (1,589,106)
----------- ------------
Net change resulting from Fund share transactions 2,399,662 6,031,010
----------- ------------
</TABLE>
*For the period from May 10, 1993 (date of initial public investment) to
November 30, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Wachovia Investment Management Group, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.70 of 1% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive a portion of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust and The Biltmore Municipal
Funds for the period. FAS may voluntarily choose to waive a portion of its fee
and reimburse certain operating expenses of the Fund. FAS can modify or
terminate this voluntary waiver and reimbursement at any time at its sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund for which it is paid a fee. The FServ fee is based on the size, type,
and number of accounts and transactions made by shareholders.
FServ also maintains the Fund's accounting records for which it is paid a fee.
The FServ fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
Wachovia Bank of North Carolina, N.A. is the Fund's custodian. The fee is based
on the level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($34,484) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following April 3, 1993 (the date the Fund became
effective). For the fiscal year ended November 30, 1994, the Fund paid $4,417
pursuant to this agreement.
Certain of the Officers of the Trust are Officers and Directors or Trustees of
the above companies.
================================================================================
BILTMORE EQUITY FUND
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended November 30, 1994, were as follows:
<TABLE>
<S> <C>
Purchases $ 39,990,852
-------------
Sales $ 22,257,205
-------------
</TABLE>
================================================================================
REPORT OF ERNST & YOUNG LLP, 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, 1994, and the related
statement of operations for the year then ended, statements of changes in net
assets for each of the two years in the period then ended and the financial
highlights (see page 2 of this Prospectus) for the periods presented. 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, 1994, 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 Equity Fund of The Biltmore Funds at November 30, 1994, the results of
its operations for the year then ended, changes in its net assets each of the
two years in the period then ended, and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 12, 1995
================================================================================
ADDRESSES
- --------------------------------------------------------------------------------
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 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, Federated Services Company
AND PORTFOLIO RECORDKEEPER 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 LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
- --------------------------------------------------------------------------------
THE BILTMORE SERVICE CENTER 101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226
- --------------------------------------------------------------------------------
BILTMORE EQUITY FUND PROSPECTUS
A DIVERSIFIED PORTFOLIO OF THE BILTMORE FUNDS
An Open-End, Management Investment Company
090297-83-9
January 31, 1995 3012914A (1/95)
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"), a portfolio of
The Biltmore Funds (the "Trust"), dated January 31, 1995. This
Statement is not a prospectus itself. To receive a copy of the
prospectus, write the Fund or call The Biltmore Service Center
toll-free at 1-800-994-4414.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
Investment Limitations 5
The Biltmore Funds Management 8
Officers and Trustees 8
Fund Ownership 9
Trustees Compensation 9
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
Exchanging Securities for Fund
Shares 11
Determining Market Value of
Securities 12
Redeeming Fund Shares 12
Redemption in Kind 12
Tax Status 13
The Fund's Tax Status 13
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 Fund's investment objective is to produce 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"
or the "Board") without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
Capitalized terms not otherwise defined in this Statement have the same
meaning assigned in the prospectus.
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 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:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o 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
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in when-
issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
Temporary Investments
The Fund may also invest in the following 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:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow an amount limited to a specific line
of credit from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
o 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:
o Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks, and Banks for Cooperatives;
o Farmers Home Administration;
o Federal Home Loan Banks;
o Federal Home Loan Mortgage Corporation;
o Federal National Mortgage Association;
o Government National Mortgage Association; and
o Student Loan Marketing Association.
Money Market Instruments
The Fund may invest in the following money market instruments:
o 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
o commercial paper rated A-1 or better by Standard & Poor's Ratings
Group, 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.
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 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 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. 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 do 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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan, having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment, to be "cash items."
The Fund does not 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.
James A. Hanley
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Malcolm T. Hopkins
Trustee
Private investor and consultant; Director, the Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution);
Director MAPCO, Inc. (diversified energy); Director, Metropolitan Series
Funds, Inc. and MetLife Portfolios, Inc. (investment companies);
Director, Kinder-Care Learning Centers, Inc. (child care); Director, U.S.
Home Corporation (residential builder and land development); and
Director, EMCOR Group, Inc. (engineering and construction).
Samuel E. Hudgins
Trustee
President, Percival Hudgins & Company, Inc. (investment
bankers/financial consultants); Director, Atlantic American Corporation
(insurance holding company); Director, Bankers Fidelity Life Insurance
Company; Director and Vice Chairman, Leath Furniture, Inc. (retail
furniture); President, Atlantic American Corporation (until 1988);
Director, Vice Chairman and Chief Executive Officer, Rhodes, Inc. (retail
furniture) (until 1988); Chairman and Director, Atlantic American Life
Insurance Co., Georgia Casualty & Surety Company, and Bankers Fidelity
Life Insurance (until 1988).
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel
company); formerly, Vice Chairman, Massachusetts Mutual Life Insurance
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 Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary and Trustee,
Federated Administrative Services; Executive Vice President and Director,
Federated Securities Corp.
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly, Associate
Corporate Counsel, Federated Investors; Vice President and Assistant
Treasurer for certain investment companies for which Federated Securities
Corp. is the principal distributor.
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 6, 1995, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Wachovia Bank of North
Carolina, Winston-Salem, North Carolina, on behalf of certain underlying
accounts, owned approximately 946,545 shares (11.08%), and Wachovia Bank
of Georgia, Atlanta, Georgia, on behalf of certain underlying accounts,
owned approximately 753,997 shares (8.83%).
Trustees Compensation
NAME AND AGGREGATE TOTAL COMPENSATION
PAID
POSITION WITH THE COMPENSATION FROM TO THE TRUSTEES FROM
THE TRUST
TRUST THE TRUST+ AND FUND COMPLEX#
James A. Hanley,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
Malcolm T. Hopkins,
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
Samuel E. Hudgins,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
J. Berkley Ingram, Jr.
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
D. Dean Kaylor,
Trustee $15,851 $16,875 for the
Trust and
one other investment
company
+The aggregate compensation is paid by the Trust, which is comprised of
twelve portfolios.
# The Fund Complex is comprised of 15 portfolios.
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.
Because of the internal controls maintained by the Wachovia Banks to
restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Wachovia Banks' or their
affiliates' lending relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
For the fiscal year ended November 30, 1994, and for the period from May
10, 1993 (date of initial public investment) to November 30, 1993, the
Adviser earned $ 511,439 and $244,017, respectively, of which $73,062
and $34,860, 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 ("FAS'), a subsidiary of Federated
Investors, provides administrative personnel and services to the Fund
for a fee as described in the prospectus. For the fiscal year ended
November 30, 1994, and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1993, FAS earned $75,000 and $75,000,
respectively, of which $2,936 and $32,208, respectively, were
voluntarily waived. In addition, for the fiscal year ended November 30,
1994, and for the period from May 10, 1993 (date of initial public
investment) to November 30, 1993, FAS reimbursed $40,467 and $37,225,
respectively, in other Fund 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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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 fiscal year ended November 30, 1994, and for the period from May
10, 1993 (date of initial public investment) to November 30, 1993, the
Fund paid $142,056 and $125,447, respectively, in commissions on
brokerage transactions.
As of November 30, 1994, the Fund owned $867,146, $773,213, and $333,500
of securities issued by General Electric Co., American Express, and
Salomon, Inc. respectively, several of the Fund's regular
broker/dealers, each of which derives more than 15% of its 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.
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 fiscal year ended November 30, 1994, and for the
period from May 10, 1993 (date of initial public investment) to November
30, 1993, the Fund's portfolio turnover rates were 35% and 50%,
respectively.
Purchasing Fund Shares
Shares of the Fund are sold at net asset value plus an applicable sales
charge on days on which the Wachovia Banks, 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.
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 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.
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
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 values of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a national
securities exchange, if available;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
o for unlisted equity securities, the latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service; or
o 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 Trust 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. Any redemption beyond
this amount will also be in cash unless the Trustees determine that
payments should be in kind.
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:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Shareholders' Tax Status
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 average annual total returns for the one-year period ended
November 30, 1994, and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1994, were (1.50%) and 1.33%,
respectively.
The average annual total return for the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned
at the end of the period by the net asset value per share at the end of
the period. The number of shares owned at the end of the period is based
on the number of shares purchased at the beginning of the period with
$1,000, less any applicable sales 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, 1994 , was
2.20%.
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:
o stock market fluctuations;
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses;
o the relative amount of Fund cash flow; and
o 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:
o Lipper Analytical Services, Inc. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in maximum offering price over a specific period of time. From time to
time, the Fund will quote its Lipper ranking in the "equity, growth
and income funds" category in advertising and sales literature.
o 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.
o 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.
o Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their risk-
adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
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 Ratings Group 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 edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in "Aaa" securities.
A--Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment some time in the future.
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.
NR--"NR" indicates that Fitch does not rate the specific issue.
Standard & Poor's Ratings Group Commercial Paper Ratings
A-1--This highest category 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
designation.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated "Prime-1" (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. "Prime-1" repayment capacity will normally be evidenced by
the following characteristics:
o leading market positions in well-established industries;
o high rates of return on funds employed;
o conservative capitalization structure with moderate reliance on debt
and ample asset protection;
o broad margins in earnings coverage of fixed financial charges and
high internal cash generation; or
o well-established access to a range of financial markets and assured
sources of alternate liquidity.
Fitch Investors Service, Inc. Commercial Paper Ratings
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating is
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+."
09090297-83-9
3012914B (1/95)
PROSPECTUS
JANUARY 31, 1995
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 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, 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.
BILTMORE
FIXED INCOME FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
The Fund has also filed a Statement of Additional Information dated January 31,
1995 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, call 1-800-
994-4414 or write The Biltmore Service Center, 101 Greystone Boulevard,
SC-9215, Columbia, South Carolina 29226.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
===================================================
TABLE OF CONTENTS
- ---------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ---------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ---------------------------------------------------
GENERAL INFORMATION 3
- ---------------------------------------------------
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Acceptable Investments 4
U.S. Government Obligations 4
Corporate Debt Obligations 5
Fixed Rate Corporate Debt Obligations 5
Floating Rate Corporate Debt Obligations 5
Demand Master Notes 5
Convertible Securities 5
Mortgage-Backed Securities 6
Adjustable Rate Mortgage Securities 6
Collateralized Mortgage Obligations 6
Real Estate Mortgage Investment
Conduits 7
Asset-Backed Securities 7
Demand Features 7
Restricted and Illiquid Securities 8
Repurchase Agreements 8
When-Issued and Delayed Delivery
Transactions 8
Lending of Portfolio Securities 8
Other Investment Techniques 8
Debt Investment Considerations 9
Investment Limitations 9
- ---------------------------------------------------
THE BILTMORE FUNDS INFORMATION 9
Management of the Trust 9
Board of Trustees 9
Investment Adviser 9
Advisory Fees 9
Adviser's Background 10
Distribution of Shares 10
Administrative Arrangements 10
Shareholder Servicing Arrangements 10
Administration of the Fund 10
Administrative Services 10
Custodian 11
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 11
Legal Services 11
Independent Auditors 11
Brokerage Transactions 11
Expenses of the Fund 11
- ---------------------------------------------------
NET ASSET VALUE 12
- ---------------------------------------------------
INVESTING IN THE FUND 12
Share Purchases 12
Through the Trust Divisions of the
Wachovia Banks 12
Through Wachovia Investments, Inc. 12
By Mail 12
By Wire 12
Through Authorized Broker/Dealers 12
Minimum Investment Required 13
What Shares Cost 13
Purchases at Net Asset Value 13
Sales Charge Reallowance 13
Reducing the Sales Charge 13
Quantity Discounts and Accumulated
Purchases 13
Letter of Intent 14
Reinvestment Privilege 14
Concurrent Purchases 14
Systematic Investment Program 14
Certificates and Confirmations 14
Subaccounting Services 14
Dividends 15
Capital Gains 15
Exchange Privilege 15
Exchange by Telephone 15
- ---------------------------------------------------
REDEEMING SHARES 16
By Telephone 16
By Mail 16
Signatures 16
Systematic Withdrawal Program 17
Accounts with Low Balances 17
- ---------------------------------------------------
SHAREHOLDER INFORMATION 17
Voting Rights 17
Massachusetts Business Trusts 17
- ---------------------------------------------------
EFFECT OF BANKING LAWS 18
- ---------------------------------------------------
TAX INFORMATION 18
- ---------------------------------------------------
PERFORMANCE INFORMATION 19
- ---------------------------------------------------
FINANCIAL STATEMENTS 20
- ---------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 30
- ---------------------------------------------------
ADDRESSES BACK COVER
================================================================================
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.50%
12b-1 Fees None
Other Expenses (after assumption) (2) 0.21%
Shareholder Servicing Agent Fee (3) 0.00%
Total Fund Operating Expenses (after waiver and assumption) (4) 0.71%
</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 0.60%.
(2) Other expenses would have been 0.24% absent the voluntary assumption by the
administrator. The administrator can terminate this voluntary assumption 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 time, the Fund will be able to pay up to
0.25 of 1% of the Fund's average daily net assets for shareholder servicing
agent fees. See "The Biltmore Funds Information."
(4) Total Fund Operating Expenses would have been 0.84% absent the voluntary
waiver and assumption 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 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; (2) redemption at the end of
each time period; and (3) payment of the maximum sales load.
As noted in the table above, the Fund charges no redemption
fees. $52 $67 $83 $129
</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 EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 30.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993*
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00
Income from investment operations
Net investment income 0.56 0.31
Net realized and unrealized gain (loss) on investments (0.98) (0.01)
--------- ---------
Total from investment operations (0.42) 0.30
Less distributions
Dividends to shareholders from net investment income (0.55) (0.30)
Distributions to shareholders from net realized gain on investment
transactions (0.06) --
--------- ---------
Total distributions (0.61) (0.30)
--------- ---------
NET ASSET VALUE, END OF PERIOD $ 8.97 $ 10.00
--------- ---------
Total Return** (4.30%) 3.02%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.71% 0.68%(a)
Net investment income 5.90% 5.44%(a)
Expense waiver/reimbursement (b) 0.13% 0.19%(a)
Supplemental Data
Net assets, end of period (000 omitted)
$148,751
$140,325
Portfolio turnover rate 148% 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
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
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.
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 Emerging
Markets 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 investment 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 Fund's investment 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 investment 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
Ratings Group ("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, such as the: Farm Credit System, including the National
Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Farmers
Home Administration; Federal Home Loan Banks; Federal Home Loan Mortgage
Corporation; Federal National Mortgage Association; Government National
Mortgage Association; Student Loan Marketing Association; Tennessee Valley
Authority; Export-Import Bank of the United States; Commodity Credit
Corporation; Federal Financing Bank; and the 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. government agencies or
instrumentalities, such as: the Farm Credit System, including the National Bank
for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks; Federal
Home Loan Mortgage Corporation; Federal National Mortgage Association;
Government National Mortgage Association; and Student Loan Marketing
Association.
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. 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 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. Adjustable rate mortgage securities
("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. Real estate mortgage investment
conduits ("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. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.
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. There is the risk that when lending portfolio securities, the
securities may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable price. In
addition, in the event that a borrower of securities would file for bankruptcy
or become insolvent, disposition of the securities may be delayed pending court
action.
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 Fund's 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 INVESTMENT_ 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
0.60 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., together with its affiliates, Wachovia Bank of
Georgia, N.A. and Wachovia Bank of South Carolina, N.A. (formerly known as the
South Carolina National Bank) (collectively, the "Wachovia Banks") have been
managing trust assets for over 100 years, with approximately $17.3 billion in
managed assets as of September 30, 1994. Wachovia Investment Management Group
has served as investment adviser to The Biltmore Funds since March 9, 1992.
Wachovia Bank of North Carolina, N.A. also serves as investment adviser of
Biltmore North Carolina Municipal Bond Fund, a portfolio of The Biltmore
Municipal Funds, another investment company. As part of their regular banking
operations, the Wachovia Banks may make loans to public companies. Thus, it may
be possible, from time to time, for the Fund to hold or acquire the securities
of issuers which are also lending clients of the Wachovia Banks. The lending
relationship will not be a factor in the selection of securities.
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, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is the Fund's shareholder servicing agent (the "Shareholder
Servicing Agent"). The Fund may pay the Shareholder Servicing Agent a fee based
on the average daily net asset value of shares for which it provides shareholder
services. These shareholder services include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance and communicating or facilitating purchases and redemptions of
shares. This fee will be computed at an annual rate equal to 0.25 of 1% of the
Fund's average daily net assets for which the Shareholder Servicing Agent
provides services; however, the Shareholder Servicing Agent may choose
voluntarily to waive all or a portion of its fee at any time or pay all or some
of its fees to financial institutions or other financial service providers.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, also provides the
Fund with the administrative personnel and services necessary to operate the
Fund. Such services include the preparation of filings with
the Securities and Exchange Commission and other regulatory authorities,
assistance with respect to meetings of the Trustees, shareholder servicing and
accounting services, and other administrative services. Federated Administrative
Services provides these at an annual rate, computed and payable daily, as
specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds
Administrative Fee and The Biltmore Municipal Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year for the Fund and for each
of the portfolios of The Biltmore Funds shall aggregate at least $75,000.
Federated Administrative Services may choose voluntarily to waive or reimburse a
portion of its fee at any time.
CUSTODIAN. Wachovia Bank of North Carolina, N.A., Winston-Salem, North Carolina,
is custodian (the "Custodian") for the securities and cash of the Fund. Under
the Custodian Agreement, the Custodian holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. For the services to be provided to the Trust pursuant to the Custodian
Agreement, the Trust pays the Custodian an annual fee based upon the average
daily net assets of the Fund and which is payable monthly. 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, Pennsylvania, a subsidiary of Federated
Investors, 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 LLP,
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. and advised by the Adviser. 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
Fund 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, Wachovia Investments, Inc. or
authorized broker/dealers which have a sales agreement with the Distributor. All
purchase orders must be transmitted to the Fund by 5:00 p.m. (Eastern time).
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573. 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.
THROUGH THE TRUST DIVISIONS OF THE WACHOVIA BANKS. Trust customers of the
Wachovia Banks may place an order to purchase shares of the Fund by telephoning,
sending written instructions, or placing the order in person with their account
officer in accordance with the procedures established by the Wachovia Banks and
as set forth in the relevant account agreement.
Payment may be made to the Wachovia Banks by check, by wire of federal funds, or
by debiting a customer's account with the Wachovia Banks. Purchase orders must
normally be received by the Wachovia Banks by 3:00 p.m. (Eastern time), in order
for shares to be purchased at that day's price. It is the responsibility of the
Wachovia Banks to transmit orders promptly to the Fund. Shares of the Fund
cannot be purchased by wire on any day on which the Wachovia Banks, the New York
Stock Exchange and the Federal Reserve Wire System are not open for business.
THROUGH WACHOVIA INVESTMENTS, INC. Customers of Wachovia Investments, Inc. or
Wachovia Brokerage Service may place an order to purchase shares by telephoning
The Biltmore Service Center at 1-800-994-4414, sending written instructions, or
placing an order in person. Payment may be made by check, by wire of federal
funds (the customer's bank sends money to the Fund's bank through the Federal
Reserve Wire System) or by debiting a customer's account at Wachovia
Investments, Inc. Purchase orders must normally be received by Wachovia
Investments, Inc. before 3:30 p.m. (Eastern time). Wachovia Investments, Inc., a
wholly-owned subsidiary of Wachovia Corporation, is a registered broker/dealer
and member of the National Association of Securities Dealers, Inc. Wachovia
Brokerage Service is a business unit of Wachovia Investments, Inc.
BY MAIL. To purchase shares of the Fund through Wachovia Investments, Inc. by
mail, send a check made payable to Biltmore Fixed Income Fund to The Biltmore
Service Center, 101 Greystone Boulevard, SC-9215, Columbia, South Carolina
29226. Orders by mail are considered received after payment by check is
converted by Wachovia Investments, Inc. into federal funds. This is normally the
next business day after Wachovia Investments, Inc. receives the check.
BY WIRE. To purchase shares of the Fund through Wachovia Investments, Inc. by
wire, wire funds as follows:
Wachovia Investments, Inc.
ABA Number 0531-00494
Credit: 8735-001342
Further credit to: Biltmore Fixed Income Fund
Re: (Customer name and brokerage account number)
Shares of the Fund cannot be purchased by wire on any day on which the Wachovia
Banks, the New York Stock Exchange and the Federal Reserve Wire System are not
open for business.
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of the Fund. Shares will be
purchased at the public offering price next determined after
the Fund receives the purchase request. Purchase requests through registered
broker/dealers must normally be received by the broker/dealer and transmitted to
the Fund before 3:30 p.m. (Eastern time) in order for shares to be purchased at
that day's public offering price.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares of the Fund is $250. This amount may be
waived from time to time. Subsequent investments may be in amounts of $50 or
more.
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 a Sales Charge as a
Percentage of 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 Wachovia Banks for funds which are held in a fiduciary, advisory, 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 trusts, pension profit-sharing plans and individual retirement
accounts operated for such persons, may purchase shares of the Fund at net asset
value. In addition, trustees, officers, directors and employees of the
Distributor and its affiliates, and any bank or investment dealer who has a
sales agreement with the Distributor relating to the Fund, may also purchase
shares at their net asset value.
SALES CHARGE REALLOWANCE. For shares sold with a sales charge, the Wachovia
Banks or an affiliated broker or a dealer will receive up to 100% of the
applicable sales charge for purchases of Fund shares made directly through the
Wachovia Banks or such broker or dealer. Any portion of the sales charge which
is not paid to a dealer will be retained by the Distributor.
The sales charge for shares sold other than through Wachovia Investments, Inc.,
the Wachovia Banks or registered broker/dealers will be retained by the
Distributor. However, the Distributor, at its sole discretion, may uniformly
offer to pay cash, or promotional incentives in the form of trips to sales
seminars at luxury resorts, tickets or other items, to all dealers selling
shares of the Fund. Such payments will be predicated upon the amount of shares
of the Fund that are sold by the dealers.
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 in this
prospectus under the section entitled "What Shares Cost," larger purchases
reduce the sales charge paid. The Fund will combine purchases made on the same
day by the investor, 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
$90,000 and then purchases $10,000 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, the Wachovia Banks, Wachovia Investments,
Inc. 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 purchases.
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 up to 4.50% of the total amount intended to be purchased in escrow (in
shares of the Fund) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period, unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
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 the Fund at the next-determined net asset value without any sales
charge. The Wachovia Banks, Wachovia Investments, Inc. or the Distributor must
be notified by the shareholder in writing or by his financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder redeems
his shares in the Fund, there may be tax consequences.
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 and the portfolios in The Biltmore Municipal 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, the Wachovia Banks, Wachovia
Investments, Inc. or the Distributor must be notified by the agent placing the
order at the time the concurrent purchases are made. The sales charge will be
reduced after the purchase is confirmed.
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 Banks, Wachovia Investments,
Inc. or through the Distributor.
CERTIFICATES AND CONFIRMATIONS
As the transfer agent, Federated Services Company maintains a share account for
each shareholder of record. Share certificates are not issued unless requested
in writing to the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder of record. Annual statements are sent to report dividends paid
during the year.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the Transfer Agent's subaccounting system to
minimize their internal recordkeeping requirements. The Transfer Agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding shares of the Fund in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in
addition to normal trust or agency account fees. They may also charge fees for
other services provided which may be related to the ownership of Fund shares.
This prospectus should, therefore, be read together with any agreement between
the customer and the institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
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 the three portfolios of The Biltmore Municipal Funds (Biltmore Georgia
Municipal Bond Fund, Biltmore North Carolina Municipal Bond Fund, and Biltmore
South Carolina Municipal Bond Fund), 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 contemplating
exchanges into The Biltmore Municipal Funds should consult their tax advisers,
since the tax advantages of each portfolio of The Biltmore Municipal Funds may
vary.
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 Fund, Wachovia
Investments, Inc., or in the case of customers of the Wachovia Banks, the
shareholder's account officer.
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 at net asset value.
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 Investments, Inc. 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 Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemptions
must be received in proper form and can be made through the Wachovia Banks,
Wachovia Investments, Inc., or directly to the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by calling the
Wachovia Banks (call toll-free 1-800-994-4414) to request the redemption.
Telephone redemption instructions may be recorded. Shares will be redeemed at
the net asset value next determined after the Fund receives the redemption
request from the Wachovia Banks. Redemption requests made through the Wachovia
Banks must be received by the Wachovia Banks before 3:00 p.m. (Eastern time) in
order for shares to be redeemed at that day's net asset value. The Wachovia
Banks are responsible for promptly submitting redemption requests and providing
proper written redemption instructions to the Fund. Registered broker/dealers
may charge customary fees and commissions for this service. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
of the Fund by phone by calling The Biltmore Service Center at 1-800-994-4414. A
shareholder who is a customer of the Wachovia Banks and whose account agreement
with the Wachovia Banks permits telephone redemption may redeem shares of the
Fund by telephoning his account officer. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request.
Redemption requests must be received by 4:00 p.m. (Eastern time) in order for
shares to be redeemed at that day's net asset value. In no event will proceeds
be credited more than seven days after a proper request for redemption has been
received. In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered.
BY MAIL. A shareholder may redeem Fund shares by sending a written request to
the Wachovia Banks. The written request should include the shareholder's name,
the Fund name, the account number, and the share or dollar amount requested. If
share certificates have been issued, they must be properly endorsed and should
be sent by registered or certified mail with the written request to the Fund.
Shareholders should call the Wachovia Banks for assistance in redeeming by mail.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
by sending a written request to Wachovia Investments, Inc. The written request
should include the shareholder's name and address, the Fund name, the brokerage
account number, and the share or dollar amount requested. Shareholders should
call Wachovia Investments, Inc. for assistance in redeeming by mail. Normally, a
check for the proceeds is mailed within five business days, 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 of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
a savings bank or savings and loan association whose deposits are insured by
the 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 his financial
institution. 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 January 6, 1995, the Wachovia Banks and their various affiliates and
subsidiaries, acting in various capacities for numerous accounts, were the
owners of record of in excess of 25% of the outstanding shares 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
financial publications and/or compare its performance to certain indices.
================================================================================
BILTMORE FIXED INCOME FUND PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Asset-Backed Securities--1.1%
$ 475,926 Ford Credit Trust, 4.85%, 1/15/98 $ 465,513
741,035 GMAC Grantor Trust, 4.00%, 9/15/98 717,389
448,407 USAA Auto Loan Grantors Trust, 3.90%, 3/15/99 435,654
--------------
Total Asset-Backed Securities (identified cost, $1,668,281) 1,618,556
--------------
Corporate Bonds--25.2%
BANKING--7.4%
1,000,000 BankAmerica Corp., 6.00%, 7/15/97 952,150
3,000,000 Bankers Trust NY Corp., 4.70%-7.25%, 7/1/96-11/1/96 2,903,420
1,500,000 Branch Banking & Trust Co., 4.75%, 5/15/96 1,440,315
4,500,000 NationsBank Corp., 4.75%-5.375%, 8/15/96-4/15/2000 4,246,450
1,450,000 Society National Bank of Cleveland, 7.125%, 4/15/97 1,426,568
--------------
Total 10,968,903
--------------
CAPITAL GOODS--1.0%
1,500,000 Caterpillar, Inc., 8.15%, 6/15/98 1,497,780
--------------
CHEMICALS--1.1%
240,000 DuPont (E.I.) de Nemours & Co., 7.00%, 4/16/97 235,757
1,567,500 Monsanto Co., 7.09%, 12/15/2000 1,467,305
--------------
Total 1,703,062
--------------
CONSUMER NON-DURABLES--1.2%
2,000,000 Penney (J.C.) Co., Inc., 5.375%, 11/15/98 1,815,480
--------------
DRUGS--0.8%
1,215,000 American Home Products, 6.875%, 4/15/97 1,185,172
--------------
ELECTRONICS--0.4%
605,000 Motorola, Inc., 8.40%, 8/15/2031 635,250
--------------
FINANCE--8.9%
670,000 Barclays American Corp., 9.125%, 12/1/97 686,562
2,850,000 Beneficial Corp., 6.15%-10.00%, 11/30/99-12/1/2021 2,837,165
1,000,000 Chubb Capital Corp., 6.875%, 2/1/2003 911,180
1,500,000 CIGNA Corp., 6.375%, 1/15/2006 1,234,290
425,000 Exxon Capital Corp., 6.50%, 7/15/99 398,862
1,840,000 General Electric Capital Corp., 8.125%-9.50%, 8/24/95-5/1/2018 1,842,937
1,000,000 IBM Credit Corp., 5.00%, 5/10/96 965,460
$ 315,000 International Bank for Reconstruction & Development, 9.00%,
11/15/95 $ 320,585
1,100,000 Nationwide Life Insurance Co., 6.50%, 2/15/2004 952,457
2,545,000 Norwest Financial, Inc., 7.625-8.15%, 10/15/99-11/1/2001 2,505,215
630,000 TransAmerica Financial Corp., 9.25%, 6/30/97 647,123
--------------
Total 13,301,836
--------------
FOREIGN BOND--0.4%
770,000 Italy Republic, 6.875%, 9/27/2023 599,537
--------------
HOME FURNISHINGS--0.2%
240,000 Armstrong World Industries, Inc., 9.75%, 4/15/2008 258,742
--------------
OIL & GAS--0.7%
750,000 Amoco Canada Petroleum Co., 7.25%, 12/1/2002 705,143
350,000 Mobil Corp., 8.375%, 2/12/2001 353,570
--------------
Total 1,058,713
--------------
POLLUTION CONTROL--0.3%
500,000 Waste Management, Inc., 7.70%, 10/1/2002 480,450
--------------
SECURITIES--0.7%
1,080,000 Morgan Stanley Group, Inc., 5.65%, 6/15/97 1,020,330
--------------
UTILITIES--2.1%
1,400,000 Korea Electric Power Corp., 6.375%, 12/1/2003 1,182,510
2,000,000 Public Service Electric & Gas Co., 6.00%-7.125%, 11/1/97-1/1/98 1,892,760
--------------
Total 3,075,270
--------------
Total Corporate Bonds (identified cost, $39,672,550) 37,600,525
--------------
U.S. Government Agencies--35.9%
FEDERAL HOME LOAN BANK--7.7%
750,000 7.75%, 2/26/97 746,483
4,500,000 7.15%, 11/21/96 4,471,560
5,250,000 6.95%, 11/8/96 5,205,060
1,000,000 5.10%, 7/8/96 966,250
--------------
Total 11,389,353
--------------
FEDERAL HOME LOAN MORTGAGE CORP.--4.5%
$ 31,568 12.50%, 2/1/2010-4/1/2014 $ 36,027
38,852 11.00%, 10/1/2010-10/1/2015 41,833
6,488 10.00%, 1/1/2019-2/1/2019 6,786
52,849 9.50%, 7/1/2016-2/1/2019 54,004
5,304 9.00%, 9/1/2017-1/1/2019 5,297
13,570 8.50%, 7/1/2017-8/1/2017 13,241
172,424 8.00%, 1/1/2008-1/1/2019 168,710
4,888,120 7.50%, 9/1/2007-2/1/2023 4,661,192
850,748 7.00%, 6/1/2008 799,431
1,000,000 5.00%, 12/15/2000 986,875
--------------
Total 6,773,396
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--11.7%
1,224 12.50%, 9/1/2013 1,381
8,851 10.00%, 1/1/2019-2/1/2019 9,346
6,632 9.50%, 7/1/2016-2/1/2019 6,851
5,764 9.00%, 1/1/2017-8/1/2018 5,826
2,933 8.50%, 2/1/2017-2/1/2019 2,893
86,572 8.00%, 11/1/2008-9/1/2009 84,931
2,386,052 7.50%, 4/1/2007-1/1/2023 2,261,129
1,500,000 7.07%, 11/18/96 1,490,415
5,850,000 6.27%, 4/3/96 5,779,274
5,600,000 6.05%, 6/30/2003 4,873,288
1,865,371 6.00%, 1/1/2009 1,670,085
1,500,000 5.80%, 12/10/2003 1,274,535
--------------
Total 17,459,954
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--10.7%
51,885 12.25%, 8/15/2013-5/15/2014 57,722
5,778 11.50%, 6/15/2013-12/15/2017 6,435
104,968 11.00%, 8/15/2015-12/15/2015 115,727
98,068 10.50%, 10/15/2000-8/15/2017 105,503
16,326 10.00%, 1/15/2019-2/15/2019 17,278
1,352,706 9.50%, 6/15/2001-11/15/2020 1,397,624
2,312,822 9.00%, 5/15/2016-1/15/2021 2,329,173
1,311,920 8.50%, 5/15/2016-6/15/2022 1,286,480
2,481,309 8.00%, 2/15/2017-9/15/2022 2,359,241
$ 4,107,752 7.50%, 2/15/2022-1/15/2024 $ 3,781,678
945,754 7.00%, 6/15/2023 840,832
1,946,372 6.50%, 5/15/2009 1,777,875
1,956,499 6.00%, 5/15/2009 1,742,497
51,631 5.50%, 8/15/98 49,983
--------------
Total 15,868,048
--------------
AID TO ISRAEL--0.6%
1,000,000 5.625%, 9/15/2003 843,690
--------------
PRIVATE EXPORT FUNDING CORP.--0.7%
1,000,000 8.40%, 7/31/2001 1,014,030
--------------
Total U.S. Government Agencies (identified cost, $55,957,456) 53,348,471
--------------
U.S. Treasury Obligations--36.2%
U.S. TREASURY BONDS--25.1%
530,000 8.125%, 5/15/2021 530,991
36,378,000 7.875%, 2/15/2021 35,445,632
1,423,000 7.50%, 11/15/2016 1,334,290
--------------
Total 37,310,913
--------------
U.S. TREASURY NOTES--11.1%
1,095,000 9.125%, 5/15/99 1,148,896
90,000 7.875%, 8/15/2001 90,225
1,000,000 7.75%, 11/30/99 997,970
1,215,000 7.25%, 11/30/96 1,211,586
4,000,000 6.50%, 4/30/99 3,809,360
8,800,000 6.25%, 2/15/2003 7,932,408
1,440,000 6.125%, 7/31/96 1,412,323
--------------
Total 16,602,768
--------------
Total U.S. Treasury Obligations (identified cost, $61,016,608) 53,913,681
--------------
*Repurchase Agreement--0.2%
$ 317,676 Daiwa Securities America, Inc., 5.72%, dated 11/30/94, due 12/1/94
(at amortized cost) $ 317,676
--------------
Total Investments (identified cost, $158,632,571) $ 146,798,909+
--------------
</TABLE>
* Repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $158,819,954. The
net unrealized depreciation of investments on a federal tax basis amounts to
$12,021,045, which is comprised of $6,577 appreciation and $12,027,622
depreciation at November 30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($148,750,656) at November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE FIXED INCOME FUND STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at amortized cost and value
(identified cost $158,632,571; tax cost $158,819,954) $ 146,798,909
Receivable for investments sold 3,000,109
Interest receivable 2,280,905
Receivable for Fund shares sold 71,658
Deferred expenses 34,661
--------------
Total assets 152,186,242
Liabilities:
Payable for investments purchased $ 3,000,000
Payable for Fund shares redeemed 346,110
Accrued expenses 89,476
------------
Total liabilities 3,435,586
--------------
Net Assets for 16,591,943 shares of beneficial interest outstanding $ 148,750,656
--------------
Net Assets Consist of:
Paid-in capital $ 164,349,149
Net unrealized appreciation (depreciation) of investments (11,833,662)
Accumulated net realized gain (loss) on investments (3,936,871)
Undistributed net investment income 172,040
--------------
Total Net Assets $ 148,750,656
--------------
Net Asset Value, and Redemption Proceeds Per Share:
($148,750,656 / 16,591,943 shares of beneficial interest outstanding) $8.97
--------------
Computation of Offering Price:
Offering Price Per Share: (100/95.5 of $8.97)* $9.39
--------------
</TABLE>
*See "What Shares Cost".
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE FIXED INCOME FUND STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest income $ 9,500,681
Expenses:
Investment advisory fee $ 862,327
Trustees' fees 4,159
Administrative personnel and services fees 142,981
Custodian fees 28,744
Transfer and dividend disbursing agent fees and expenses 33,087
Fund share registration costs 23,192
Auditing fees 15,635
Legal fees 13,223
Printing and postage 16,984
Portfolio accounting fees 63,803
Insurance premiums 5,186
Miscellaneous 405
------------
Total expenses 1,209,726
Deduct--
Waiver of investment advisory fee $ 143,721
Reimbursement of other operating expenses by
Administrator 48,849 192,570
---------- ------------
Net expenses 1,017,156
--------------
Net investment income 8,483,525
--------------
Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain (loss) on investments (identified cost basis) (3,910,216)
Net change in unrealized appreciation (depreciation) on investments (10,860,025)
--------------
Net realized and unrealized gain/(loss) on investments (14,770,241)
--------------
Change in net assets resulting from operations $ (6,286,716)
--------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE FIXED INCOME FUND STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993*
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 8,483,525 $ 4,138,174
Net realized gain (loss) on investment transactions ($3,749,695 net
loss and $893,605 net gain, respectively, as computed for federal tax
purposes) (3,910,216) 866,743
Change in unrealized appreciation (depreciation) of investments (10,860,025) (973,637)
-------------- --------------
Change in net assets resulting from operations (6,286,716) 4,031,280
-------------- --------------
Distributions to Shareholders--
Dividends to shareholders from net investment income (8,390,071) (4,059,588)
Distributions to shareholders from net realized gain on investment
transactions (893,398) --
-------------- --------------
Change in net assets from distributions to shareholders (9,283,469) (4,059,588)
-------------- --------------
Fund Share (Principal) Transactions--
Proceeds from sale of shares 45,809,510 150,258,206
Net asset value of shares issued to shareholders in payment of
dividends declared 8,987,006 4,052,129
Cost of shares redeemed (30,801,044) (13,956,658)
-------------- --------------
Change in net assets from Fund share transactions 23,995,472 140,353,677
-------------- --------------
Change in net assets 8,425,287 140,325,369
Net Assets:
Beginning of period 140,325,369 --
-------------- --------------
End of period (including undistributed net investment income of
$172,040 and $78,586 respectively) $ 148,750,656 $ 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, 1994
(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 Fixed Income Fund (the "Fund"). The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at
the bid prices as furnished by an independent pricing service. Corporate
bonds and other fixed-income and asset backed securities are valued at the
last sale price reported on national securities exchanges on that day, if
available. Otherwise, corporate bonds and other fixed-income and asset
backed securities and short-term securities are valued at the prices
provided by an independent pricing service. Short-term securities with
remaining maturities of sixty days or less may be valued at amortized cost,
which approximates fair market 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 collateral to ensure the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
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").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
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 substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
At November 30, 1994, the Fund, for federal tax purposes, had a capital
loss carryforward of $3,749,695, 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 carryforward will expire in 2002.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 not to exceed a period of five
years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) 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, 1994 1993*
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Shares sold 4,885,157 15,019,817
Shares issued to shareholders in payment of dividends declared 953,520 402,730
Shares redeemed (3,277,961) (1,391,320)
----------- ------------
Net change resulting from Fund share transactions 2,560,716 14,031,227
----------- ------------
</TABLE>
*For the period from May 10, 1993 (date of initial public investment) to
November 30, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Wachovia Investment Management Group, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.60 of 1% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive a portion of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust and The Biltmore Municipal
Funds for the period. FAS may voluntarily choose to waive a portion of its fee
and reimburse a portion of the Fund's other operating expenses. FAS can modify
or terminate this voluntary waiver and reimbursement at any time at its sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund for which it is paid a fee. The FServ fee is based on the size, type,
and number of accounts and transactions made by shareholders.
FServ also maintains the Fund's accounting records for which it is paid a fee.
The FServ fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
Wachovia Bank of North Carolina, N.A. is the Fund's custodian. The fee is based
on the level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($34,484) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following April 3, 1993 (the date the Fund became
effective). For the fiscal year ended November 30, 1994, the Fund paid $4,335
pursuant to this agreement.
Certain of the Officers of the Trust are Officers and Directors or Trustees of
the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended November 30, 1994, were as follows:
<TABLE>
<S> <C>
Purchases $ 234,168,628
--------------
Sales $ 206,165,518
--------------
</TABLE>
================================================================================
REPORT OF ERNST & YOUNG LLP, 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, 1994, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights (see page 2 of this prospectus) for the periods presented.
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, 1994, 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 Fixed Income Fund of The Biltmore Funds at
November 30, 1994, the results of its operations for the year then ended,
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for the periods presented, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 12, 1995
ADDRESSES
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, Federated Services Company
AND PORTFOLIO ACCOUNTING SERVICES 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 LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
THE BILTMORE SERVICE CENTER 101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226
BILTMORE FIXED INCOME FUND
A DIVERSIFIED PORTFOLIO OF THE BILTMORE FUNDS
An Open-End, Management Investment Company
090297-85-4
January 31, 1995 3012917A (1/95)
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"), a portfolio
in The Biltmore Funds (the "Trust"), dated January 31, 1995. This
Statement is not a prospectus itself. To receive a copy of the
prospectus, call The Biltmore Service Center toll-free at 1-800-
994-4414.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objectives and
Policies 1
Types of Investments 1
Investment Limitations 6
The Biltmore Funds Management 9
Fund Ownership 10
Trustees Compensation 10
Trustee Liability 11
Investment Advisory Services 11
Adviser to the Fund 11
Advisory Fees 11
Administrative Services 11
Brokerage Transactions 12
Portfolio Turnover 12
Purchasing Fund Shares 13
Conversion to Federal Funds 13
Exchanging Securities for Fund
Shares 13
Determining Market Value of
Securities 13
Redeeming Fund Shares 14
Redemption in Kind 14
Tax Status 14
The Fund's Tax Status 14
Shareholders' Tax Status 14
Capital Gains 14
Total Return 14
Yield 15
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. Unless otherwise indicated, the investment policies described
below may be changed by the Board of Trustees ("Trustees" or the
"Board") without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
Capitalized terms not otherwise defined in this Statement shall have the
same meaning assigned in the prospectus.
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
quality, 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. 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:
o 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;
o commercial paper rated, at the time of purchase, A-1 or better by
Standard & Poor's Ratings Group ("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 investment Adviser;
o 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
o 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 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
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
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:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o 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.
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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan, having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of deposit,
to be "cash items."
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.
James A. Hanley
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Malcolm T. Hopkins
Trustee
Private investor and consultant; Director, the Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution);
Director MAPCO, Inc. (diversified energy); Director, Metropolitan Series
Funds, Inc. and MetLife Portfolios, Inc. (investment companies);
Director, Kinder-Care Learning Centers, Inc. (child care); Director, U.S.
Home Corporation (residential builder and land development); and
Director, EMCOR Group, Inc. (engineering and construction).
Samuel E. Hudgins
Trustee
President, Percival Hudgins & Company, Inc. (investment
bankers/financial consultants); Director, Atlantic American Corporation
(insurance holding company); Director, Bankers Fidelity Life Insurance
Company; Director and Vice Chairman, Leath Furniture, Inc. (retail
furniture); President, Atlantic American Corporation (until 1988);
Director, Vice Chairman and Chief Executive Officer, Rhodes, Inc. (retail
furniture),(until 1988); Chairman and Director, Atlantic American Life
Insurance Co., Georgia Casualty & Surety Company, and Bankers Fidelity
Life Insurance (until 1988).
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel
company); formerly, Vice Chairman, Massachusetts Mutual Life Insurance
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 Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary and Trustee,
Federated Administrative Services; Executive Vice President and Director,
Federated Securities Corp.
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly, Associate
Corporate Counsel, Federated Investors; Vice President and Assistant
Treasurer for certain investment companies for which Federated Securities
Corp. is the principal distributor.
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 6, 1995, the following shareholder of record owned 5% or
more of the outstanding shares of the Fund: Wachovia Bank of North
Carolina, Winston-Salem, North Carolina, on behalf of certain underlying
accounts, owned approximately 4,042,912 shares (25.61 %).
Trustees Compensation
NAME AND AGGREGATE TOTAL COMPENSATION
PAID
POSITION WITH THE COMPENSATION FROM TO THE TRUSTEES FROM
THE TRUST
TRUST THE TRUST+ AND FUND COMPLEX #
James A. Hanley,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
Malcolm T. Hopkins,
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
Samuel E. Hudgins,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
J. Berkley Ingram, Jr.
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
D. Dean Kaylor,
Trustee $15,851 $16,875 for the
Trust and
one other investment
company
+The aggregate compensation is paid by the Trust, which is comprised of
twelve portfolios.
# The Fund Complex is comprised of 15 portfolios.
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.
Because of the internal controls maintained by the Wachovia Banks to
restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Wachovia Banks' or their
affiliates' lending relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
For the fiscal year ended November 30, 1994, and for the period from May
10, 1993 (date of initial public investment) to November 30, 1993, the
Adviser earned $862,327 and $456,294, respectively, of which $143,721,
and $76,055 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 ("FAS"), a subsidiary of Federated
Investors, provides administrative personnel and services to the Fund
for a fee as described in the prospectus. For the fiscal year ended
November 30, 1994 and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1993, FAS earned $142,981 and
$93,341. In addition, FAS reimbursed $48,849 and $52,005 in other Fund
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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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, 1994, the Fund owned $1,020,330 of securities issued
by Morgan Stanley Group, Inc., one of its regular broker/dealers, which
derives more than 15% of its 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 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. 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 Adviser deems it appropriate to make changes in
the Fund's portfolio.
During the fiscal year ended November 30, 1994, and for the period from
May 10, 1993 (date of initial public investment) through November 30,
1993, the Fund's portfolio turnover rates were 148% and 149%,
respectively.
Purchasing Fund Shares
Shares of the Fund are sold at net asset value plus an applicable sales
charge on days on which the Wachovia Banks, 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.
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 any 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 on 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.
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 values of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a national
securities exchange, if available;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
o for unlisted equity securities, the latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service; or
o 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 Trust 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:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
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 average annual total returns for the one year period ended
November 30, 1994, and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1994, were (8.60%) and (3.77%),
respectively.
The average annual total return for the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned
at the end of the period by the net asset value per share at the end of
the period. The number of shares owned at the end of the period is based
on the number of shares purchased at the beginning of the period with
$1,000, less any applicable sales 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, 1994 was
6.73%.
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:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses;
o the relative amount of Fund cash flow; and
o 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:
o Lehman Brothers Government/Corporate (Total) index is comprised of
approximately 5,000 issues which include: non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate
bonds guaranteed by the U.S. government and quasi-federal
corporations; and publicly issued, fixed rate, non-convertible
domestic bonds of companies in industry, public utilities, and
finance. The average maturity of these bonds approximates nine years.
Tracked by Lehman Brothers, the index calculates total returns for one-
month, three-month, twelve-month, and ten-year periods and year-to-
date.
o Lipper Analytical Services, Inc. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in net asset value over a specific period of time. From time to time,
the Fund will quote its Lipper ranking in the "fixed income funds"
category in advertising and sales literature.
o Lehman Brothers Aggregate Bond Index is a total return index measuring
both the capital price changes and income provided by the underlying
universe of securities, weighted by market value outstanding. The
Aggregate Bond Index is comprised of the Lehman Brothers Government
Bond Index, Corporate Bond Index, Mortgage-Backed Securities Index and
the Yankee Bond Index. These indices include: U.S. Treasury
obligations, including bonds and notes; U.S. agency obligations,
including those of the Farm Credit System, including the National Bank
for Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
Farmers Home Administration; Federal Home Loan Banks; Federal Home
Loan Mortgage Corporation; Federal National Mortgage Association;
Government National Mortgage Association; Student Loan Marketing
Association; foreign obligations; and U.S. investment-grade corporate
debt and mortgage-backed obligations. All corporate debt included in
the Aggregate Bond Index has a minimum rating of BBB by S&P or Fitch
Investor's Service, Inc. ("Fitch"), or a minimum rating of Baa by
Moody's.
o Merrill Lynch Corporate and Government Index includes issues which
must be in the form of publicly placed, non convertible, 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).
o Merrill Lynch Domestic Master Index includes issues which must be in
the form of publicly placed, non convertible, 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).
o 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.
o 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.
o Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their risk-
adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
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 Ratings Group 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.
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 edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa
"securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in "Aaa' securities.
A--Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment some time in the future.
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 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 Ratings Group Commercial Paper Ratings
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is
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
Prime-1--Issuers rated "Prime-1" (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. "Prime-1" repayment capacity will normally be evidenced by
many of the following characteristics:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection;
o Broad margins in earnings coverage of fixed financial charges and
high internal cash generation; or
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2- Issuers rated "Prime-2" (or related supporting institutions)
have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the
characteristics cited above, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is
maintained.
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.
090297-85-4
3012917B (1/94)
PROSPECTUS
JANUARY 31, 1995
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
Composite Index of 500 Stocks (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 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. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING 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.
BILTMORE
EQUITY INDEX FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
The Fund has also filed a Statement of Additional Information dated January 31,
1995, 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, call
1-800-994-4414 or write The Biltmore Service Center, 101 Greystone Boulevard,
SC-9215, Columbia, South Carolina 29226.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
TABLE OF CONTENTS
- ---------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ---------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ---------------------------------------------------
GENERAL INFORMATION 3
- ---------------------------------------------------
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Acceptable Investments 4
U.S. Government Securities 4
Variable Rate U.S. Government
Securities 4
Money Market Instruments 4
Repurchase Agreements 4
Stock Index Futures and Options 5
Index Participation Contracts 5
Lending of Portfolio Securities 6
Restricted and Illiquid Securities 6
Investment Considerations 6
Investment Limitations 6
- ---------------------------------------------------
THE BILTMORE FUNDS INFORMATION 6
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 7
Adviser's Background 7
Distribution of Shares 7
Administrative Arrangements 7
Shareholder Servicing Arrangements 7
Administration of the Fund 7
Administrative Services 7
Custodian 8
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 8
Legal Services 8
Independent Auditors 8
Brokerage Transactions 8
Expenses of the Fund 8
- ---------------------------------------------------
NET ASSET VALUE 8
- ---------------------------------------------------
INVESTING IN THE FUND 9
Share Purchases 9
Through the Trust Divisions of the
Wachovia Banks 9
Through Wachovia Investments, Inc. 9
By Mail 9
By Wire 9
Through Authorized Broker/Dealers 9
Minimum Investment Required 9
What Shares Cost 10
Purchases at Net Asset Value 10
Sales Charge Reallowance 10
Reducing the Sales Charge 10
Quantity Discounts and Accumulated
Purchases 10
Letter of Intent 11
Reinvestment Privilege 11
Concurrent Purchases 11
Systematic Investment Program 11
Certificates and Confirmations 11
Subaccounting Services 11
Dividends 12
Capital Gains 12
Exchange Privilege 12
Exchange by Telephone 12
- ---------------------------------------------------
REDEEMING SHARES 13
By Telephone 13
By Mail 13
Signatures 13
Systematic Withdrawal Program 13
Accounts with Low Balances 14
- ---------------------------------------------------
SHAREHOLDER INFORMATION 14
Voting Rights 14
Massachusetts Business Trusts 14
- ---------------------------------------------------
EFFECT OF BANKING LAWS 14
- ---------------------------------------------------
TAX INFORMATION 15
- ---------------------------------------------------
PERFORMANCE INFORMATION 15
- ---------------------------------------------------
STANDARD & POOR'S CORPORATION 16
- ---------------------------------------------------
FINANCIAL STATEMENTS 17
- ---------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 38
- ---------------------------------------------------
ADDRESSES BACK COVER
================================================================================
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver) (1) 0.25%
12b-1 Fees None
Other Expenses (after assumption) (2) 0.21%
Shareholder Servicing Agent Fee (3) 0.00%
Total Fund Operating Expenses (after waiver and assumption) (4) 0.46%
</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 0.30%.
(2) Other expenses would have been 0.24% absent the voluntary assumption by
the administrator. The administrator can terminate this voluntary
assumption 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 time, the Fund will be able to pay up to
0.25 of 1% of the Fund's average daily net assets for shareholder servicing
agent fees. See "The Biltmore Funds Information."
(4) Total Fund Operating Expenses would have been 0.54% absent the voluntary
waiver and assumption 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 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; (2) redemption at the end of
each time period; and (3) payment of the maximum sales load.
As noted in the table above, the Fund charges no redemption
fees. $49 $59 $70 $100
</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 EACH_ PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 38.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993*
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.47 $ 10.00
Income from investment operations
Net investment income 0.25 0.15
Net realized and unrealized gain (loss) on investments and futures contracts (0.19) 0.43
--------- ---------
Total from investment operations 0.06 0.58
Less distributions
Dividends to shareholders from net investment income (0.24) (0.11)
Distributions to shareholders from net realized gain on investment transactions
and futures contracts (0.02) --
--------- ---------
Total distributions (0.26) (0.11)
--------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.27 $ 10.47
--------- ---------
Total Return** 0.56% 5.80%
Ratios to Average Net Assets
Expenses 0.46% 0.43%(a)
Net investment income 2.44% 2.54%(a)
Expense waiver/reimbursement (b) 0.08% 0.12%(a)
Supplemental Data
Net assets, end of period (000 omitted)
$183,852
$149,266
Portfolio turnover rate 9% 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
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
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.
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 Emerging
Markets 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
Composite Index of 500 Stocks (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 the: Farm Credit System, including the National Bank
for Cooperatives, Farm Credit Banks, and Banks for Cooperatives, Farmers Home
Administration, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal National Mortgage Association, Government National
Mortgage Association, and 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 Prime-1, A-1 or F-1
by Moody's Investors Service, Inc., Standard & Poor's Ratings Group 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. There
is the risk that when lending portfolio securities, the securities may not be
available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
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
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., 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., together with its affiliates, Wachovia Bank of
Georgia, N.A. and Wachovia Bank of South Carolina, N.A. (formerly known as The
South Carolina National Bank) (collectively, the "Wachovia Banks") have been
managing trust assets for over 100 years, with approximately $17.3 billion in
managed assets as of September 30, 1994. Wachovia Investment Management Group
has served as investment adviser to The Biltmore Funds since March 9, 1992.
Wachovia Bank of North Carolina, N.A. also serves as investment adviser of
Biltmore North Carolina Municipal Bond Fund, a portfolio of The Biltmore
Municipal Funds, another investment company. As part of their regular banking
operations, the Wachovia Banks may make loans to public companies. Thus, it may
be possible, from time to time, for the Fund to hold or acquire the securities
of issuers which are also lending clients of the Wachovia Banks. The lending
relationship will not be a factor in the selection of securities.
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, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is the Fund's shareholder servicing agent (the "Shareholder
Servicing Agent"). The Fund may pay the Shareholder Servicing Agent a fee based
on the average daily net asset value of shares for which it provides shareholder
services. These shareholder services include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance, and communicating or facilitating purchases and redemptions of
shares. This fee will be computed at an annual rate equal to 0.25% of 1% of the
Fund's average daily net assets for which the Shareholder Servicing Agent
provides services; however, the Shareholder Servicing Agent may choose
voluntarily to waive all or a portion of its fee at any time or pay all or some
of its fees to financial institutions or other financial service providers.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services also provides the
Fund with the administrative personnel and services necessary to operate the
Fund. Such services include the preparation of filings with the Securities and
Exchange Commission and other regulatory authorities, assistance with respect to
meetings of the Trustees, shareholder servicing and accounting services, and
other administrative services. Federated Administrative Services provides these
at an annual rate, computed and payable daily, as specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds
Administrative Fee and The Biltmore Municipal Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year for the Fund and each of
the other portfolios of The Biltmore Funds shall aggregate at least $75,000.
Federated Administrative Services may choose voluntarily to waive or reimburse a
portion of its fee at any time.
CUSTODIAN. Wachovia Bank of North Carolina, N.A., Winston-Salem, North Carolina,
is custodian (the "Custodian") for the securities and cash of the Fund. Under
the Custodian Agreement, the Custodian holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. For the services to be provided to the Trust pursuant to the Custodian
Agreement, the Trust pays the Custodian an annual fee based upon the average
daily net assets of the Fund and which is payable monthly. 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, Pennsylvania, a subsidiary of Federated
Investors, 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 LLP,
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. and advised by the Adviser. 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
Fund 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, Wachovia Investments, Inc. or
authorized broker/dealers which have a sales agreement with the Distributor. All
purchase orders must be transmitted to the Fund by 5:00 p.m. (Eastern time).
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573. 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.
THROUGH THE TRUST DIVISIONS OF THE WACHOVIA BANKS. Trust customers of the
Wachovia Banks may place an order to purchase shares of the Fund by telephoning,
sending written instructions, or placing the order in person with their account
officer in accordance with the procedures established by the Wachovia Banks and
as set forth in the relevant account agreement.
Payment may be made to the Wachovia Banks by check, by wire of federal funds, or
by debiting a customer's account with the Wachovia Banks. Purchase orders must
normally be received by the Wachovia Banks by 3:00 p.m. (Eastern time), in order
for shares to be purchased at that day's price. It is the responsibility of the
Wachovia Banks to transmit orders promptly to the Fund. Shares of the Fund
cannot be purchased by wire on any day on which the Wachovia Banks, the New York
Stock Exchange and the Federal Reserve Wire System are not open for business.
THROUGH WACHOVIA INVESTMENTS, INC. Customers of Wachovia Investments, Inc. or
Wachovia Brokerage Service may place an order to purchase shares by telephoning
The Biltmore Service Center at 1-800-994-4414, sending written instructions, or
placing an order in person. Payment may be made by check, by wire of federal
funds (the customer's bank sends money to the Fund's bank through the Federal
Reserve Wire System) or by debiting a customer's account at Wachovia
Investments, Inc. Purchase orders must normally be received by Wachovia
Investments, Inc. before 3:30 p.m. (Eastern time). Wachovia Investments, Inc., a
wholly-owned subsidiary of Wachovia Corporation, is a registered broker/dealer
and member of the National Association of Securities Dealers, Inc. Wachovia
Brokerage Service is a business unit of Wachovia Investments, Inc.
BY MAIL. To purchase shares of the Fund through Wachovia Investments, Inc. by
mail, send a check made payable to Biltmore Equity Index Fund to The Biltmore
Service Center, 101 Greystone Boulevard, SC-9215, Columbia, South Carolina
29226. Orders by mail are considered received after payment by check is
converted by Wachovia Investments, Inc. into federal funds. This is normally the
next business day after Wachovia Investments, Inc. receives the check.
BY WIRE. To purchase shares of the Fund through Wachovia Investments, Inc. by
wire, wire funds as follows:
Wachovia Investments, Inc.
ABA Number 0531-00494
Credit: 8735-001342
Further credit to: Biltmore Equity Index Fund
Re: (Customer name and brokerage account number)
Shares of the Fund cannot be purchased by wire on any day on which the Wachovia
Banks, the New York Stock Exchange and the Federal Reserve Wire System are not
open for business.
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of the Fund. Shares will be
purchased at the public offering price next determined after the Fund receives
the purchase request. Purchase requests through registered broker/dealers must
normally be received by the broker/dealer and transmitted to the Fund before
3:30 p.m. (Eastern time) in order for shares to be purchased at that day's
public offering price.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares of the Fund is $250. This amount may be
waived from time to time. Subsequent investments may be in amounts of $50 or
more.
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 a Sales Charge as a
Percentage of 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 Wachovia Banks for funds which are held in a fiduciary, advisory, 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 trusts, pension profit-sharing plans and individual retirement
accounts operated for such persons, may purchase shares of the Fund at net asset
value. In addition, trustees, officers, directors and employees of the
Distributor and its affiliates, and any bank or investment dealer who has a
sales agreement with the Distributor relating to the Fund, may also purchase
shares at their net asset value.
SALES CHARGE REALLOWANCE. For shares sold with a sales charge, the Wachovia
Banks or an affiliated broker or a dealer will receive up to 100% of the
applicable sales charge for purchases of Fund shares made directly through the
Wachovia Banks or such broker or dealer. Any portion of the sales charge which
is not paid to a dealer will be retained by the Distributor.
The sales charge for shares sold other than through Wachovia Investments, Inc.,
the Wachovia Banks or registered broker/dealers will be retained by the
Distributor. However, the Distributor, at its sole discretion, may uniformly
offer to pay cash, or promotional incentives in the form of trips to sales
seminars at luxury resorts, tickets or other items, to all dealers selling
shares of the Fund. Such payments will be predicated upon the amount of shares
of the Fund that are sold by the dealers.
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 in this
prospectus under the section entitled "What Shares Cost," larger purchases
reduce the sales charge paid. The Fund will combine purchases made on the same
day by the investor, 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
$90,000 and then purchases $10,000 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, the Wachovia Banks, Wachovia Investments,
Inc. 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 purchases.
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 up to 4.50% of the total amount intended to be purchased in escrow (in
shares of the Fund) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period, unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
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 the Fund at the next-determined net asset value without any sales
charge. The Wachovia Banks, Wachovia Investments, Inc. or the Distributor must
be notified by the shareholder in writing or by his financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder redeems
his shares in the Fund, there may be tax consequences.
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 and the portfolios in The Biltmore Municipal 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, the Wachovia Banks, Wachovia
Investments, Inc. or the Distributor must be notified by the agent placing the
order at the time the concurrent purchases are made. The sales charge will be
reduced after the purchase is confirmed.
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 Banks, Wachovia Investments,
Inc. or through the Distributor.
CERTIFICATES AND CONFIRMATIONS
As the transfer agent, Federated Services Company maintains a share account for
each shareholder of record. Share certificates are not issued unless requested
in writing to the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder of record. Annual statements are sent to report dividends paid
during the year.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the Transfer Agent's subaccounting system to
minimize their internal recordkeeping requirements. The Transfer Agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding shares of the Fund in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Fund shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the institution with regard to the services provided, the fees
charged for those services, and any restrictions and limitations imposed.
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 the three portfolios of The Biltmore Municipal Funds (Biltmore Georgia
Municipal Bond Fund, Biltmore North Carolina Municipal Bond Fund, and Biltmore
South Carolina Municipal Bond Fund), 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 contemplating
exchanges into The Biltmore Municipal Funds should consult their tax advisers,
since the tax advantages of each portfolio of The Biltmore Municipal Funds may
vary.
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 Fund, Wachovia
Investments, Inc., or in the case of customers of the Wachovia Banks, the
shareholder's account officer.
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 at net asset value.
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 Investments, Inc. 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 Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemptions
must be received in proper form and can be made through the Wachovia Banks,
Wachovia Investments, Inc., or directly to the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by calling the
Wachovia Banks (call toll-free 1-800-994-4414) to request the redemption.
Telephone redemption instructions may be recorded. Shares will be redeemed at
the net asset value next determined after the Fund receives the redemption
request from the Wachovia Banks. Redemption requests made through the Wachovia
Banks must be received by the Wachovia Banks before 3:00 p.m. (Eastern time) in
order for shares to be redeemed at that day's net asset value. The Wachovia
Banks are responsible for promptly submitting redemption requests and providing
proper written redemption instructions to the Fund. Registered broker/dealers
may charge customary fees and commissions for this service. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
of the Fund by phone by calling The Biltmore Service Center at 1-800-994-4414. A
shareholder who is a customer of the Wachovia Banks and whose account agreement
with the Wachovia Banks permits telephone redemption may redeem shares of the
Fund by telephoning his account officer. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request.
Redemption requests must be received by 4:00 p.m. (Eastern time) in order for
shares to be redeemed at that day's net asset value. In no event will proceeds
be credited more than seven days after a proper request for redemption has been
received. In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered.
BY MAIL. A shareholder may redeem Fund shares by sending a written request to
the Wachovia Banks. The written request should include the shareholder's name,
the Fund name, the account number, and the share or dollar amount requested. If
share certificates have been issued, they must be properly endorsed and should
be sent by registered or certified mail with the written request to the Fund.
Shareholders should call the Wachovia Banks for assistance in redeeming by mail.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
by sending a written request to Wachovia Investments, Inc. The written request
should include the shareholder's name and address, the Fund name, the brokerage
account number, and the share or dollar amount requested. Shareholders should
call Wachovia Investments, Inc. for assistance in redeeming by mail. Normally, a
check for the proceeds is mailed within five business days, 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 of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
a savings bank or savings and loan association whose deposits are insured by
the 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 his financial
institution. 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 January 6, 1995, the Wachovia Banks and their various affiliates and
subsidiaries, acting in various capacities for numerous accounts, were the
owners of record of in excess of 25% of the outstanding shares 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.
================================================================================
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, 1994
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--86.9%
BROADCAST RADIO & TV--0.4%
16,813 Viacom, Inc., Cl. B $ 647,301
--------------
CAPITAL GOODS--4.1%
1,404 Briggs & Stratton Corp. 47,034
9,459 Browning-Ferris Industries, Inc. 255,393
9,888 Caterpillar, Inc. 533,952
1,625 Cincinnati Milacron Inc. 38,797
844 Clark Equipment Co. 46,526
5,544 Cooper Industries, Inc. 192,654
2,010 Cummins Engine Co., Inc. 87,435
4,150 Deere & Co. 266,638
2,772 Dover Corp. 141,719
3,677 Eaton Corp. 175,117
10,910 Emerson Electric Co. 643,690
1,732 Foster Wheeler Corp. 49,579
82,804 General Electric Co. 3,808,939
1,660 Giddings & Lewis, Inc. 23,655
2,460 Grainger (W.W.), Inc. 127,613
6,331 Honeywell, Inc. 185,182
5,477 Illinois Tool Works, Inc. 221,819
5,109 Ingersoll Rand Co. 164,765
1,886 PACCAR, Inc. 78,269
2,364 Parker-Hannifin Corp. 103,721
2,074 Raychem Corp. 71,812
17,169 Westinghouse Electric Corp. 218,905
602 Zurn Industries, Inc. 10,535
--------------
Total 7,493,749
--------------
CONSUMER DURABLES--2.9%
1,805 Armstrong World Industries, Inc. 72,200
701 Bassett Furniture Industries, Inc. 19,979
4,066 Black & Decker Corp. 97,584
3,789 Brunos, Inc. 33,154
17,170 Chrysler Corp. 830,599
4,056 Cooper Tire & Rubber Co. 94,809
4,768 Dana Corp. 103,108
2,876 Echlin, Inc. 86,999
48,776 Ford Motor Co. 1,323,049
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
CONSUMER DURABLES--CONTINUED
36,258 General Motors Corp. $ 1,382,336
6,031 Genuine Parts Co. 210,331
7,282 Goodyear Tire and Rubber Co. 246,678
1,234 Harnischfeger Industries, Inc. 32,855
2,206 Jostens, Inc. 38,054
1,577 Kaufman & Broad Home Corp. 20,107
5,203 Maytag Corp. 77,395
1,527 Morrison Knudsen Corp. 22,523
2,406 National Services Industries, Inc. 61,353
3,638 Navistar International Corp.* 47,749
961 Outboard Marine Corp. 17,899
2,960 Pep Boys--Manny, Moe & Jack 95,830
1,336 Pulte Corp. 26,887
675 SPX Corp. 10,463
544 Skyline Corp. 10,064
2,168 Stanley Works (The) 77,506
1,493 Timken Co. 48,149
1,377 TRINOVA Corp. 40,794
2,505 Western Atlas, Inc.* 109,281
3,628 Whirlpool Corp. 180,947
--------------
Total 5,418,682
--------------
CONSUMER NON-DURABLES--28.7%
39,395 Abbott Laboratories, Inc. 1,255,716
1,374 Alberto Culver Co., Cl. B 35,209
12,297 Albertson's, Inc. 353,539
3,052 Allergan Pharmaceuticals, Inc. 91,942
9,791 American Brands, Inc. 346,357
3,591 American Greetings Corp., Cl. A 99,650
14,770 American Home Products Co. 961,896
6,915 American Stores Co. 182,383
12,879 Anheuser-Busch Companies, Inc. 632,681
16,656 Archer-Daniels-Midland Co. 460,122
3,498 Avon Products, Inc. 216,439
2,275 Bally Entertainment Group* 13,366
2,523 Bard (C.R.), Inc. 65,598
2,867 Bausch & Lomb, Inc. 95,686
13,653 Baxter International, Inc. 351,565
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
CONSUMER NON-DURABLES--CONTINUED
3,527 Becton, Dickinson & Co. $ 166,651
3,969 Beverly Enterprises, Inc.* 56,062
5,155 Block (H&R), Inc. 178,492
6,847 Borden, Inc. 95,858
24,618 Bristol-Myers Squibb Co. 1,421,690
852 Brown Group, Inc. 27,051
3,356 Brown-Forman Corp., Cl. B 100,261
4,623 Brunswick Corp. 79,747
2,725 CBS, Inc. 151,238
7,179 CPC International, Inc. 367,924
12,181 Campbell Soup Co. 523,783
7,460 Capital Cities/ABC, Inc. 609,855
4,984 Charming Shoppes, Inc. 33,642
4,661 Circuit City Stores, Inc. 114,777
2,629 Clorox Co. 153,139
62,315 Coca-Cola Co. 3,185,854
7,141 Colgate-Palmolive Co. 428,460
17,335 Columbia HCA/Healthcare Corp. 656,563
11,552 Comcast Corp., Cl. A 183,388
2,085 Community Psychiatric Centers 20,850
12,041 ConAgra, Inc. 371,766
1,854 Coors (Adolph) Co., Cl. B 29,201
3,471 Dayton-Hudson Corp. 283,320
4,459 Dial Corp. 89,180
5,480 Dillard Department Stores, Inc. 154,125
26,065 Disney (Walt) Co. (The) 1,137,086
7,465 Donnelley (R.R.) & Sons Co. 213,686
4,821 Dow Jones & Co., Inc. 139,809
8,239 Dun & Bradstreet Corp. 435,637
15,999 Eastman Kodak Co. 729,954
1,790 Fleming Companies, Inc. 41,170
6,729 Gannett Co., Inc. 318,786
7,045 Gap, Inc. (The) 248,336
7,724 General Mills, Inc. 415,165
2,896 Giant Foods, Inc., Cl. A 64,798
10,704 Gillette Co. 786,744
1,855 Great Atlantic & Pacific Tea Co., Inc. 41,274
1,622 Handleman Co. 18,653
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
CONSUMER NON-DURABLES--CONTINUED
1,493 Harland (John H.) Co. $ 29,487
1,548 Hartmarx Corp. 8,321
4,255 Hasbro, Inc. 125,523
12,035 Heinz (H.J.) Co. 437,773
1,197 Helmerich & Payne 33,516
4,268 Hershey Foods Corp. 199,529
2,321 Hilton Hotels Corp. 161,310
21,751 Home Depot, Inc. 1,005,984
5,384 International Flavors & Fragrances, Inc. 236,896
3,649 Interpublic Group of Cos., Inc. 115,400
31,154 Johnson & Johnson 1,662,845
22,025 K-Mart Corp. 319,363
10,900 Kellogg Co. 619,938
1,813 King World Productions Inc.* 63,228
2,654 Knight-Ridder, Inc. 127,724
5,645 Kroger Co.* 136,186
14,207 Lilly (Eli) & Co. 889,713
17,300 Limited, Inc. (The) 335,188
3,904 Liz Claiborne, Inc. 88,328
1,010 Long's Drug Stores, Inc. 31,689
7,602 Lowe's Companies, Inc. 284,125
1,281 Luby's Cafeterias, Inc. 28,182
3,023 Manor Care, Inc. 85,778
8,625 Mattell, Inc. 230,719
12,060 May Department Stores Co. 437,175
33,945 McDonald's Corp. 963,189
2,396 McGraw-Hill, Inc. 162,629
5,546 Medtronic, Inc. 293,938
5,111 Melville Corp. 160,997
1,788 Mercantile Stores Co., Inc. 72,414
60,922 Merck & Co., Inc. 2,269,345
700 Merideth Corp. 33,688
7,116 Morton International, Inc. 195,690
1,427 National Educational Corp.* 5,886
8,051 National Medical Enterprises, Inc. 113,720
5,131 New York Times Co. (The), Cl. A 121,861
3,631 Nike, Inc., Cl. B 231,930
3,982 Nordstrom, Inc. 192,132
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
CONSUMER NON-DURABLES--CONTINUED
2,110 Ogden Corp. $ 41,673
708 Oshkosh B. Gosh, Inc., Cl. A 9,381
11,449 Penney (J.C.) Co., Inc. 526,654
38,280 PepsiCo, Inc. 1,354,155
4,972 Pet, Inc. 83,903
14,745 Pfizer, Inc. 1,140,894
42,100 Philip Morris Cos., Inc. 2,515,475
4,337 Pioneer Hi-Bred International, Inc. 147,458
2,272 Polaroid Corp. 71,284
10,611 Price/Costco, Inc.* 163,144
33,062 Proctor & Gamble Co. 2,066,375
3,250 Quaker Oats Co. 197,844
4,870 Ralston Purina Co. 208,801
3,968 Reebok International Ltd. 152,272
4,175 Rite-Aid Corp. 94,459
2,929 Rollins Environmental Services 13,913
7,784 Rubbermaid, Inc. 210,168
1,982 Russell Corp. 60,203
2,592 Ryan's Family Steakhouses, Inc.* 18,144
2,800 Safety-Kleen Corp. 40,600
23,173 Sara Lee Corp. 564,842
9,369 Schering-Plough Corp. 701,504
18,058 Seagram Co., Ltd. 525,939
17,022 Sears, Roebuck & Co. 804,290
4,106 Service Corp. International 105,216
1,100 Shared Medical Systems Corp. 33,138
1,977 Shoney's, Inc.* 27,184
853 Spring Industries, Inc. 31,668
2,253 St. Jude Medical, Inc. 89,838
2,440 Stride Rite Corp. 30,195
3,494 SuperValu Stores, Inc. 85,603
8,961 Sysco Corp. 230,746
3,565 TJX Companies, Inc. (The) 53,921
27,915 Tele-Communications, Inc., Cl. A* 659,492
2,687 Temple-Inland Inc. 120,579
18,290 Time Warner, Inc. 617,288
6,242 Times Mirror Co. 192,722
13,895 Toys "R" Us, Inc.* 508,904
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
CONSUMER NON-DURABLES--CONTINUED
3,244 Tribune Co. $ 162,606
7,726 U.S. Healthcare, Inc. 345,739
9,921 UST, Inc. 274,068
7,768 Unilever N.V. 867,103
8,276 United Healthcare Corp. 393,110
2,725 United States Surgical Corp. 59,269
8,433 Upjohn Co. 270,910
3,128 V.F. Corp. 151,708
111,080 Wal-Mart Stores, Inc. 2,568,725
5,974 Walgreen Co. 247,921
6,528 Warner-Lambert Co. 505,104
4,889 Wendy's International, Inc. 68,446
5,084 Whitman Corp. 80,709
3,630 Winn-Dixie Stores, Inc. 182,861
6,403 Woolworth (F.W.) Corp. 90,442
5,650 Wrigley (Wm.), Jr. Co. 264,138
2,138 Zenith Electronics Corp.* 26,191
--------------
Total 52,806,382
--------------
ENERGY--9.6%
4,494 Amerada-Hess Corp. 204,477
24,002 Amoco Corp. 1,458,122
2,915 Ashland Oil, Inc. 99,110
7,750 Atlantic Richfield Co. 802,125
6,817 Baker Hughes, Inc. 122,706
6,325 Burlington Resources, Inc. 226,119
31,503 Chevron Corp. 1,374,318
5,072 Coastal Corp. 130,604
4,510 Consolidated Natural Gas Co. 157,850
8,875 Dresser Industries, Inc. 177,500
3,231 Enserch Corp. 40,791
60,166 Exxon Corp. 3,632,522
3,985 Fluor Corp. 170,857
5,538 Halliburton Co. 193,138
2,507 Kerr-McGee Corp. 118,456
1,608 Louisiana Land & Exploration Co. 65,928
6,510 Maxus Energy Corp.* 24,413
2,588 McDermott International, Inc.* 61,465
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
ENERGY--CONTINUED
19,255 Mobil Corp. $ 1,641,489
434 NACCO Industries, Inc., Cl. A 22,622
5,939 Noram Energy Corp.* 33,407
15,080 Occidental Petroleum Co. 295,945
4,705 Oryx Energy Co. 57,048
5,801 Panhandle Eastern Corp. 122,546
2,226 Pennzoil Co. 107,683
12,692 Phillips Petroleum Co. 418,836
2,010 Pittston Services Group 47,738
11,550 Placer Dome, Inc. 216,563
25,915 Royal Dutch Petroleum Co. 2,815,017
4,358 Santa Fe Energy Resources, Inc. 36,498
11,819 Schlumberger, Ltd. 627,884
4,227 Sonat, Inc. 118,884
5,169 Sun Co., Inc. 150,547
8,225 Tenneco, Inc. 319,747
12,572 Texaco, Inc. 781,036
13,911 USX Marathon Corp. 250,398
11,708 Unocal Corp. 311,726
4,989 Williams Companies, Inc. (The) 140,939
--------------
Total 17,577,054
--------------
FINANCE--9.6%
5,419 Aetna Life & Casualty Co. 242,500
5,673 Ahmanson (H.F.) & Co. 94,314
2,114 Alexander & Alexander Services 39,902
23,968 American Express Co. 710,052
10,110 American General Corp. 265,388
15,298 American International Group, Inc. 1,401,679
19,730 Banc One Corp. 530,244
5,118 Bank of Boston Corp. 136,907
17,950 BankAmerica Corp. 735,950
3,860 Bankers Trust New York Corp. 228,705
4,728 Barnett Banks, Inc. 186,165
2,509 Beneficial Corp. 91,579
5,045 Boatmen's Bancshares Inc. 140,629
3,495 CIGNA Corp. 221,496
8,959 Chase Manhattan Corp. 320,284
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
FINANCE--CONTINUED
12,254 Chemical Banking Corp. $ 445,739
4,257 Chubb Corp. 299,054
18,760 Citicorp 780,885
2,677 Continental Corp. 38,817
6,968 CoreStates Financial Corp. 172,458
8,280 Dean Witter Discover & Co. 289,800
8,706 Federal Home Loan Mortgage Corp. 434,212
13,251 Federal National Mortgage Association 942,477
4,478 First Chicago Corp. 208,227
5,330 First Data Corp. 255,174
3,871 First Fidelity Bancorporation 174,195
3,913 First Interstate Bancorp. 275,867
8,239 First Union Corp. 328,530
6,835 Fleet Financial Group, Inc. 212,739
3,972 General RE Corp. 466,214
2,984 Golden West Financial Corp. 104,440
6,405 Great Western Financial Corp. 108,885
4,577 Household International, Inc. 176,215
2,443 Jefferson-Pilot Corp. 123,677
11,725 KeyCorp 285,797
4,569 Lincoln National Corp. 177,620
7,208 MBNA Corp. 170,289
3,597 Marsh & McLennan Cos., Inc. 259,434
6,945 Mellon Bank Corp. 230,053
9,400 Merrill Lynch & Co., Inc. 357,200
9,387 Morgan (J.P.) & Co., Inc. 551,486
7,800 NBD Bancorp, Inc. 211,575
7,265 National City Corp. 182,533
13,280 NationsBank Corp. 595,940
15,431 Norwest Corp. 335,624
11,380 PNC Bank Corp. 236,135
4,776 Providian Corp.* 144,474
3,056 SAFECO Corp. 150,317
5,110 Salomon, Inc. 185,238
5,712 Shawmut National Corp. 101,388
4,111 St. Paul Companies, Inc. 169,579
5,945 SunTrust Banks, Inc. 280,158
3,579 Torchmark Corp. 118,554
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
FINANCE--CONTINUED
3,418 Transamerica Corp. $ 161,928
15,685 Travelers Corp. 515,644
4,828 U.S. Bancorp 111,044
3,681 UNUM Corp. 134,357
4,126 USF&G Corp. 56,217
1,099 USLIFE Corp. 35,443
8,347 Wachovia Corp. 272,321
2,606 Wells Fargo & Co. 376,241
--------------
Total 17,589,988
--------------
MATERIALS & SERVICES--8.5%
5,539 Air Products & Chemicals, Inc. 245,793
10,872 Alcan Aluminum Ltd. 269,082
2,623 Alco Standard Corp. 146,888
13,754 Allied-Signal, Inc. 448,724
4,288 Aluminum Co. of America 350,008
3,964 Alza Corp.* 76,307
2,485 Bemis, Inc. 54,981
5,272 Bethlehem Steel Corporation 93,578
1,843 Boise Cascade Corp. 44,693
1,536 Centex Corp. 31,296
4,514 Champion International Co. 156,862
10,675 Corning, Inc. 320,250
1,458 Crane Co. 37,908
4,302 Crown Cork & Seal Co., Inc.* 162,401
4,440 Cyprus Amax Minerals Co. 111,000
4,012 Deluxe Corp. 111,333
13,307 Dow Chemical Co. 851,648
32,876 Du Pont (E.I.) de Nemours & Co., Inc. 1,771,195
5,434 Echo Bay Mines Ltd. 56,378
3,063 Ecolab, Inc. 62,409
4,664 Engelhard Corp. 102,608
1,747 FMC Corp.* 101,763
2,218 Fleetwood Enterprises, Inc. 43,528
2,296 General Signal Corp. 74,046
4,356 Georgia-Pacific Corp. 311,454
1,244 Goodrich (B.F.) Co. 55,358
4,528 Grace (W.R.) & Co. 167,536
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
MATERIALS & SERVICES--CONTINUED
3,456 Great Lakes Chemical Corp. $ 183,168
3,777 Harcourt Gen, Inc. 135,500
2,019 Hercules, Inc. 230,923
6,662 Homestake Mining Co. 112,421
5,728 ITT Corp. 456,092
5,634 Inco Ltd. 154,935
2,143 Inland Steel Industries, Inc. 70,183
5,998 International Paper Co. 428,857
3,962 James River Corp. of Virginia 83,697
7,809 Kimberly-Clark Corp. 391,426
5,335 Louisiana-Pacific Corp. 149,380
5,995 Marriott International, Inc. 157,369
7,585 Masco Industries, Inc. 168,766
2,871 Mead Corp. 131,348
1,118 Millipore Corp. 56,876
20,523 Minnesota Mining & Manufacturing Co. 1,051,804
5,760 Monsanto Co. 414,720
4,830 Moore Corp. Ltd. 82,714
3,346 Nalco Chemical Co. 108,745
7,642 Newell Co. 164,303
4,144 Newmont Mining Corp. 151,774
4,222 Nucor Corp. 230,099
2,081 Owens-Corning Fiberglass Corp.* 60,349
10,338 PPG Industries, Inc. 372,168
5,633 Pall Corp. 99,986
3,414 Phelps Dodge Corp. 195,452
1,417 Potlatch Corp. 53,138
6,499 Praxair, Inc. 131,605
3,094 Premark International, Inc. 140,777
4,960 Promus Cos., Inc. (The)* 137,640
2,906 Reynolds Metals Co. 136,945
3,283 Rohm & Haas Co. 183,027
4,069 Rowan Companies, Inc.* 26,957
6,431 Santa Fe Pacific Gold Corp. 81,190
3,593 Scott Paper Co. 234,443
4,213 Sherwin-Williams Co. 129,550
2,405 Sigma-Aldrich Corp. 83,273
2,077 Snap-On Tools Corp. 65,426
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
MATERIALS & SERVICES--CONTINUED
4,380 Stone Container Corp. $ 71,723
2,691 Teledyne, Inc. 46,420
3,643 Tyco International Ltd. 167,578
3,633 USX-U.S. Steel Group 124,884
3,387 Union Camp Corp. 157,072
7,368 Union Carbide Corp. 210,909
2,130 Varity Corp.* 79,343
23,459 WMX Technologies, Inc. 604,069
3,247 Westvaco Corp. 111,616
9,952 Weyerhaeuser Co. 381,908
4,392 Worthington Industries, Inc. 87,840
--------------
Total 15,549,415
--------------
NON-ENERGY MATERIALS--0.2%
5,045 ARMCO, Inc. 30,901
2,023 ASARCO, Inc. 55,380
16,919 American Barrick Resources Corp. 353,184
--------------
Total 439,465
--------------
PROCESS INDUSTRIES--0.2%
2,773 Avery Dennison Corp. 89,429
1,426 Ball Corp. 40,106
4,009 Eastmen Chemical Co. 188,924
2,039 Federal Paper Board Co. 55,308
972 First Mississippi Corp. 21,506
--------------
Total 395,273
--------------
TECHNOLOGY--12.7%
5,092 AMP, Inc. 367,897
4,480 Advanced Micro Devices, Inc.* 113,120
5,560 Amdahl Corp. 54,210
75,827 American Telephone & Telegraph Co. 3,725,001
6,507 Amgen, Inc.* 379,846
1,226 Andrew Corp.* 59,768
5,691 Apple Computer, Inc. 211,990
2,302 Autodesk, Inc. 86,613
6,814 Automatic Data Processing, Inc. 380,732
5,591 Biomet, Inc. 68,490
16,488 Boeing Co.* 737,838
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
TECHNOLOGY--CONTINUED
12,455 COMPAQ Computer Corp.* $ 487,302
2,144 Ceridan Corp.* 53,600
12,643 Cisco Systems, Inc.* 407,737
7,815 Computer Associates International, Inc. 355,583
2,449 Computer Science Corp.* 112,960
1,275 Cray Research, Inc.* 23,428
5,338 DSC Communications Corp.* 166,813
1,721 Data General Corp.* 18,501
6,693 Digital Equipment Corp.* 227,562
1,639 E-Systems, Inc. 60,028
2,665 EG&G, Inc. 39,309
3,036 General Dynamics Corp. 122,199
1,933 Harris Corp. 79,253
12,267 Hewlett-Packard Co. 1,202,166
20,299 Intel Corp. 1,281,374
2,208 Intergraph Corp.* 17,388
28,189 International Business Machines Corp. 1,994,372
1,967 Johnson Controls, Inc. 95,400
3,025 Lockheed Corp. 207,969
4,032 Loral Corp. 159,768
2,152 Lotus Development Corp.* 96,302
1,239 M/A Communications, Inc.* 7,744
31,255 MCI Communications Corp. 609,473
3,730 Mallinckrodt Group, Inc. 111,900
4,625 Martin-Marietta Corp. 200,609
1,908 McDonnell-Douglas Corp. 266,166
4,925 Micron Technology, Inc. 204,388
27,840 Microsoft Corp. 1,750,440
27,340 Motorola, Inc. 1,541,293
5,942 National Semiconductor Co.* 109,184
12,173 Northern Telecom, Ltd. 389,536
2,385 Northrop-Grumman Corp. 96,891
17,844 Novell, Inc.* 354,650
13,840 Oracle Systems Corp.* 570,900
2,133 Perkin-Elmer Corp. 58,924
7,662 Pitney Bowes, Inc. 254,762
6,581 Raytheon Co. 413,780
10,610 Rockwell International Corp. 359,414
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
TECHNOLOGY--CONTINUED
3,644 Scientific-Atlanta, Inc. $ 71,969
16,625 Sprint Corp. 496,672
4,537 Sun Microsystems* 151,990
3,114 TRW, Inc. 197,739
5,536 Tandem Computers, Inc.* 94,112
3,097 Tandy Corp. 142,849
1,471 Tektronix, Inc. 54,979
4,408 Texas Instruments, Inc. 332,804
4,280 Textron, Inc. 201,160
916 Thomas & Betts Corp. 60,685
8,255 Unisys Corp. 77,391
6,067 United Technologies Corp. 354,920
5,044 Xerox Corp. 495,573
--------------
Total 23,427,416
--------------
TRANSPORTATION--1.4%
3,677 AMR Corp.* 186,608
4,308 Burlington Northern, Inc. 210,015
5,055 CSX Corp. 351,323
3,861 Conrail, Inc. 200,772
1,721 Consolidated Freightways, Inc. 33,344
2,440 Delta Air Lines, Inc. 122,305
2,691 Federal Express Corp.* 153,051
6,741 Norfolk Southern Corp. 407,831
1,985 Roadway Services, Inc. 100,243
3,740 Ryder Systems, Inc. 80,878
8,969 Santa Fe Pacific Corp. 150,231
6,930 Southwest Airlines Co. 146,396
2,872 U.S. Air Group, Inc. 14,001
9,952 Union Pacific Corp. 462,768
1,364 Yellow Corp. 26,769
--------------
Total 2,646,535
--------------
UTILITIES--8.6%
23,906 Airtouch Communications, Inc.* 648,450
8,957 American Electric Power Co., Inc. 295,581
26,492 Ameritech Corp. 1,046,434
7,083 Baltimore Gas & Electric Co. 160,253
21,164 Bell Atlantic Corp. 1,060,846
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
UTILITIES--CONTINUED
24,080 BellSouth Corp. $ 1,249,150
7,802 Carolina Power & Light Co. 208,704
9,145 Central & SouthWest Corp. 194,331
7,144 Cinergy Corp. 158,954
2,454 Columbia Gas System, Inc. 60,430
11,358 Consolidated Edison Co. 293,888
7,138 Detroit Edison Co. 190,942
8,124 Dominion Resources, Inc. 301,604
9,944 Duke Power Co. 405,218
1,018 Eastern Enterprises 25,959
12,069 Enron Corp. 325,863
11,043 Entergy Corp. 248,468
9,200 FPL Group, Inc. 325,450
46,247 GTE Corp. 1,416,314
6,330 Houston Industries, Inc. 215,220
2,643 NICOR, Inc. 59,468
20,330 NYNEX Corp. 764,916
6,899 Niagara Mohawk Power Corp. 95,724
3,240 Northern States Power Co. 146,205
7,406 Ohio Edison Co. 137,011
1,293 Oneok, Inc. 22,304
10,752 PECO Energy Co. 259,392
3,963 Pacific Enterprises 84,709
20,830 Pacific Gas & Electric Co. 497,316
20,464 Pacific Telesis Group 593,456
13,604 Pacificorp 251,674
1,692 People's Energy Corp. 41,454
11,856 Public Service Enterprise Group, Inc. 315,666
21,734 SCEcorp. 304,276
31,414 Southern Co. 651,841
29,095 Southwestern Bell Corp. 1,203,806
10,888 Texas Utilities Co. 355,221
1,960 Transco Energy Co. 24,500
21,955 U.S. West, Inc. 773,914
10,368 Unicom Corp. 242,352
</TABLE>
================================================================================
BILTMORE EQUITY INDEX FUND
<TABLE>
<CAPTION>
Shares or
Principal
Amount Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--continued
UTILITIES--CONTINUED
4,957 Union Electric Co. $ 177,832
--------------
Total 15,835,096
--------------
Total Common Stocks (identified cost, $157,555,434) 159,826,356
--------------
Short-Term U.S. Treasury Obligations--12.3%
U.S. TREASURY BILLS--12.3%
$ 22,612,000 12/15/94 22,570,394
--------------
**Repurchase Agreement--0.6%
1,118,844 Daiwa Securities America, Inc., 5.72%, dated 11/30/94, due 12/1/94
(at amortized cost) 1,118,844
--------------
Total Investments (identified cost, $181,244,672) $ 183,515,594+
--------------
</TABLE>
+ The cost of investments for federal tax purposes amounts to $181,094,033. The
net unrealized appreciation of investments on a federal tax basis amounts to
$2,421,561, which is comprised of $12,072,957 appreciation and $9,651,396
depreciation at November 30, 1994.
* Non-income producing security.
** Repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
Note: The categories of investments are shown as a percentage of net assets
($183,851,746) at November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE EQUITY INDEX FUND STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at amortized cost and value
(identified cost $181,244,672; tax cost $181,094,033) $ 183,515,594
Dividends and interest receivable 552,390
Receivable for investments sold 186,017
Receivable for Fund shares sold 176,020
Receivable for daily futures variation margin 35,288
Deferred expenses 36,783
--------------
Total assets 184,502,092
Liabilities:
Payable for investments purchased $ 365,412
Payable for daily futures variation margin 151,437
Payable for Fund shares redeemed 57,396
Accrued expenses 76,101
----------
Total liabilities 650,346
--------------
Net Assets for 17,903,963 shares of beneficial interest outstanding $ 183,851,746
--------------
Net Assets Consist of:
Paid-in capital $ 180,368,811
Net unrealized appreciation (depreciation) of investments and futures contracts
(net of unrealized depreciation on futures contracts of $151,437) 2,119,485
Accumulated net realized gain (loss) on investments and futures contracts 580,010
Undistributed net investment income 783,440
--------------
Total Net Assets $ 183,851,746
--------------
Net Asset Value and Redemption Proceeds Per Share:
($183,851,746 / 17,903,963 shares of beneficial interest outstanding) $10.27
--------------
Computation of Offering Price:
Offering Price Per Share (100/95.5 of $10.27)* $10.75
--------------
</TABLE>
*See "What Shares Cost."
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE EQUITY INDEX FUND STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
<TABLE>
<S> <C> <C> <C>
Investment Income:
Dividend income $ 4,280,704
Interest income 594,674
------------
Total investment income 4,875,378
Expenses:
Investment advisory fee $ 503,953
Trustees' fees 6,234
Administrative personnel and services fees 166,703
Custodian fees 33,308
Transfer and dividend disbursing agent fees and expenses 30,791
Fund share registration costs 29,227
Auditing fees 16,465
Legal fees 19,802
Printing and postage 20,622
Portfolio accounting fees 70,385
Insurance premiums 7,965
Miscellaneous 5,139
----------
Total expenses 910,594
Deduct--
Waiver of investment advisory fee $ 83,992
Reimbursement of other operating expenses by Administrator 50,455 134,447
--------- ----------
Net expenses 776,147
------------
Net investment income 4,099,231
------------
Realized and Unrealized Gain/(Loss) on Investments and Futures Contracts:
Net realized gain (loss) on investments and futures contracts (identified cost basis) 596,542
Net change in unrealized appreciation (depreciation) on investments and futures
contracts (3,907,225)
------------
Net realized and unrealized gain/(loss) on investments and futures contracts (3,310,683)
------------
Change in net assets resulting from operations $ 788,548
------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE EQUITY INDEX FUND STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993*
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 4,099,231 $ 2,120,028
Net realized gain (loss) on investments and futures contracts
($449,877 and $255,390 net gain, respectively, as
computed for federal tax purposes) 596,542 238,906
Net change in unrealized appreciation (depreciation) of investments and
futures contracts (3,907,225) 6,026,709
-------------- --------------
Change in net assets resulting from operations 788,548 8,385,643
-------------- --------------
Distributions to Shareholders--
Dividends to shareholders from net investment income (3,872,917) (1,562,902)
Distributions to shareholders from net realized gain on investment
transactions and futures contracts (255,437) --
-------------- --------------
Change in net assets from distributions to shareholders (4,128,354) (1,562,902)
-------------- --------------
Fund Share (Principal) Transactions--
Proceeds from sale of shares 53,300,273 164,026,362
Net asset value of shares issued to shareholders in payment of dividends
declared 4,124,935 1,562,902
Cost of shares redeemed (19,499,382) (23,146,279)
-------------- --------------
Change in net assets from Fund share transactions 37,925,826 142,442,985
-------------- --------------
Change in net assets 34,586,020 149,265,726
Net Assets:
Beginning of period 149,265,726 --
-------------- --------------
End of period (including undistributed net investment income of $783,440
and $557,126, respectively) $ 183,851,746 $ 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, 1994
(1) ORGANIZATION
The Biltmore Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended, (the "Act"), as an open-end, management investment company.
The Trust consists of eleven diversified portfolios. The financial statements
included herein present only those of the Biltmore Equity Index Fund (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on national securities exchanges. Unlisted securities and
short-term securities are generally valued at the prices provided by an
independent pricing service. Short-term securities with remaining
maturities of sixty days or less may be valued at amortized cost, which
approximates fair market 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 collateral to ensure the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
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").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders 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 substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. FUTURES CONTRACTS--Upon entering into a financial 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 to pay
to the broker an amount of cash equal to a specific dollar amount times the
difference between the closing value and the price at which the contract
was made. On a daily basis, the value of the financial futures contract is
determined and any difference between such value and the original futures
contract's 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 a change in the value of the
contract may not correlate with changes in the value of the underlying
securities.
At November 30, 1994, the Fund had outstanding futures contracts as set out
below:
<TABLE>
<CAPTION>
Net Unrealized
Expiration Contracts to Deliver/ Appreciation
Date Receive Position (Depreciation)
<S> <C> <C> <C>
--------------------------------------------------------------------
March 1995 97 S&P 500 Index Future Long ($151,437)
</TABLE>
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 not to exceed a period of five
years from the Fund's commencement date.
H. OTHER--Investment transactions are accounted for on the trade date.
(3) 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, 1994 1993*
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Shares sold 5,136,588 16,360,663
Shares issued to shareholders in payment of dividends declared 393,713 153,909
Shares redeemed (1,878,820) (2,262,090)
----------- ------------
Net change resulting from Fund share transactions 3,651,481 14,252,482
----------- ------------
</TABLE>
*For the period from May 10, 1993 (date of initial public investment) to
November 30, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Wachovia Investment Management Group, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.30 of 1% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive a portion of its fee. The
Adviser can modify or terminate the voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust and The Biltmore Municipal
Funds for the period. FAS may voluntarily choose to waive a portion of its fee
and reimburse a portion of the Fund's other operating expenses. FAS can modify
or terminate this voluntary waiver and reimbursement at any time at its sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund for which it is paid a fee. The FServ fee is based on the size, type,
and number of accounts and transactions made by shareholders.
FServ also maintains the Fund's accounting records for which it is paid a fee.
The FServ fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
Wachovia Bank of North Carolina, N.A. is the Fund's custodian. The fee is based
on the level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($34,484) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following April 3, 1993 (the date the Fund became
effective). For the fiscal year ended November 30, 1994, the Fund paid $4,356
pursuant to this agreement.
Certain of the Officers of the Trust are Officers and Directors or Trustees of
the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended
November 30, 1994, were as follows:
<TABLE>
<S> <C>
Purchases $ 54,978,723
-------------
Sales $ 15,917,150
-------------
</TABLE>
================================================================================
REPORT OF ERNST & YOUNG LLP, 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, 1994, and the
related statement of operations for the year then ended, and the statements of
changes in net assets and the financial highlights (see page 2 of this
Prospectus) for the year ended November 30, 1994 and 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 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, 1994, 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 Equity Index Fund of The Biltmore Funds at November 30, 1994, the
results of its operations for the year then ended, and changes in its net
assets and the financial highlights for the year ended November 30, 1994 and
the period from May 10, 1993 (date of initial public investment) to November
30, 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 12, 1995
================================================================================
ADDRESSES
- --------------------------------------------------------------------------------
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, Federated Services Company
AND PORTFOLIO ACCOUNTING SERVICES 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 LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
- --------------------------------------------------------------------------------
THE BILTMORE SERVICE CENTER 101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226
- --------------------------------------------------------------------------------
BILTMORE EQUITY INDEX FUND
A DIVERSIFIED PORTFOLIO OF THE BILTMORE FUNDS
An Open-End, Management Investment Company
090297-84-7
January 31, 1995 3012919A (1/95)
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"), a portfolio
of The Biltmore Funds (the "Trust"), dated January 31, 1995. This
Statement is not a prospectus itself. To receive a copy of the
prospectus, write the Fund or call The Biltmore Service Center
toll-free at 1-800-994-4414.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
Investment Limitations 4
The Biltmore Funds Management 7
Officers and Trustees 7
Fund Ownership 8
Trustees Compensation 8
Trustee Liability 9
Investment Advisory Services 9
Adviser to the Fund 9
Advisory Fees 9
Administrative Services 9
Brokerage Transactions 9
Portfolio Turnover 10
Purchasing Fund Shares 10
Conversion to Federal Funds 10
Exchanging Securities for Fund
Shares 10
Determining Market Value of
Securities 11
Redeeming Fund Shares 11
Redemption in Kind 11
Tax Status 12
The Fund's Tax Status 12
Shareholders' Tax Status 12
Capital Gains 12
Total Return 12
Yield 12
Performance Comparisons 12
Standard & Poor's Corporation 13
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 Standard &
Poor's Composite Index of 500 Stocks. 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"
or the "Board") without shareholder approval. Shareholders will be
notified before any material change in the policies becomes effective.
Capitalized terms not otherwise defined in this Statement have the same
meaning assigned in the prospectus.
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:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
o 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:
o Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
o Farmers Home Administration;
o Federal Home Loan Banks;
o Federal Home Loan Mortgage Corporation;
o Federal National Mortgage Association;
o Government National Mortgage Association; and
o Student Loan Marketing Association.
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:
o 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;
o commercial paper issued by domestic or foreign corporations,
such as Europaper, rated A-1 by Standard & Poor's Ratings Group,
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;
o 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
o 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 a published interest rate or interest rate
index. 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
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in when-
issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
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. 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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan, having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment, to be "cash items."
The Fund does not 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.
James A. Hanley
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Malcolm T. Hopkins
Trustee
Private investor and consultant; Director, the Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution);
Director MAPCO, Inc. (diversified energy); Director, Metropolitan Series
Funds, Inc. and MetLife Portfolios, Inc. (investment companies);
Director, Kinder-Care Learning Centers, Inc. (child care); Director, U.S.
Home Corporation (residential builder and land development); and
Director, EMCOR Group, Inc. (engineering and construction).
Samuel E. Hudgins
Trustee
President, Percival Hudgins & Company, Inc. (investment
bankers/financial consultants); Director, Atlantic American Corporation
(insurance holding company); Director, Bankers Fidelity Life Insurance
Company; Director and Vice Chairman, Leath Furniture, Inc. (retail
furniture); President, Atlantic American Corporation (until 1988);
Director, Vice Chairman and Chief Executive Officer, Rhodes, Inc. (retail
furniture) (until 1988); Chairman and Director, Atlantic American Life
Insurance Co., Georgia Casualty & Surety Company, and Bankers Fidelity
Life Insurance (until 1988).
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel
company); formerly, Vice Chairman, Massachusetts Mutual Life Insurance
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 Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary and Trustee,
Federated Administrative Services; Executive Vice President and Director,
Federated Securities Corp.
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly, Associate
Corporate Counsel, Federated Investors; Vice President and Assistant
Treasurer for certain investment companies for which Federated Securities
Corp. is the principal distributor.
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 6, 1995, the following shareholder of record owned 5% or
more of the outstanding shares of the Fund: Wachovia Bank of North
Carolina, Winston-Salem, North Carolina, on behalf of certain underlying
accounts, owned approximately 9,490,785 shares (59.73%).
Trustees Compensation
NAME AND AGGREGATE TOTAL COMPENSATION
PAID
POSITION WITH THE COMPENSATION FROM TO THE TRUSTEES FROM
THE TRUST
TRUST THE TRUST+ AND FUND COMPLEX#
James A. Hanley,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
Malcolm T. Hopkins,
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
Samuel E. Hudgins,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
J. Berkley Ingram, Jr.
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
D. Dean Kaylor,
Trustee $15,851 $16,875 for the
Trust and
one other investment
company
+The aggregate compensation is paid by the Trust, which is comprised of
twelve portfolios.
# The Fund Complex is comprised of 15 portfolios.
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.
Because of the internal controls maintained by the Wachovia Banks to
restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Wachovia Banks' or their
affiliates' lending relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
For the fiscal year ended November 30, 1994, and for the period from May
10, 1993 (date of initial public investment) to November 30, 1993, the
Adviser earned $503,953 and $249,910, respectively, of which $83,992 and
$41,652, 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 ("FAS"), a subsidiary of Federated
Investors, provides administrative personnel and services to the Fund
for a fee as described in the prospectus. For the fiscal year ended
November 30, 1994, and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1993, FAS earned $166,703 and
$102,301, respectively. In addition, for the fiscal year ended November
30, 1994, and for the period from May 10, 1993 (date of initial public
investment) to November 30, 1993, FAS reimbursed $50,455 and $49,405,
respectively, in other Fund 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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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 fiscal year ended November 30, 1994, and for the period from May
10, 1993 (date of initial public investment) to November 30, 1993, the
Fund paid $32,790 and $20,407, respectively, in commissions on brokerage
transactions.
As of November 30, 1994, the Fund owned $3,808,939, $710,052, $289,800,
$357,200, and $185,238, of securities issued by General Electric Co.,
American Express, Dean Witter Discover & Co., Merrill Lynch & Co., Inc.,
and Salomon, Inc., respectively, several of the Fund's regular
broker/dealers, each of which derives more than 15% of its 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. For the fiscal year ended November 30,
1994, and for the period from May 10, 1993 (date of initial public
investment) to November 30, 1993, the Fund's portfolio turnover rates
were 9% and 9%, respectively.
Purchasing Fund Shares
Shares of the Fund are sold at net asset value plus an applicable sales
charge on days on which the Wachovia Banks, 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.
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 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.
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
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 values of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a national
securities exchange, if available;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
o for unlisted equity securities, the latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service; or
o 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 Trust 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. Any redemption beyond
this amount will also be in cash unless the Trustees determine that
payments should be in kind.
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:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Shareholders' Tax Status
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 average annual total returns for the one-year period ended
November 30, 1994, and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1994, were (3.93%) and 1.03%,
respectively.
The average annual total return for the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned
at the end of the period by the net asset value per share at the end of
the period. The number of shares owned at the end of the period is based
on the number of shares purchased at the beginning of the period with
$1,000, less any applicable sales 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, 1994, was
2.24%.
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:
o portfolio quality;
o average portfolio maturity;
o types of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in Fund expenses;
o the relative amount of Fund cash flow; and
o 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:
o Standard & Poor's Composite Index of 500 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.
o Lipper Analytical Services, Inc. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in 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.
o Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
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 advisability 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.
090297-84-7
3012919B (1/95)
PROSPECTUS
JANUARY 31, 1995
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 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 (THE ``FDIC''), THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
BILTMORE SHORT-TERM
FIXED INCOME FUND
(A Portfolio of The Biltmore Funds)
The Fund has also filed a Statement of Additional Information dated January 31,
1995 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, call 1-800-
994-4414 or write The Biltmore Service Center, 101 Greystone Boulevard,
SC-9215, Columbia, South Carolina 29226.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
===================================================
TABLE OF CONTENTS
- ---------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ---------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ---------------------------------------------------
GENERAL INFORMATION 3
- ---------------------------------------------------
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Risk 4
U.S. Government Obligations 4
Corporate Debt Obligations 4
Fixed Rate Corporate Debt Obligations 5
Floating Rate Corporate Debt
Obligations 5
Convertible Securities 5
Mortgage-Backed Securities 5
Adjustable Rate Mortgage Securities 6
Collateralized Mortgage Obligations 6
Real Estate Mortgage Investment
Conduits 6
Asset-Backed Securities 6
Demand Master Notes 7
Demand Features 7
Restricted and Illiquid Securities 7
Repurchase Agreements 7
When-Issued and Delayed Delivery
Transactions 8
Lending of Portfolio Securities 8
Other Investment Techniques 8
Debt Investment Considerations 8
Duration 8
Investment Limitations 9
- ---------------------------------------------------
THE BILTMORE FUNDS INFORMATION 9
Management of the Trust 9
Board of Trustees 9
Investment Adviser 9
Advisory Fees 9
Adviser's Background 9
Distribution of Shares 10
Administrative Arrangements 10
Shareholder Servicing Arrangements 10
Administration of the Fund 10
Administrative Services 10
Custodian 11
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 11
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 the Trust Divisions of the
Wachovia Banks 11
Through Wachovia Investments, Inc. 12
By Mail 12
By Wire 12
Through Authorized Broker/Dealers 12
Minimum Investment Required 12
What Shares Cost 12
Purchases at Net Asset Value 13
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
Certificates and Confirmations 14
Subaccounting Services 14
Dividends 14
Capital Gains 14
Exchange Privilege 14
Exchange by Telephone 15
- ---------------------------------------------------
REDEEMING SHARES 15
By Telephone 15
By Mail 16
Signatures 16
Systematic Withdrawal Program 16
Accounts with Low Balances 16
- ---------------------------------------------------
SHAREHOLDER INFORMATION 17
Voting Rights 17
Massachusetts Business Trusts 17
- ---------------------------------------------------
EFFECT OF BANKING LAWS 17
- ---------------------------------------------------
TAX INFORMATION 18
- ---------------------------------------------------
PERFORMANCE INFORMATION 18
- ---------------------------------------------------
FINANCIAL STATEMENTS 19
- ---------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 27
- ---------------------------------------------------
ADDRESSES BACK COVER
================================================================================
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 2.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.40%
12b-1 Fees None
Other Expenses (after assumption) (2) 0.20%
Shareholder Servicing Agent Fee (3) 0.00%
Total Fund Operating Expenses (after waiver and assumption) (4) 0.60%
</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 0.55%.
(2) Other expenses would have been 0.23% absent the voluntary assumption by
the administrator. The administrator can terminate this voluntary
assumption 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 time, the Fund will be able to pay up to
0.25 of 1% of the Fund's average daily net assets for shareholder servicing
agent fees. See "The Biltmore Funds Information."
(4) Total Fund Operating Expenses would have been 0.78% absent the voluntary
waiver and assumption 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>
<S> <C> <C> <C> <C>
Example 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return; (2) redemption at the end of
each time period; and (3) payment of the maximum sales load. As
noted in the table above, the Fund charges no redemption fees. $31 $44 $58 $98
</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 EACH_ PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 27.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993*
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.91 $ 10.00
Income from investment operations
Net investment income 0.45 0.27
Net realized and unrealized gain (loss) on investments (0.33) (0.10)
--------- ---------
Total from investment operations 0.12 0.17
Less distributions
Dividends to shareholders from net investment income (0.45) (0.26)
--------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.58 $ 9.91
--------- ---------
Total Return** 1.27% 1.69%
Ratios to Average Net Assets
Expenses 0.60% 0.58%(a)
Net investment income 4.62% 4.78%(a)
Expense waiver/reimbursement (b) 0.18% 0.22%(a)
Supplemental Data
Net assets, end of period (000 omitted) $148,326 $154,459
Portfolio turnover rate 151% 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
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
===============================================================================
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.
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 Emerging
Markets Fund, Biltmore Equity Fund, Biltmore Equity Index Fund, Biltmore Fixed
Income Fund, Biltmore Money Market Fund (Institutional Shares and Investment
Shares), Biltmore Prime Cash Management Fund (Institutional Shares), 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
Ratings Group ("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, such as: the Farm Credit System, including the National Bank
for Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Farmers Home
Administration; Federal Home Loan Banks; Federal Home Loan Mortgage
Corporation; Federal National Mortgage Association; Government National
Mortgage Association; Student Loan Marketing Association; Tennessee Valley
Authority; Export-Import Bank of the United States; Commodity Credit
Corporation; Federal Financing Bank; and the 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 Farm Credit System, including the National Bank
for Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Farmers Home
Administration; Federal Home Loan Banks; Federal Home Loan Mortgage
Corporation; Federal National Mortgage Association; Government National
Mortgage Association; and Student Loan Marketing Association.
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. Adjustable rate mortgage securities
("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. Real estate mortgage investment
conduits ("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 seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.
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. There is the risk that when lending portfolio
securities, the securities may not be available to the Fund on a timely basis
and the Fund may, therefore, lose the opportunity to sell the securities at a
desirable price. In addition, in the event that a borrower of securities would
file for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
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 Fund's 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 INVESTMENT 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., together with its affiliates, Wachovia
Bank of Georgia, N.A. and Wachovia Bank of South Carolina, N.A. (formerly known
as The South Carolina National Bank) (collectively the "Wachovia Banks"), have
been managing trust assets for over 100 years, with approximately $17.3 billion
in managed assets as of September 30, 1994. Wachovia Investment Management Group
has served as investment adviser to The Biltmore Funds since March 9, 1992.
Wachovia Bank of North Carolina, N.A., also serves as investment adviser of
Biltmore North Carolina Municipal Bond Fund, a portfolio of The Biltmore
Municipal Funds, another investment company. As part of their regular banking
operations, the Wachovia Banks may make loans to public companies. Thus, it
may be possible, from time to time, for the Fund to hold or acquire the
securities of issuers which are also lending clients of the Wachovia Banks.
The lending relationship will not be a factor in the selection of securities.
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, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is the Fund's shareholder servicing agent (the "Shareholder
Servicing Agent"). The Fund may pay the Shareholder Servicing Agent a fee based
on the average daily net asset value of shares for which it provides shareholder
services. These shareholder services include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance and communicating or facilitating purchases and redemptions of
shares. This fee will be computed at an annual rate equal to 0.25 of 1% of the
Fund's average daily net assets for which the Shareholder Servicing Agent
provides services; however, the Shareholder Servicing Agent may choose
voluntarily to waive all or a portion of its fee at any time or pay all or some
of its fees to financial institutions or other financial service providers.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services also provides the
Fund with the administrative personnel and services necessary to operate the
Fund. Such services include the preparation of filings with the Securities and
Exchange Commission and other regulatory authorities, assistance with respect to
meetings of the Trustees, shareholder servicing and accounting services, and
other administrative services. Federated Administrative Services provides these
at an annual rate, computed and payable daily, as specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds
Administrative Fee and The Biltmore Municipal Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year for the Fund and each of
the other portfolios of The Biltmore Funds shall aggregate at least $75,000.
Federated Administrative Services may choose voluntarily to waive or reimburse a
portion of its fee at any time.
CUSTODIAN. Wachovia Bank of North Carolina, N.A., Winston-Salem, North Carolina,
is custodian (the "Custodian") for the securities and cash of the Fund. Under
the Custodian Agreement, the Custodian holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. For the services to be provided to the Trust pursuant to the Custodian
Agreement, the Trust pays the Custodian an annual fee based upon the average
daily net assets of the Fund and which is payable monthly. 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, Pennsylvania a subsidiary of Federated
Investors, 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 LLP,
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. and advised by the Adviser. 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
Fund 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, Wachovia Investments, Inc. or
authorized broker/dealers which have a sales agreement with the Distributor. All
purchase orders must be transmitted to the Fund by 5:00 p.m. (Eastern time).
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573. 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.
THROUGH THE TRUST DIVISIONS OF THE WACHOVIA BANKS. Trust customers of the
Wachovia Banks may place an order to purchase shares of the Fund by telephoning,
sending written instructions, or placing the order in person with their account
officer in accordance with the procedures established by the Wachovia Banks and
as set forth in the relevant account agreement.
Payment may be made to the Wachovia Banks by check, by wire of federal funds, or
by debiting a customer's account with the Wachovia Banks. Purchase orders must
normally be received by the Wachovia Banks by 3:00 p.m. (Eastern time), in order
for shares to be purchased at that day's price. It is the responsibility of the
Wachovia Banks to transmit orders promptly to the Fund. Shares of the Fund
cannot be purchased by wire on any day on which the Wachovia Banks, the New York
Stock Exchange and the Federal Reserve Wire System are not open for business.
THROUGH WACHOVIA INVESTMENTS, INC. Customers of Wachovia Investments, Inc. or
Wachovia Brokerage Service may place an order to purchase shares by telephoning
The Biltmore Service Center at 1-800-994-4414, sending written instructions, or
placing an order in person. Payment may be made by check, by wire of federal
funds (the customer's bank sends money to the Fund's bank through the Federal
Reserve Wire System) or by debiting a customer's account at Wachovia
Investments, Inc. Purchase orders must normally be received by Wachovia
Investments, Inc. before 3:30 p.m. (Eastern time). Wachovia Investments, Inc., a
wholly-owned subsidiary of Wachovia Corporation, is a registered broker/dealer
and member of the National Association of Securities Dealers, Inc. Wachovia
Brokerage Service is a business unit of Wachovia Investments, Inc.
BY MAIL. To purchase shares of the Fund through Wachovia Investments, Inc. by
mail, send a check made payable to Biltmore Short-Term Fixed Income Fund to The
Biltmore Service Center, 101 Greystone Boulevard, SC-9215, Columbia, South
Carolina 29226. Orders by mail are considered received after payment by check is
converted by Wachovia Investments, Inc. into federal funds. This is normally the
next business day after Wachovia Investments, Inc. receives the check.
BY WIRE. To purchase shares of the Fund through Wachovia Investments, Inc. by
wire, wire funds as follows:
Wachovia Investments, Inc.
ABA Number 0531-00494
Credit: 8735-001342
Further credit to: Biltmore 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 the Wachovia
Banks, the New York Stock Exchange and the Federal Reserve Wire System are not
open for business.
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of the Fund. Shares will be
purchased at the public offering price next determined after the Fund receives
the purchase request. Purchase requests through registered broker/dealers must
normally be received by the broker/dealer and transmitted to the Fund before
3:30 p.m. (Eastern time) in order for shares to be purchased at that day's
public offering price.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares of the Fund is $250. This amount may be
waived from time to time. Subsequent investments may be in amounts of $50 or
more.
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 a Sales Charge as a
Percentage of Percentage of
Amount of Transaction Public Offering Price Net Amount Invested
<S> <C> <C>
Less than $100,000 2.50% 2.56%
$100,000 but less than $250,000 1.75% 1.78%
$250,000 but less than $500,000 1.25% 1.27%
$500,000 but less than $750,000 0.75% 0.76%
$750,000 but less than $1 million 0.50% 0.50%
$1 million or 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 Wachovia Banks for funds which are held in a fiduciary, advisory, 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 trusts, pension profit-sharing plans and individual retirement
accounts operated for such persons, may purchase shares of the Fund at net asset
value. In addition, trustees, officers, directors and employees of the
Distributor and its affiliates, and any bank or investment dealer who has a
sales agreement with the Distributor relating to the Fund, may also purchase
shares at their net asset value.
SALES CHARGE REALLOWANCE. For shares sold with a sales charge, the Wachovia
Banks or an affiliated broker or a dealer will receive up to 100% of the
applicable sales charge for purchases of Fund shares made directly through the
Wachovia Banks or such broker or dealer. Any portion of the sales charge which
is not paid to a dealer will be retained by the Distributor.
The sales charge for shares sold other than through Wachovia Investments, Inc.,
the Wachovia Banks or registered broker/dealers will be retained by the
Distributor. However, the Distributor, at its sole discretion, may uniformly
offer to pay cash, or promotional incentives in the form of trips to sales
seminars at luxury resorts, tickets or other items, to all dealers selling
shares of the Fund. Such payments will be predicated upon the amount of shares
of the Fund that are sold by the dealers.
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 in this
prospectus under the section entitled "What Shares Cost," larger purchases
reduce the sales charge paid. The Fund will combine purchases made on the same
day by the investor, 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 1.75%, not 2.50%.
To receive the sales charge reduction, the Wachovia Banks, Wachovia Investments,
Inc. 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 purchases.
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 up to 2.50% of the total amount intended to be purchased in escrow (in
shares of the Fund) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period, unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
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 the Fund at the next-determined net asset value without any sales
charge. The Wachovia Banks, Wachovia Investments, Inc. or the Distributor must
be notified by the shareholder in writing or by his financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder redeems
his shares in the Fund, there may be tax consequences.
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 and the portfolios in The Biltmore Municipal 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, the Wachovia Banks, Wachovia
Investments, Inc. or the Distributor must be notified by the agent placing the
order at the time the concurrent purchases are made. The sales charge will be
reduced after the purchase is confirmed.
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 Banks, Wachovia Investments,
Inc. or through the Distributor.
CERTIFICATES AND CONFIRMATIONS
As the transfer agent, Federated Services Company maintains a share account for
each shareholder of record. Share certificates are not issued unless requested
in writing to the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder of record. Annual statements are sent to report dividends paid
during the year.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the Transfer Agent's subaccounting system to
minimize their internal recordkeeping requirements. The Transfer Agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding shares of the Fund in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Fund shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the institution with regard to the services provided, the fees
charged for those services, and any restrictions and limitations imposed.
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 the three portfolios of The Biltmore Municipal Funds (Biltmore Georgia
Municipal Bond Fund, Biltmore North Carolina Municipal Bond Fund, and Biltmore
South Carolina Municipal Bond Fund), 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 contemplating
exchanges into The Biltmore Municipal Funds should consult their tax advisers,
since the tax advantages of each portfolio of The Biltmore Municipal Funds may
vary.
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 Fund, Wachovia
Investments, Inc., or in the case of customers of the Wachovia Banks, the
shareholder's account officer.
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 at net asset value.
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 Investments, Inc. 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 Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemptions
must be received in proper form and can be made through the Wachovia Banks,
Wachovia Investments, Inc., or directly to the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by calling the
Wachovia Banks (call toll-free 1-800-994-4414) to request the redemption.
Telephone redemption instructions may be recorded. Shares will be redeemed at
the net asset value next determined after the Fund receives the redemption
request from the Wachovia Banks. Redemption requests made through the Wachovia
Banks must be received by the Wachovia Banks before 3:00 p.m. (Eastern time) in
order for shares to be redeemed at that day's net asset value. The Wachovia
Banks are responsible for promptly submitting redemption requests and providing
proper written redemption instructions to the Fund. Registered broker/dealers
may charge customary fees and commissions for this service. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
of the Fund by phone by calling The Biltmore Service Center at 1-800-994-4414. A
shareholder who is a customer of the Wachovia Banks and whose account agreement
with the Wachovia Banks permits telephone redemption may redeem shares of the
Fund by telephoning his account officer. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request.
Redemption requests must be received by 4:00 p.m. (Eastern time) in order for
shares to be redeemed at that day's net asset value. In no event will proceeds
be credited more than seven days after a proper request for redemption has been
received. In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered.
BY MAIL. A shareholder may redeem Fund shares by sending a written request to
the Wachovia Banks. The written request should include the shareholder's name,
the Fund name, the account number, and the share or dollar amount requested. If
share certificates have been issued, they must be properly endorsed and should
be sent by registered or certified mail with the written request to the Fund.
Shareholders should call the Wachovia Banks for assistance in redeeming by mail.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
by sending a written request to Wachovia Investments, Inc. The written request
should include the shareholder's name and address, the Fund name, the brokerage
account number, and the share or dollar amount requested. Shareholders should
call Wachovia Investments, Inc. for assistance in redeeming by mail. Normally, a
check for the proceeds is mailed within five business days, 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 of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
a savings bank or savings and loan association whose deposits are insured by
the 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 his financial
institution. 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 January 6, 1995, the Wachovia Banks and their various affiliates and
subsidiaries, acting in various capacities for numerous accounts, were the
owners of record of in excess of 25% of the outstanding shares 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.
[/R]
===============================================================================
BILTMORE SHORT-TERM FIXED INCOME FUND PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Asset-Backed Securities--3.4%
$ 1,046,767 CIT Group Securitization Series, 1993-1, 4.70%, 6/15/2018 $ 1,019,289
1,022,590 Ford Credit Grantor Trust, Series 1993-A, 4.85%, 1/15/98 1,000,216
379,424 GMAC 1992-A, Grantor Trust, 4.15%, 3/15/98 371,122
2,223,106 GMAC 1993-B, Grantor Trust, 4.00%, 9/15/98 2,152,167
384,886 *Novus Home Equity Loan, Series 1993-1, 5.786%, 12/15/94 386,087
110,804 Shawmut National Grantor Trust, Series 1992-A, 5.55%, 11/15/97 109,903
--------------
Total Asset-Backed Securities (identified cost, $5,174,550) 5,038,784
--------------
Collateralized Mortgage Obligations--1.0%
254,664 Federal Home Loan Mortgage Corp., Series 1476A, 5.50%, 8/15/97 252,754
1,247,493 Household Finance Corp., Series 1992A3, 5.80%, 4/20/2007 1,222,930
--------------
Total Collateralized Mortgage Obligations
(identified cost, $1,520,770) 1,475,684
--------------
Corporate Bonds--22.7%
BANKING--8.3%
1,000,000 Bankers Trust NY Corp., 4.70%, 7/1/96 956,240
6,045,000 NationsBank Corp., 4.75%-5.375%, 12/1/95-8/15/96 5,834,025
5,650,000 Society National Bank of Cleveland, 7.125%, 4/15/97 5,558,696
--------------
Total 12,348,961
--------------
FINANCE--8.1%
2,880,000 Beneficial Corp., 9.15%, 7/31/95 2,918,938
1,500,000 IBM Credit Corp., 5.00%, 5/10/96 1,448,190
785,000 ITT Financial Corp., 5.00%, 8/15/95 773,861
3,000,000 Norwest Financial, Inc., 8.875%, 7/1/96 3,052,320
4,000,000 TransAmerica Financial Corp., 6.75%, 8/15/97 3,874,640
--------------
Total 12,067,949
--------------
FINANCIAL SERVICES--4.0%
6,045,000 Merrill Lynch & Co., Inc., 5.50%-6.75%, 3/15/95-12/15/96 5,903,170
--------------
FOOD & BEVERAGE--1.6%
2,500,000 PepsiCo, Inc., 4.60%-5.00%, 6/30/96-2/24/97 2,378,165
--------------
OIL & GAS--0.7%
$ 1,000,000 Shell Oil Co., 7.70%, 2/1/96 $ 1,001,910
--------------
Total Corporate Bonds (identified cost, $34,703,268) 33,700,155
--------------
U.S. Treasury Obligations--38.7%
U.S. TREASURY NOTES
500,000 6.75%, 2/28/97 492,265
2,820,000 6.125%, 7/31/96 2,765,800
4,305,000 5.875%, 5/15/95 4,298,284
8,000,000 5.50%, 2/15/95 7,994,960
16,365,000 4.375%, 11/15/96 15,467,543
2,555,000 4.25%, 11/30/95 2,489,132
22,795,000 4.125%, 5/31/95-6/30/95 22,554,278
1,410,000 3.875%, 3/31/95 1,401,188
--------------
Total U.S. Treasury Obligations (identified cost, $58,787,169) 57,463,450
--------------
U.S. Government Agencies--24.1%
FEDERAL HOME LOAN BANK--17.6%
3,000,000 7.75%, 2/26/97 2,985,930
3,500,000 7.15%, 11/21/96 3,477,880
13,000,000 6.95%, 11/8/96 12,888,720
5,000,000 6.645%, 8/28/97 4,861,150
2,000,000 5.10%, 7/8/96 1,932,500
--------------
Total 26,146,180
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--6.5%
5,000,000 7.07%, 11/18/96 4,968,050
3,000,000 6.84%, 10/3/97 2,937,240
1,750,000 6.27%, 4/3/96 1,728,843
--------------
Total 9,634,133
--------------
Total U.S. Government Agencies (identified cost, $36,076,780) 35,780,313
--------------
Foreign Municipal Government Bond--2.7%
4,000,000 Ontario Province, Canada, 8.25%, 4/8/96
(identified cost, $4,133,800) 4,031,240
--------------
*Variable Rate Instrument--2.1%
FINANCE--2.1%
$ 3,140,000 General Electric Capital Corp., 8.52%, 12/15/94
(identified cost, $3,348,590) $ 3,108,537
--------------
**Repurchase Agreement--4.3%
6,338,306 Daiwa Securities America, Inc., 5.72%, dated 11/30/94, due 12/1/94
(at amortized cost) 6,338,306
--------------
Total Investments (identified cost, $150,083,233) $ 146,936,469+
--------------
</TABLE>
* Current rate and next demand date shown.
** Repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
The cost of investments for federal tax purposes amounts to $150,166,905. The
net unrealized depreciation of investments on a federal tax basis amounts to
$3,230,436, which is comprised of $7,001 appreciation and $3,237,437
depreciation at November 30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($148,326,406) at November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
===============================================================================
BILTMORE SHORT-TERM FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at amortized cost and value
(identified cost $150,083,233; tax cost $150,166,905) $ 146,936,469
Receivable for investments sold 3,769,623
Interest receivable 1,620,004
Receivable for Fund shares sold 33,671
Deferred expenses 38,332
--------------
Total assets 152,398,099
Liabilities:
Payable for investments purchased $ 3,946,090
Payable for Fund shares redeemed 49,529
Accrued expenses 76,074
------------
Total liabilities 4,071,693
--------------
Net Assets for 15,477,202 shares of beneficial interest outstanding $ 148,326,406
--------------
Net Assets Consist of:
Paid-in-capital $ 154,702,480
Net unrealized appreciation (depreciation) of investments (3,146,764)
Accumulated net realized gain (loss) on investments (3,367,521)
Undistributed net investment income 138,211
--------------
Total net assets $ 148,326,406
--------------
Net Asset Value and Redemption Proceeds Per Share:
(net assets of $148,326,406 / 15,477,202 shares of beneficial interest outstanding) $9.58
--------------
Computation of Offering Price:
Offering Price Per Share (100/95.5 of $9.58)* $10.03
--------------
</TABLE>
* See "What Shares Cost."
(See Notes which are an integral part of the Financial Statements)
===============================================================================
BILTMORE SHORT-TERM FIXED INCOME FUND STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest income $ 7,755,311
Expenses:
Investment advisory fee $ 816,857
Trustees' fees 6,002
Administrative personnel and services fees 148,458
Custodian fees 29,704
Transfer and dividend disbursing agent fees and expenses 32,033
Fund share registration costs 23,765
Auditing fees 15,860
Legal fees 13,376
Printing and postage 14,623
Portfolio accounting fees 48,975
Insurance premiums 6,759
Miscellaneous 2,285
------------
Total expenses 1,158,697
Deduct--
Waiver of investment advisory fee $ 222,781
Reimbursement of other operating expenses
by Administrator 39,787 262,568
---------- ------------
Net expenses 896,129
------------
Net investment income 6,859,182
------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments (identified cost basis) (2,862,364)
Net change in unrealized appreciation (depreciation) on investments (2,079,336)
------------
Net realized and unrealized gain (loss) on investments (4,941,700)
------------
Change in net assets resulting from operations $ 1,917,482
------------
</TABLE>
(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>
Year Ended November 30, 1994 1993*
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 6,859,182 $ 4,214,527
Net realized gain (loss) on investment transactions ($2,790,650 and
$493,199 net loss, respectively, as computed for federal tax purposes) (2,862,364) (505,157)
Change in unrealized appreciation (depreciation) of investments (2,079,336) (1,067,428)
-------------- --------------
Change in net assets resulting from operations 1,917,482 2,641,942
-------------- --------------
Distributions to Shareholders--
Dividends to shareholders from net investment income (6,884,557) (4,050,941)
-------------- --------------
Fund Share (Principal) Transactions--
Proceeds from sale of shares 37,631,676 169,877,616
Net asset value of shares issued to shareholders in payment of
dividends declared 6,862,521 4,049,570
Cost of shares redeemed (45,659,892) (18,059,011)
-------------- --------------
Change in net assets from Fund share transactions (1,165,695) 155,868,175
-------------- --------------
Change in net assets (6,132,770) 154,459,176
Net Assets:
Beginning of period 154,459,176 --
-------------- --------------
End of period (including undistributed net investment income of $138,211
and $163,586, respectively) $ 148,326,406 $ 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, 1994
(1) ORGANIZATION
The Biltmore Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended, (the "Act"), as an open-end, management investment company.
The Trust consists of eleven diversified portfolios. The financial statements
included herein present only those of the Biltmore Short-Term Fixed Income Fund
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at
the bid prices as furnished by an independent pricing service. Corporate
bonds and other fixed-income and asset-backed securities are valued at the
last sale price reported on national securities exchanges on that day, if
available. Otherwise, corporate bonds, other fixed-income and asset-backed
securities and short-term securities are valued at the prices provided by
an independent pricing service. Short-term securities with remaining
maturities of sixty days or less may be valued at amortized cost, which
approximates fair market 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 collateral to ensure the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
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").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
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 substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary. At November 30,
1994, the Fund, for federal tax purposes, had a capital loss carryforward
of $3,283,849 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
carryforward will expire in 2001 ($493,199) and 2002 ($2,790,650).
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 not to exceed a period of five
years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) 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, 1994 1993*
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Shares sold 3,860,561 16,990,534
Shares issued to shareholders in payment of dividends declared 705,380 407,113
Shares redeemed (4,674,812) (1,811,574)
----------- ------------
Net change resulting from Fund share transactions (108,871) 15,586,073
----------- ------------
</TABLE>
* For the period from May 10, 1993 (date of initial public investment) to
November 30, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Wachovia Investment Management Group, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.55 of 1% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive a portion of its fee. The
Adviser can modify or terminate the voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust and The Biltmore Municipal
Funds for the period. FAS may voluntarily choose to waive a portion of its fee
and reimburse a portion of the Fund's other operating expenses. FAS can modify
or terminate the voluntary waiver and reimbursement at any time at its sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund, for which it is paid a fee. The FServ fee is based on the size, type,
and number of accounts and transactions made by shareholders.
FServ also maintains the Fund's accounting records for which it is paid a fee.
The FServ fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
Wachovia Bank of North Carolina, N.A. is the Fund's custodian. The fee is based
on the level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($34,484) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following April 3, 1993 (the date the Fund became
effective). For the fiscal year ended November 30, 1994, the Fund paid $4,598
pursuant to this agreement.
Certain of the Officers of the Trust are Officers and Directors or Trustees of
the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended November 30, 1994, were as follows:
<TABLE>
<S> <C>
Purchases $ 216,614,709
--------------
Sales $ 219,049,401
--------------
</TABLE>
===============================================================================
REPORT OF ERNST & YOUNG LLP, 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, 1994, and the
related statements of operations for the year then ended, and the statements of
changes in net assets and the financial highlights (see page 2 of this
Prospectus) for the year ended November 30, 1994 and 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 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, 1994, 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 Short-Term Fixed Income Fund of The Biltmore Funds at November 30,
1994, the results of its operations for the year then ended, and the changes in
its net assets and the financial highlights for the year ended November 30, 1994
and the period from May 10, 1993 (date of initial public investment) to November
30, 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 12, 1995
ADDRESSES
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, Federated Services Company
AND PORTFOLIO ACCOUNTING SERVICES 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 LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
THE BILTMORE SERVICE CENTER 101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226
BILTMORE SHORT-TERM FIXED INCOME FUND
A DIVERSIFIED PORTFOLIO OF THE BILTMORE FUNDS
An Open-End, Management Investment Company
090297-86-2
January 31, 1995 3012916A (1/95)
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"),
a portfolio in The Biltmore Funds (the "Trust"), dated January 31,
1995. This Statement is not a prospectus itself. To receive a copy
of the prospectus, call The Biltmore Service Center toll-free at 1-
800-994-4414.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
Investment Limitations 6
The Biltmore Funds Management 9
Officers and Trustees 9
Fund Ownership 10
Trustees Compensation 11
Trustee Liability 11
Investment Advisory Services 11
Adviser to the Fund 11
Advisory Fees 11
Administrative Services 12
Brokerage Transactions 12
Portfolio Turnover 13
Purchasing Fund Shares 13
Conversion to Federal Funds 13
Exchanging Securities for Fund
Shares 13
Determining Market Value of
Securities 13
Redeeming Fund Shares 14
Redemption in Kind 14
Tax Status 14
The Fund's Tax Status 14
Shareholders' Tax Status 14
Capital Gains 15
Total Return 15
Yield 15
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. Unless otherwise indicated, the investment policies described
below may be changed by the Board of Trustees ("Trustees" or the
"Board") without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
Capitalized terms not otherwise defined in this Statement shall have the
same meaning assigned in the prospectus.
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. 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:
o 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;
o commercial paper rated, at the time of purchase, not less than A-1
by Standard & Poor's Ratings Group ("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;
o 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
o 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
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
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:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and
the number of other potential buyers;
o dealer undertakings to make a market in the security; and
o 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 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
onemonth 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.
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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan, having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment, to be "cash items."
The Fund does not 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.
James A. Hanley
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Malcolm T. Hopkins
Trustee
Private investor and consultant; Director, the Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution);
Director MAPCO, Inc. (diversified energy); Director, Metropolitan Series
Funds, Inc. and MetLife Portfolios, Inc. (investment companies);
Director, Kinder-Care Learning Centers, Inc. (child care); Director, U.S.
Home Corporation (residential builder and land development); and
Director, EMCOR Group, Inc. (engineering and construction).
Samuel E. Hudgins
Trustee
President, Percival Hudgins & Company, Inc. (investment
bankers/financial consultants); Director, Atlantic American Corporation
(insurance holding company); Director, Bankers Fidelity Life Insurance
Company; Director and Vice Chairman, Leath Furniture, Inc. (retail
furniture); President, Atlantic American Corporation (until 1988);
Director, Vice Chairman and Chief Executive Officer, Rhodes, Inc. (retail
furniture) (until 1988); Chairman and Director, Atlantic American Life
Insurance Co., Georgia Casualty & Surety Company, and Bankers Fidelity
Life Insurance (until 1988).
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel
company); formerly, Vice Chairman, Massachusetts Mutual Life Insurance
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 Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary and Trustee,
Federated Administrative Services; Executive Vice President and Director,
Federated Securities Corp.
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly, Associate
Corporate Counsel, Federated Investors; Vice President and Assistant
Treasurer for certain investment companies for which Federated Securities
Corp. is the principal distributor.
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 6, 1995, the following shareholder of record owned 5% or
more of the outstanding shares of the Fund: Wachovia Bank of North
Carolina, Winston-Salem, North Carolina, on behalf of certain underlying
accounts, owned approximately 8,488,240 shares (55.27%).
Trustees Compensation
NAME AND AGGREGATE TOTAL COMPENSATION
PAID
POSITION WITH THE COMPENSATION FROM TO THE TRUSTEES FROM
THE TRUST
TRUST THE TRUST+ AND FUND COMPLEX #
James A. Hanley,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
Malcolm T. Hopkins,
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
Samuel E. Hudgins,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
J. Berkley Ingram, Jr.
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
D. Dean Kaylor,
Trustee $15,851 $16,875 for the
Trust and
one other investment
company
+The aggregate compensation is paid by the Trust, which is comprised of
twelve portfolios.
# The Fund Complex is comprised of 15 portfolios.
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.
Because of the internal controls maintained by the Wachovia Banks to
restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Wachovia Banks' or their
affiliates' lending relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
For the fiscal year ended November 30, 1994, and for the period from May
10, 1993 (date of initial public investment) to November 30, 1993, the
Adviser earned $816,857,and $485,212 respectively, of which $222,781,
and $132,330 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 ("FAS"), a subsidiary of Federated
Investors, provides administrative personnel and services to the Fund
for a fee as described in the prospectus. For the fiscal year ended
November 30, 1994 , and for the period from May 10, 1993 (date of
initial public investment) to November 30, 1993, FAS earned $148,458,
and $108,292, respectively. In addition, for the fiscal year ended
November 30, 1994, and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1993, FAS reimbursed $39,787, and
$43,126, respectively, in other Fund 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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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, 1994, the Fund owned $ 5,903,170 of securities issued
by Merrill Lynch & Co., one of its regular broker/dealers, which derives
more than 15% of its 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. For the fiscal year ended November 30,
1994, and for the period from May 10, 1993 (date of initial public
investment) to November 30, 1993, the Fund's portfolio turnover rates
were 151% and 73%, respectively.
Purchasing Fund Shares
Shares of the Fund are sold at net asset value plus an applicable sales
charge on days on which the Wachovia Banks, 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.
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 any 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 on 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.
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 values of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a national
securities exchange, if available;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
o for unlisted equity securities, the latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service; or
o 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 Trust 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 Trust 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:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
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 average annual total returns for the one year period ended
November 30, 1994, and for the period from May 10, 1993 (date of
initial public investment) to November 30, 1994, were (3.32%) and
(2.88%) respectively.
The average annual total return for the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned
at the end of the period by the net asset value per share at the end of
the period. The number of shares owned at the end of the period is based
on the number of shares purchased at the beginning of the period with
$1,000, less any applicable sales 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, 1994, was
5.79%.
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:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses;
o the relative amount of Fund cash flow; and
o 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:
o 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.
o 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.
o Lipper Analytical Services, Inc. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in 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 and sales
literature.
o 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.
o Lehman Brothers Aggregate Bond Index is a total return index
measuring both the capital price changes and income provided by the
underlying universe of securities, weighted by market value
outstanding. The Aggregate Bond Index is comprised of the Lehman
Brothers Government Bond Index, Corporate Bond Index, Mortgage-Backed
Securities Index and the Yankee Bond Index. These indices include:
U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; Student Loan
Marketing Association; foreign obligations; and U.S. investment-
grade corporate debt and mortgage-backed obligations. All corporate
debt included in the Aggregate Bond Index has a minimum S&P rating of
BBB, a minimum Moody's rating of Baa, or a Fitch rating of BBB.
o Merrill Lynch Corporate and Government Index includes issues which
must be in the form of publicly placed, non convertible, 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).
o Merrill Lynch Domestic Master Index includes issues which must be in
the form of publicly placed, non- convertible, coupon-bearing
domestic debt and must carry 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).
o 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.
o Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
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 Ratings Group 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 edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in "Aaa" securities.
A--Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment some time in the future.
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 Ratings Group Commercial Paper Ratings
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated "Prime-1" (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. "Prime-1" repayment capacity will normally be evidenced by
many of the following characteristics:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on
debt and ample asset protection;
o Broad margins in earnings coverage of fixed financial charges and
high internal cash generation; or
o Well-established access to a range of financial markets and
assured sources of alternate liquidity.
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+."
090297-86-2
3012916B (1/95)
PROSPECTUS
JANUARY 31, 1995
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 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 (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.
BILTMORE
SPECIAL VALUES FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
The Fund has also filed a Statement of Additional Information dated January 31,
1995 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, call
1-800-994-4414 or write The Biltmore Service Center, 101 Greystone Boulevard,
SC-9215, Columbia, South Carolina 29226.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
TABLE OF CONTENTS
- ---------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ---------------------------------------------------
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 4
Stock Index Futures and Options 5
Put and Call Options 5
Restricted and Illiquid Securities 5
Temporary Investments 6
Repurchase Agreements 6
When-Issued and Delayed
Delivery Transactions 6
Lending of Portfolio Securities 6
Investment Considerations 6
Investment Limitations 7
- ---------------------------------------------------
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 Shares 8
Administrative Arrangements 8
Shareholder Servicing Arrangements 8
Administration of the Fund 8
Administrative Services 8
Custodian 8
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 9
Legal Services 9
Independent Auditors 9
Brokerage Transactions 9
Expenses of the Fund 9
- ---------------------------------------------------
NET ASSET VALUE 9
- ---------------------------------------------------
INVESTING IN THE FUND 9
Share Purchases 9
Through the Trust Divisions of the
Wachovia Banks 9
Through Wachovia Investments, Inc. 10
By Mail 10
By Wire 10
Through Authorized Broker/Dealers 10
Minimum Investment Required 10
What Shares Cost 10
Purchases at Net Asset Value 11
Sales Charge Reallowance 11
Reducing the Sales Charge 11
Quantity Discounts and Accumulated
Purchases 11
Letter of Intent 11
Reinvestment Privilege 12
Concurrent Purchases 12
Systematic Investment Program 12
Certificates and Confirmations 12
Subaccounting Services 12
Dividends 12
Capital Gains 12
Exchange Privilege 12
Exchange by Telephone 13
- ---------------------------------------------------
REDEEMING SHARES 13
By Telephone 13
By Mail 14
Signatures 14
Systematic Withdrawal Program 14
Accounts with Low Balances 14
- ---------------------------------------------------
SHAREHOLDER INFORMATION 15
Voting Rights 15
Massachusetts Business Trusts 15
- ---------------------------------------------------
EFFECT OF BANKING LAWS 15
- ---------------------------------------------------
TAX INFORMATION 16
- ---------------------------------------------------
PERFORMANCE INFORMATION 16
- ---------------------------------------------------
FINANCIAL STATEMENTS 17
- ---------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 26
- ---------------------------------------------------
ADDRESSES BACK COVER
================================================================================
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.40%
12b-1 Fees None
Other Expenses 0.89%
Shareholder Servicing Agent Fee (2) 0.00%
Total Fund Operating Expenses (after waiver and reimbursement) (3) 1.29%
</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 0.80%.
(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 time, the Fund will be able to pay up to
0.25 of 1% of the Fund's average daily net assets for shareholder servicing
agent fees. See "The Biltmore Funds Information."
(3) The Annual Fund Operating Expenses were 1.13% for the fiscal year ended
November 30, 1994. The Annual Fund Operating Expenses in the table above
are based on expenses expected during the fiscal year ending November 30,
1995. The Annual Fund Operating Expenses are expected to be 1.69% 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 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; (2) redemption at the end of each
time period; and (3) payment of the maximum sales load. As noted
in the table above, the Fund charges no redemption fees. $58 $84 $113 $194
</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 EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 26.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993*
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.24 $ 10.00
Income from investment operations
Net investment income (loss) 0.06 (0.002)
Net realized and unrealized gain (loss) on investments (0.22) 0.242
--------- ---------
Total from investment operations (0.16) 0.24
Less distributions
Dividends to shareholders from net investment income (0.05) --
Distributions to shareholders from net realized gain on investment
transactions (0.28) --
--------- ---------
Total distributions (0.33) --
--------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.75 $ 10.24
--------- ---------
Total Return** (1.61%) 2.40%
Ratios to Average Net Assets
Expenses 1.13% 1.25% (a)
Net investment income (loss) 0.63% (0.03%)(a)
Expense waiver/reimbursement (b) 1.09% 1.79% (a)
Supplemental Data
Net assets, end of period (000 omitted) $17,431 $12,072
Portfolio turnover rate 62% 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
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
================================================================================
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.
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 Emerging
Markets Funds, 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 high yield
corporate bonds (commonly known as junk bonds), speculative grade preferred
stocks, 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 normally be rated Baa or better by Moody's Investors Service,
Inc. ("Moody's") or BBB or better by Standard & Poor's Ratings Group ("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. Bonds rated BBB by S&P or Fitch
or Baa by Moody's are investment grade, but have more speculative
characteristics than A-rated bonds. The prices of fixed income securities
fluctuate inversely to the direction of interest rates. Changes in economic
conditions or other circumstances are more likely to lead to weakened capacity
to make principal and interest payments than higher rated bonds.
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
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 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 depositary
receipts ("American Depositary 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 the Fund's
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. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or 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. There is the risk that when lending portfolio
securities, the securities may not be available to the Fund on a timely basis
and the Fund may, therefore, lose the opportunity to sell the securities at a
desirable price. In addition, in the event that a borrower of securities would
file for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
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., together with its affiliates, Wachovia Bank of
Georgia, N.A. and Wachovia Bank of South Carolina, N.A. (formerly known as The
South Carolina National Bank) (collectively, the "Wachovia Banks") have been
managing trust assets for over 100 years, with approximately $17.3 billion in
managed assets as of September 30, 1994. Wachovia Investment Management Group
has served as investment adviser to The Biltmore Funds since March 9, 1992.
Wachovia Bank of North Carolina, N.A., also serves as investment adviser of
Biltmore North Carolina Municipal Bond Fund, a portfolio of The Biltmore
Municipal Funds, another investment company. As part of their regular banking
operations, the Wachovia Banks may make loans to public companies. Thus it may
be possible, from time to time, for the Fund to hold or acquire the securities
of issuers which are also lending clients of the Wachovia Banks. The lending
relationship will not be a factor in the selection of securities.
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 Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is the Fund's shareholder servicing agent (the "Shareholder
Servicing Agent"). The Fund may pay the Shareholder Servicing Agent a fee based
on the average daily net asset value of shares for which it provides shareholder
services. These shareholder services include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance, and communicating or facilitating purchases and redemptions of
shares. This fee will be computed at an annual rate equal to 0.25 of 1% of the
Fund's average daily net assets for which the Shareholder Servicing Agent
provides services; however, the Shareholder Servicing Agent may choose
voluntarily to waive all or a portion of its fee at any time or pay all or some
of its fees to financial institutions or other financial service providers.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services also provides the
Fund with the administrative personnel and services necessary to operate the
Fund. Such services include the preparation of filings with the Securities and
Exchange Commission and other regulatory authorities, assistance with respect to
meetings of the Trustees, shareholder servicing and accounting services, and
other administrative services. Federated Administrative Services provides these
at an annual rate, computed and payable daily, as specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds and
Administrative Fee The Biltmore Municipal Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year for the Fund and each of
the other portfolios of The Biltmore Funds shall aggregate at least $75,000.
Federated Administrative Services may choose voluntarily to waive or reimburse a
portion of its fee at any time.
CUSTODIAN. Wachovia Bank of North Carolina, N.A., Winston- Salem, North
Carolina, is custodian (the "Custodian") for the securities and cash of the
Fund. Under the Custodian Agreement, the Custodian holds the Fund's portfolio
securities in safekeeping and keeps all necessary records and documents relating
to its duties. For the services to be provided to the Trust pursuant to the
Custodian Agreement, the Trust pays the Custodian an annual fee based upon the
average daily net assets of the Fund and which is payable monthly. 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, Pennsylvania, a subsidiary of Federated
Investors, 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 LLP,
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. and advised by the Adviser. 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
Fund 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, Wachovia Investments, Inc. or
authorized broker/dealers which have a sales agreement with the Distributor. All
purchase orders must be transmitted to the Fund by 5:00 p.m. (Eastern time).
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573. 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.
THROUGH THE TRUST DIVISIONS OF THE WACHOVIA BANKS. Trust customers of the
Wachovia Banks may place an order to purchase shares of the Fund by telephoning,
sending written instructions, or placing the order in person with their account
officer in accordance with the procedures established by the Wachovia Banks and
as set forth in the relevant account agreement.
Payment may be made to the Wachovia Banks by check, by wire of federal funds, or
by debiting a customer's account with the Wachovia Banks. Purchase orders must
normally be received by the Wachovia Banks by 3:00 p.m. (Eastern time), in order
for shares to be purchased at that day's price. It is the responsibility of the
Wachovia Banks to transmit orders promptly to the Fund. Shares of the Fund
cannot be purchased by wire on any day on which the Wachovia Banks, the New York
Stock Exchange and the Federal Reserve Wire System are not open for business.
THROUGH WACHOVIA INVESTMENTS, INC. Customers of Wachovia Investments, Inc. or
Wachovia Brokerage Service may place an order to purchase shares by telephoning
The Biltmore Service Center at 1-800-994-4414, sending written instructions, or
placing an order in person. Payment may be made by check, by wire of federal
funds (the customer's bank sends money to the Fund's bank through the Federal
Reserve Wire System) or by debiting a customer's account at Wachovia
Investments, Inc. Purchase orders must normally be received by Wachovia
Investments, Inc. before 3:30 p.m. (Eastern time). Wachovia Investments, Inc., a
wholly-owned subsidiary of Wachovia Corporation, is a registered broker/dealer
and member of the National Association of Securities Dealers, Inc. Wachovia
Brokerage Service is a business unit of Wachovia Investments, Inc.
BY MAIL. To purchase shares of the Fund through Wachovia Investments, Inc. by
mail, send a check made payable to Biltmore Special Values Fund to The Biltmore
Service Center, 101 Greystone Boulevard, SC-9215, Columbia, South Carolina
29226. Orders by mail are considered received after payment by check is
converted by Wachovia Investments, Inc. into federal funds. This is normally the
next business day after Wachovia Investments, Inc. receives the check.
BY WIRE. To purchase shares of the Fund through Wachovia Investments, Inc. by
wire, wire funds as follows:
Wachovia Investments, Inc.
ABA Number 0531-00494
Credit: 8735-001342
Further credit to: Biltmore Special Values Fund
Re: (Customer name and brokerage account number)
Shares of the Fund cannot be purchased by wire on any day on which the Wachovia
Banks, the New York Stock Exchange and the Federal Reserve Wire System are not
open for business.
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of the Fund. Shares will be
purchased at the public offering price next determined after the Fund receives
the purchase request. Purchase requests through registered broker/dealers must
normally be received by the broker/dealer and transmitted to the Fund before
3:30 p.m. (Eastern time) in order for shares to be purchased at that day's
public offering price.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares of the Fund is $250. This amount may be
waived from time to time. Subsequent investments may be in amounts of $50 or
more.
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 a Sales Charge as a
Percentage of 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 Wachovia Banks for funds which are held in a fiduciary, advisory, 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 trusts, pension profit-sharing plans and individual retirement
accounts operated for such persons, may purchase shares of the Fund at net asset
value. In addition, trustees, officers, directors and employees of the
Distributor and its affiliates, and any bank or investment dealer who has a
sales agreement with the Distributor relating to the Fund, may also purchase
shares at their net asset value.
SALES CHARGE REALLOWANCE. For shares sold with a sales charge, the Wachovia
Banks or an affiliated broker or a dealer will receive up to 100% of the
applicable sales charge for purchases of Fund shares made directly through the
Wachovia Banks or such broker or dealer. Any portion of the sales charge which
is not paid to a dealer will be retained by the Distributor.
The sales charge for shares sold other than through Wachovia Investments, Inc.,
the Wachovia Banks or registered broker/dealers will be retained by the
Distributor. However, the Distributor, at its sole discretion, may uniformly
offer to pay cash, or promotional incentives in the form of trips to sales
seminars at luxury resorts, tickets or other items, to all dealers selling
shares of the Fund. Such payments will be predicated upon the amount of shares
of the Fund that are sold by the dealers.
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 in this
prospectus under the section entitled "What Shares Cost," larger purchases
reduce the sales charge paid. The Fund will combine purchases made on the same
day by the investor, 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
$90,000 and then purchases $10,000 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, the Wachovia Banks, Wachovia Investments,
Inc. 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 purchases.
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 up to 4.50% of the total amount intended to be purchased in escrow (in
shares of the Fund) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period, unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
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 the Fund at the next-determined net asset value without any sales
charge. The Wachovia Banks, Wachovia Investments, Inc. or the Distributor must
be notified by the shareholder in writing or by his financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder redeems
his shares in the Fund, there may be tax consequences.
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 and the portfolios in The Biltmore Municipal 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, the Wachovia Banks, Wachovia
Investments, Inc. or the Distributor must be notified by the agent placing the
order at the time the concurrent purchases are made. The sales charge will be
reduced after the purchase is confirmed.
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 Banks, Wachovia Investments,
Inc. or through the Distributor.
CERTIFICATES AND CONFIRMATIONS
As the transfer agent, Federated Services Company maintains a share account for
each shareholder of record. Share certificates are not issued unless requested
in writing to the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder of record. Annual statements are sent to report dividends paid
during the year.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the Transfer Agent's subaccounting system to
minimize their internal recordkeeping requirements. The Transfer Agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding shares of the Fund in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Fund shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the institution with regard to the services provided, the fees
charged for those services, and any restrictions and limitations imposed.
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 the three portfolios of The Biltmore Municipal Funds (Biltmore Georgia
Municipal Bond Fund, Biltmore North Carolina Municipal Bond Fund, and Biltmore
South Carolina Municipal Bond Fund), 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 contemplating
exchanges into The Biltmore Municipal Funds should consult their tax advisers,
since the tax advantages of each portfolio of The Biltmore Municipal Funds may
vary.
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 Fund, Wachovia
Investments, Inc., or in the case of customers of the Wachovia Banks, the
shareholder's account officer.
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 at net asset value.
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 Investments, Inc. 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 Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemptions
must be received in proper form and can be made through the Wachovia Banks,
Wachovia Investments, Inc., or directly to the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by calling the
Wachovia Banks (call toll-free 1-800-994-4414) to request the redemption.
Telephone redemption instructions may be recorded. Shares will be redeemed at
the net asset value next determined after the Fund receives the redemption
request from the Wachovia Banks. Redemption requests made through the Wachovia
Banks must be received by the Wachovia Banks before 3:00 p.m. (Eastern time) in
order for shares to be redeemed at that day's net asset value. The Wachovia
Banks are responsible for promptly submitting redemption requests and providing
proper written redemption instructions to the Fund. Registered broker/dealers
may charge customary fees and commissions for this service. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
of the Fund by phone by calling The Biltmore Service Center at 1-800-994-4414. A
shareholder who is a customer of the Wachovia Banks and whose account agreement
with the Wachovia Banks permits telephone redemption may redeem shares of the
Fund by telephoning his account officer. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request.
Redemption requests must be received by 4:00 p.m. (Eastern time) in order for
shares to be redeemed at that day's net asset value. In no event will proceeds
be credited more than seven days after a proper request for redemption has been
received. In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered.
BY MAIL. A shareholder may redeem Fund shares by sending a written request to
the Wachovia Banks. The written request should include the shareholder's name,
the Fund name, the account number, and the share or dollar amount requested. If
share certificates have been issued, they must be properly endorsed and should
be sent by registered or certified mail with the written request to the Fund.
Shareholders should call the Wachovia Banks for assistance in redeeming by mail.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
by sending a written request to Wachovia Investments, Inc. The written request
should include the shareholder's name and address, the Fund name, the brokerage
account number, and the share or dollar amount requested. Shareholders should
call Wachovia Investments, Inc. for assistance in redeeming by mail. Normally, a
check for the proceeds is mailed within five business days, 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 of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
a savings bank or savings and loan association whose deposits are insured by
the 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 his financial
institution. 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 January 6, 1995, the Wachovia Banks and their various affiliates and
subsidiaries, acting in various capacities for numerous accounts, were the
owners of record of in excess of 25% of the outstanding shares 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
financial publications and/or compare its performance to certain indices.
================================================================================
BILTMORE SPECIAL VALUES FUND PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------------
Common Stocks--91.5%
CAPITAL GOODS--11.3%
3,000 Harsco Corp. $ 123,000
12,500 *Lindsay Manufacturing Co. 375,000
10,000 Moore Products Co. 161,250
7,000 Puerto Rican Cement, Inc. 205,625
11,500 Sealright Co., Inc. 204,125
21,000 Sparton Corp. 105,000
1,500 Standex International Corp. 47,438
45,000 *Tyler Corp. 163,125
6,500 Velcro Industries 442,000
23,000 Wilcox & Gibbs, Inc. 146,625
-------------
Total 1,973,188
-------------
COMMERCIAL SERVICES--0.9%
15,000 *Craig Corp. 148,125
-------------
CONSUMER DURABLES--4.8%
5,500 Allen Organ Co., Cl. B 198,000
25,000 Boston Acoustics, Inc. 437,500
25,000 *Instrument Systems Corp. 209,375
-------------
Total 844,875
-------------
CONSUMER NON-DURABLES--10.8%
19,500 American Media, Inc., Cl. A 290,062
3,500 *Carson, Perie, Scott & Co. 65,625
6,500 *Fabric Centers of America, Inc. 95,063
12,000 Joslyn Manufacturing Co. 318,000
20,000 Monk Austin, Inc. 270,000
7,500 Plenum Publishing Corp. 215,625
7,000 Pulitzer Publishing Co. 263,375
22,000 *Scotts Co., Cl. A 324,500
1,000 Weyco Group, Inc. 35,000
-------------
Total 1,877,250
-------------
ENERGY--1.2%
14,000 *Global Natural Resources, Inc. 120,750
17,973 *Pride Petroleum Services, Inc. 94,358
-------------
Total 215,108
-------------
</TABLE>
================================================================================
BILTMORE SPECIAL VALUES FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------------
Common Stocks--continued
FINANCE--32.1%
9,700 American Premier Underwriters $ 221,887
3,500 Berkley (W.R.) Corp. 115,937
27,500 Capital Gty. Corp. 398,750
3,500 Capital Southwest Corp. 125,125
27,000 *Capsure Holdings Corp. 361,125
40,000 *Danielson Holding Co. 280,000
20,800 *Equus II, Inc. 278,200
11,500 Financial Securities Assurance Holdings, Ltd. 230,000
1,400 Fund American Enterprises 102,550
2,000 Jefferies Group, Inc. 66,000
14,000 John Nuveen Co., Cl. A 283,500
4,000 *Jupiter National, Inc. 184,000
32,000 Lawyers Title Corp. 352,000
7,000 Legg Mason, Inc. 151,375
8,800 Leucadia National Corp. 391,600
24,500 Mellon Participating Mortgage Trust 79,625
8,000 N S Bancorp, Inc. 210,000
23,000 Piper Jaffray Cos., Inc. 232,875
15,000 Security Connecticut Corp. 322,500
18,300 Stewart Information Services Corp. 269,925
25,000 *Triad Guaranty 306,250
26,000 Unico American Corp. 104,000
12,500 Uslico Corp. 250,000
9,000 *White River Corp. 279,000
-------------
Total 5,596,224
-------------
HEALTH TECHNOLOGY--1.3%
9,500 AMSCO International, Inc. 90,250
16,700 Healthdyne, Inc. 141,950
-------------
Total 232,200
-------------
INDUSTRIAL SERVICES--3.8%
6,000 Arethusa (Offshore) Ltd. 64,500
16,000 *Cliffs Drilling Co. 196,000
10,000 Marine Drilling Cos., Inc. 33,750
15,000 *Nabors Industries, Inc. 108,750
12,750 Noble Drilling Corp. 78,891
15,000 Pool Energy Services Co. 108,750
</TABLE>
================================================================================
BILTMORE SPECIAL VALUES FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------------
Common Stocks--continued
INDUSTRIAL SERVICES--CONTINUED
2,000 Santa Fe Pacific Pipeline $ 64,750
-------------
Total 655,391
-------------
MATERIAL & SERVICES--15.0%
14,000 *Charter Medical Corp. 315,000
5,500 Cleveland Cliffs, Inc. 193,187
10,000 Forest City Enterprises, Cl. A 295,000
300 Forest City Enterprises, Cl. B 9,375
17,000 Furon Co. 329,375
13,000 Mueller Industries, Inc. 388,375
3,000 NCH Corp. 184,875
3,400 New Jersey Steel Corp. 55,250
8,000 *Oceaneering International, Inc. 94,000
9,500 Potash Corp. Saskatchewan, Inc. 338,438
22,000 *Saatchi & Saatchi--ADR 154,000
1,000 *Sealed Air Corp. 34,875
3,000 Somerset Group, Inc. 40,500
30,000 UNR Industries, Inc. 187,500
-------------
Total 2,619,750
-------------
NON-ENERGY MINERALS--2.1%
5,000 Lone Star Industries, Inc. 88,750
14,000 Medusa Corp. 280,000
-------------
Total 368,750
-------------
PROCESS INDUSTRIES--0.7%
6,000 *Alltrista Corp. 117,000
-------------
TECHNOLOGY--6.6%
13,500 *Astrosystems, Inc. 53,156
5,500 *Ceridian Corp. 137,500
13,500 *Dynatech Corp. 366,188
26,000 *Esco Electronics Corp. 204,750
25,000 Geodynamics Corp. 190,625
2,000 Gerber Scientific, Inc. 26,500
3,000 *Itel Corp. 105,750
7,500 Telemundo Group, Inc., Cl. A 66,094
-------------
Total 1,150,563
-------------
</TABLE>
================================================================================
BILTMORE SPECIAL VALUES FUND
<TABLE>
<CAPTION>
Shares or
Principal
Amount Value
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------------
Common Stocks--continued
TRANSPORTATION--0.9%
25,000 OMI Corp. $ 153,125
-------------
Total Common Stocks (identified cost, $16,407,513) 15,951,549
-------------
Preferred Stocks--2.7%
1,800 Catellus Development Corp. 89,100
4,000 Cliffs Drilling Co. 104,000
15,000 *Craig Corp., Cl. A 142,500
16,000 *Sunshine Mng. Co. 138,000
-------------
Total Preferred Stocks (identified cost, $536,965) 473,600
-------------
Corporate Bond--0.4%
$ 125,000 El Paso Funding Corp., 10.75%, 4/1/2013
(identified cost, $98,125) 69,219
-------------
**Repurchase Agreement--7.4%
1,281,902 Daiwa Securities America, Inc., 5.72%, dated 11/30/94, due 12/1/94
(at amortized cost) 1,281,902
-------------
Total Investments (identified cost, $18,324,505) $ 17,776,270+
-------------
</TABLE>
* Non-income producing security.
** Repurchase agreement is fully collateralized by U.S. Treasury obligations
based on prices at the date of the portfolio.
+ The cost for federal tax purposes amounts to $18,324,505. The net unrealized
depreciation of investments on a federal tax basis amounts to $548,235 which
is comprised of $830,517 appreciation and $1,378,752 depreciation at November
30, 1994.
The following abbreviation is used in this portfolio:
ADR--American Depositary Receipts
Note: The categories of investments are shown as a percentage of net assets
($17,430,894) at November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE SPECIAL VALUES FUND STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at amortized cost and value
(identified and tax cost $18,324,505) $ 17,776,270
Dividends and interest receivable 30,741
Receivable for Fund shares sold 19,012
Deferred expenses 4,229
-------------
Total assets 17,830,252
Liabilities:
Payable for investments purchased $ 365,653
Accrued expenses 33,705
----------
Total liabilities 399,358
-------------
Net Assets for 1,788,054 shares of beneficial interest outstanding $ 17,430,894
-------------
Net Assets Consist of:
Paid-in capital $ 17,855,871
Net unrealized appreciation (depreciation) of investments (548,235)
Accumulated net realized gain (loss) on investments 107,748
Undistributed net investment income 15,510
-------------
Total Net Assets $ 17,430,894
-------------
Net Asset Value, and Redemption Proceeds Per Share:
($17,430,894 / 1,788,054 shares of beneficial interest outstanding) $9.75
-------------
Computation of Offering Price:
Offering Price Per Share (100/95.5 of $9.75)* $10.21
-------------
</TABLE>
*See "What Shares Cost."
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE SPECIAL VALUES FUND STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
<TABLE>
<S> <C> <C> <C>
Investment Income:
Dividend income $217,148
Interest income 40,245
-----------
Total income 257,393
Expenses:
Investment advisory fee $ 117,003
Trustees' fees 730
Administrative personnel and services fees 75,000
Custodian fees 2,925
Transfer and dividend disbursing agent fees and expenses 26,554
Fund share registration costs 9,363
Auditing fees 15,597
Legal fees 1,020
Printing and postage 17,761
Portfolio accounting fees 53,737
Insurance premiums 2,851
Miscellaneous 2,034
----------
Total expenses 324,575
Deduct--
Waiver of investment advisory fee $ 58,501
Waiver of administrative personnel and services fees 60,820
Reimbursement of other operating expenses by Administrator 40,148 159,469
--------- ----------
Net expenses 165,106
-----------
Net investment income 92,287
-----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investment transactions (identified cost basis) 107,758
Net change in unrealized appreciation (depreciation) of investments (511,222)
-----------
Net realized and unrealized gain (loss) on investments (403,464)
-----------
Change in net assets resulting from operations ($ 311,177)
-----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE SPECIAL VALUES FUND STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993*
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income (loss) $ 92,287 $ (2,114)
Net realized gain (loss) on investment transactions ($107,758 and
$333,969 net gain, respectively, as computed for federal tax purposes) 107,758 333,969
Net change in unrealized depreciation (appreciation) of investments (511,222) (37,013)
------------- -------------
Change in net assets resulting from operations (311,177) 294,842
------------- -------------
Distributions to Shareholders--
Dividends to shareholders from net investment income (74,663) --
Distributions to shareholders from net realized gain on investment
transactions (333,979) --
------------- -------------
Change in net assets from distributions to shareholders (408,642) --
------------- -------------
Fund Share (Principal) Transactions--
Net proceeds from sale of shares 7,239,665 13,082,211
Net asset value of shares issued to shareholders in payment of
dividends declared 404,334 --
Cost of shares redeemed (1,565,034) (1,305,305)
------------- -------------
Change in net assets from Fund share transactions 6,078,965 11,776,906
------------- -------------
Change in net assets 5,359,146 12,071,748
Net Assets:
Beginning of period 12,071,748 --
------------- -------------
End of period (including undistributed net investment income of
$15,510 and $0, respectively) $ 17,430,894 $ 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, 1994
(1) ORGANIZATION
The Biltmore Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended, (the "Act"), as an open-end, management investment company.
The Trust consists of eleven diversified portfolios. The financial statements
included herein present only those of the Biltmore Special Values Fund (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed equity securities, corporate bonds and other
fixed income securities are valued at the last sale price reported on
national securities exchanges. Unlisted equity and bond securities, and
short-term securities are generally valued at the prices provided by an
independent pricing service. Short-term securities with remaining
maturities of sixty days or less may be valued at amortized cost, which
approximates fair market 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 collateral to ensure the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
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").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders 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 substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 not to exceed a period of five
years from the Fund's commencement date.
G. OTHER--investment transactions are accounted for on the trade date.
(3) 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, 1994 1993*
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
Shares sold 726,898 1,307,697
Shares issued to shareholders in payment of dividends declared 40,250 --
Shares redeemed (157,522) (129,269)
--------- ----------
Net change resulting from Fund share transactions 609,626 1,178,428
--------- ----------
</TABLE>
*For the period from May 10, 1993 (date of initial public investment) to
November 30, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Wachovia Investment Management Group, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.80 of 1% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive a portion of its fee. The
Adviser can modify or terminate this voluntary waiver at any time as its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust and The Biltmore Municipal
Funds for the period. FAS may voluntarily choose to waive a portion of its fee
and reimburse a portion of the Fund's other operating expenses. FAS can modify
or terminate the voluntary waiver and reimbursement at any time at its sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund for which it is paid a fee. The FServ fee is based on the size, type,
and number of accounts and transactions made by shareholders.
FServ also maintains the Fund's accounting records for which it is paid a fee.
The FServ fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
Wachovia Bank of North Carolina, N.A. is the Fund's custodian. The fee is based
on the level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($31,492) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following April 3, 1993 (the date the Fund became
effective). For the fiscal year ended November 30, 1994, the Fund paid $4,504
pursuant to this agreement.
Certain of the Officers of the Trust are Officers and Directors or Trustees of
the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended November 30, 1994, were as follows:
<TABLE>
<S> <C>
Purchases $ 14,222,343
-------------
Sales $ 8,583,118
-------------
</TABLE>
================================================================================
REPORT OF ERNST & YOUNG LLP, 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, 1994, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights (see page 2 of this Prospectus) for the periods presented.
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, 1994, 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 Special Values Fund of The Biltmore Funds at November 30, 1994, the
results of its operations for the year then ended, changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
the periods presented, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 12, 1995
================================================================================
ADDRESSES
- --------------------------------------------------------------------------------
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 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, Federated Services Company
AND PORTFOLIO RECORDKEEPER 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 LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
- --------------------------------------------------------------------------------
THE BILTMORE SERVICE CENTER 101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226
- --------------------------------------------------------------------------------
BILTMORE SPECIAL VALUES FUND PROSPECTUS
A DIVERSIFIED PORTFOLIO OF THE BILTMORE FUNDS
An Open-End, Management Investment Company
090297-87-0
January 31, 1995 3012918A (1/95)
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"), a
portfolio of The Biltmore Funds (the "Trust"), dated January 31,
1995. This Statement is not a prospectus itself. To receive a copy
of the prospectus, write the Fund or call The Biltmore Service
Center toll-free at 1-800-994-4414.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
Investment Limitations 5
The Biltmore Funds Management 8
Officers and Trustees 8
Fund Ownership 9
Trustees Compensation 9
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
Exchanging Securities for Fund
Shares 11
Determining Market Value of
Securities 12
Redeeming Fund Shares 12
Redemption in Kind 12
Tax Status 13
The Fund's Tax Status 13
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 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"
or the "Board") without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
Capitalized terms not otherwise defined in this Statement have the same
meaning assigned in the prospectus.
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.
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 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:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and
the number of other potential buyers;
o dealer undertakings to make a market in the security; and
o 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.
High Yield Securities
The lowest-rated securities in which the Fund may invest, under normal
market circumstances, are rated B by Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's") or are not rated
but are determined by the Fund's investment adviser to be of comparable
quality. Securities rated B are judged to have speculative elements and
are high yield, high risk bonds (i.e., junk bonds), typically subject to
greater market fluctuations and greater risk of loss of income and
principal due to an issuer's default. To a greater extent than
investment-grade bonds, lower-rated bonds and speculative grade
securities tend to reflect short-term corporate, economic and market
developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower-rated bonds and speculative grade securities
may be more difficult to dispose of or to value than high-rated, lower-
yielding bonds. In circumstances where, in the judgment of the Fund's
investment adviser, the investment opportunities may benefit the Fund,
the Fund may invest in securities which are rated D by S&P. Debt that is
rated D is in default, and payment of interest and/or repayment of
principal on such debt is in arrears.
The Fund's investment adviser attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of
each issuer, as well as by monitoring broad economic trends and
corporate and legislative developments.
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
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in when-
issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
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:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow an amount limited to a specific
line of credit from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
o 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:
o Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
o Farmers Home Administration;
o Federal Home Loan Banks;
o Federal Home Loan Mortgage Corporation;
o Federal National Mortgage Association;
o Government National Mortgage Association; and
o Student Loan Marketing Association.
Money Market Instruments
The Fund may invest in the following money market instruments:
o 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
o commercial paper 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.
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 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 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. 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 do 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
no present intention of investing 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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan, having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment, to be "cash items."
The Fund does not 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.
James A. Hanley
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Malcolm T. Hopkins
Trustee
Private investor and consultant; Director, the Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution);
Director MAPCO, Inc. (diversified energy); Director, Metropolitan Series
Funds, Inc. and MetLife Portfolios, Inc. (investment companies);
Director, Kinder-Care Learning Centers, Inc. (child care); Director, U.S.
Home Corporation (residential builder and land development); and
Director, EMCOR Group, Inc. (engineering and construction).
Samuel E. Hudgins
Trustee
President, Percival Hudgins & Company, Inc. (investment
bankers/financial consultants); Director, Atlantic American Corporation
(insurance holding company); Director, Bankers Fidelity Life Insurance
Company; Director and Vice Chairman, Leath Furniture, Inc. (retail
furniture); President, Atlantic American Corporation (until 1988);
Director, Vice Chairman and Chief Executive Officer, Rhodes, Inc. (retail
furniture) (until 1988); Chairman and Director, Atlantic American Life
Insurance Co., Georgia Casualty & Surety Company, and Bankers Fidelity
Life Insurance (until 1988).
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel
company); formerly, Vice Chairman, Massachusetts Mutual Life Insurance
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 Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary and Trustee,
Federated Administrative Services; Executive Vice President and Director,
Federated Securities Corp.
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly, Associate
Corporate Counsel, Federated Investors; Vice President and Assistant
Treasurer for certain investment companies for which Federated Securities
Corp. is the principal distributor.
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 6, 1995, the following shareholder of record owned 5% or
more of the outstanding shares of the Fund: Wachovia Bank of North
Carolina, Winston-Salem, North Carolina, on behalf of certain underlying
accounts, owned approximately 1,198,829 shares (66.88%).
Trustees Compensation
NAME AND AGGREGATE TOTAL COMPENSATION
PAID
POSITION WITH THE COMPENSATION FROM TO THE TRUSTEES FROM
THE TRUST
TRUST THE TRUST+ AND FUND COMPLEX#
James A. Hanley,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
Malcolm T. Hopkins,
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
Samuel E. Hudgins,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
J. Berkley Ingram, Jr.
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
D. Dean Kaylor,
Trustee $15,851 $16,875 for the
Trust and
one other investment
company
+The aggregate compensation is paid by the Trust, which is comprised of
twelve portfolios.
# The Fund Complex is comprised of 15 portfolios.
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.
Because of the internal controls maintained by the Wachovia Banks to
restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Wachovia Banks' or their
affiliates' lending relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
For the fiscal year ended November 30, 1994, and for the period from May
10, 1993 (date of initial public investment) to November 30, 1993, the
Adviser earned $117,003 and $54,274, respectively, of which $58,501 and
$14,352, 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 ("FAS"), a subsidiary of Federated
Investors, provides administrative personnel and services to the Fund
for a fee as described in the prospectus. For the fiscal year ended
November 30, 1994, and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1993, FAS earned $75,000, and
$75,000, respectively, of which $60,820 and $ 66,674, respectively, were
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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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 fiscal year ended November 30,
1994, and for the period from May 10, 1993 (date of initial public
investment) to November 30, 1993, the Fund paid $56,762, and $26,369,
respectively, 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 fiscal year ended November 30, 1994, and for the period from May
10, 1993 (date of initial public investment) to November 30, 1993, the
Fund's portfolio turnover rates were 62% and 68%, respectively.
Purchasing Fund Shares
Shares of the Fund are sold at net asset value on days on which the
Wachovia Banks, 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.
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 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.
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
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 values of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a national
securities exchange, if available;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
o for unlisted equity securities, the latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service; or
o 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 Trust 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. Any redemption beyond
this amount will also be in cash unless the Trustees determine that
payments should be in kind.
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:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Shareholders' Tax Status
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
the shares.
Total Return
The Fund's average annual total returns for the one-year period ended
November 30, 1994, and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1994, were (6.02%) and (2.42%),
respectively.
The average annual total return for the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned
at the end of the period by the net asset value per share at the end of
the period. The number of shares owned at the end of the period is based
on the number of shares purchased at the beginning of the period with
$1,000, less any applicable sales 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, 1994, was
0.69%.
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:
o stock market fluctuation;
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses;
o the relative amount of Fund cash flow; and
o 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:
o 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.
o Lipper Analytical Services, Inc. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in maximum offering price over a specific period of time. From time
to time, the Fund will quote its Lipper ranking in the "growth funds"
category in advertising and sales literature.
o 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.
o 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.
o Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
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 Ratings Group ("S&P") 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.
BB, B, CCC, CC -- Debt rated "BB", "B", "CCC", and "CC" is regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "CC"
the highest degree of speculation. While such debt will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties of major risk exposure to adverse conditions.
C -- The rating "C" is reserved for income bonds on which no interest is
being paid.
D -- Debt rated "D" is in default, and payment of interest and/or
repayment of principal is in arrears.
NR--"NR" indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that S&P does
not rate a particular type of obligation as a matter of policy. S&P may
apply a plus (+) or minus (-) to the above rating classifications to
show relative standing within the classifications.
Moody's Investors Service, Inc. ("Moody's") 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 edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in "Aaa" securities.
A--Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment 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.
Ba--Bonds which are "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca--Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects or
ever attaining any real investment standing.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and
3 in each generic rating classification from "Aa" through "B" in its
corporate bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
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--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
NR--"NR" indicates that Fitch does not rate the specific issue.
Standard & Poor's Ratings Group 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.
Moody's Investors Service, Inc. Commercial Paper Rating Definitions
Prime-1--Issuers rated "Prime-1" (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. "Prime-1" repayment capacity will normally be evidenced by
the following characteristics:
o leading market positions in well-established industries;
o high rates of return on funds employed;
o conservative capitalization structure with moderate reliance on debt
and ample asset protection;
o broad margins in earnings coverage of fixed financial charges and
high internal cash generation; or
o well-established access to a range of financial markets and assured
sources of alternate liquidity.
Fitch Investors Service, Inc. Commercial Paper 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+."
090297-87-0
3012918B (1/95)
PROSPECTUS
JANUARY 31, 1995
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 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 long-term growth of principal
and current income. The Fund pursues this objective by investing in a
professionally-managed and diversified portfolio of equity securities and dept
securities.
THE INVESTMENT COMPANY 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 (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.
BILTMORE
BALANCED FUND
(A Portfolio of The Biltmore Funds)
The Fund has also filed a Statement of Additional Information dated January 31,
1995 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, call 1-800-
994-4414 or write The Biltmore Service Center, 101 Greystone Boulevard, SC-9215,
Columbia, South Carolina 29226.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
===================================================
TABLE OF CONTENTS
- ---------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ---------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ---------------------------------------------------
GENERAL INFORMATION 3
- ---------------------------------------------------
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Risk 4
Securities of Foreign Issuers 5
Corporate Debt Obligations 5
Fixed Rate Corporate Debt Obligations 5
Floating Rate Corporate Debt
Obligations 5
U.S. Government Securities 5
Mortgage-Backed Securities 6
Adjustable Rate Mortgage Securities 6
Collateralized Mortgage Obligations 6
Real Estate Mortgage Investment
Conduits 6
Asset-Backed Securities 6
Convertible Securities 7
Restricted and Illiquid Securities 7
Demand Master Notes 8
Demand Features 8
Repurchase Agreements 8
When-Issued and Delayed Delivery
Transactions 8
Lending of Portfolio Securities 9
Other Investment Techniques 9
Equity Investment Considerations 9
Debt Investment Considerations 9
Investment Limitations 9
- ---------------------------------------------------
THE BILTMORE FUNDS INFORMATION 10
Management of the Trust 10
Board of Trustees 10
Investment Adviser 10
Advisory Fees 10
Adviser's Background 10
Distribution of Shares 11
Administrative Arrangements 11
Shareholder Servicing Arrangements 11
Administration of the Fund 11
Administrative Services 11
Custodian 11
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 12
Legal Services 12
Independent Auditors 12
Brokerage Transactions 12
Expenses of the Fund 12
- ---------------------------------------------------
NET ASSET VALUE 12
- ---------------------------------------------------
INVESTING IN THE FUND 12
Share Purchases 12
Through the Trust Divisions of the
Wachovia Banks 12
Through Wachovia Investments, Inc. 13
By Mail 13
By Wire 13
Through Authorized Broker/Dealers 13
Minimum Investment Required 13
What Shares Cost 13
Purchases at Net Asset Value 14
Sales Charge Reallowance 14
Reducing the Sales Charge 14
Quantity Discounts and Accumulated
Purchases 14
Letter of Intent 14
Reinvestment Privilege 15
Concurrent Purchases 15
Systematic Investment Program 15
Certificates and Confirmations 15
Subaccounting Services 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 17
- ---------------------------------------------------
SHAREHOLDER INFORMATION 18
Voting Rights 18
Massachusetts Business Trusts 18
- ---------------------------------------------------
EFFECT OF BANKING LAWS 18
- ---------------------------------------------------
TAX INFORMATION 19
- ---------------------------------------------------
PERFORMANCE INFORMATION 19
- ---------------------------------------------------
FINANCIAL STATEMENTS 20
- ---------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
__INDEPENDENT AUDITORS 32
- ---------------------------------------------------
ADDRESSES BACK COVER
===============================================================================
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.55%
12b-1 Fees None
Other Expenses (after assumption) (2) 0.20%
Shareholder Servicing Agent Fee (3) 0.00%
Total Fund Operating Expenses (after waiver and assumption) (4) 0.75%
</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 0.70%.
(2)
Other expenses would have been 0.22% absent the voluntary assumption by
the administrator. The administrator can terminate this voluntary
assumption 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 time the Fund will be able to pay up to
0.25 of 1% of the Fund's average daily net assets for shareholder servicing
agent fees. See "The Biltmore Funds Information."
(4) Total Fund Operating Expenses would have been 0.92% absent the voluntary
waiver and assumption 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>
<S> <C> <C> <C> <C>
Example 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return; (2) redemption at the end of
each time period; and (3) payment of the maximum sales load. As
noted in the table above, the Fund charges no redemption fees. $52 $68 $85 $134
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
===============================================================================
BILTMORE BALANCED FUND FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 32.
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993*
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.33 $ 10.00
Income from investment operations
Net investment income 0.35 0.19
Net realized and unrealized gain/(loss) on investments (0.38) 0.29
--------- ---------
Total from investment operations (0.03) 0.48
Less distributions
Dividends to shareholders from net investment income (0.33) (0.15)
Distributions to shareholders from net realized gain on investment transactions (0.04) --
--------- ---------
Total distributions (0.37) (0.15)
--------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.93 $ 10.33
--------- ---------
Total Return+ (0.39%) 4.89%
Ratios to Average Net Assets
Expenses 0.75% 0.75%(a)
Net investment income 3.46% 3.30%(a)
Expense waiver/reimbursement (b) 0.17% 0.19%(a)
Supplemental Data
Net assets, end of period (000 omitted) $ 194,430 $166,271
Portfolio turnover rate 74% 60%
</TABLE>
* 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
contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
===============================================================================
GENERAL INFORMATION
The Biltmore Funds was established as a Massachusetts business trust under a
Declaration of Trust dated November 19, 1991. The Declaration of Trust permits
the Trust to offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. This prospectus relates only to
one portfolio, Biltmore Balanced Fund. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") has not established classes of shares of the Fund.
The Fund is designed for institutions, pension plans and individuals as a
convenient means of accumulating an interest in a professionally-managed,
diversified portfolio of common and preferred stocks and other equity
securities, bonds, notes and short-term obligations. A minimum initial
investment of $250 is required. This amount may be waived from time to time. For
further information, Trust customers of the Wachovia Banks may telephone their
account officer.
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 Emerging Markets Fund, Biltmore
Equity Fund, Biltmore Equity Index Fund, Biltmore Fixed Income Fund, Biltmore
Money Market Fund (Institutional Shares and Investment Shares), Biltmore Prime
Cash Management Fund (Institutional Shares), 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 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 Fund's
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 Fund's investment 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 Ratings Group
("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
Information.);
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, such as the: Farm Credit System, including the National Bank
for Cooperatives, Farm Credit Banks, and Banks for Cooperatives, Farmers Home
Administration, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal National Mortgage Association, Government National
Mortgage Association, Student Loan Marketing Association, Tennessee Valley
Authority, Export-Import Bank of the United States, Commodity Credit
Corporation, Federal Financing Bank, 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, the Fund's investment adviser 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 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.
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 the: Farm Credit System, including the National Bank
for Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Farmers Home
Administration; Federal Home Loan Banks; Federal Home Loan Mortgage
Corporation; Federal National Mortgage Association; Government National
Mortgage Association; and Student Loan Marketing Association.
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. Adjustable rate mortgage securities
("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. Real estate mortgage investment
conduits ("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 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 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.
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 seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or 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 equal
to at least 102% of the value of the securities loaned. There is the risk that
when lending portfolio securities, the securities may not be available to the
Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell
the securities at a desirable price. In addition, in the event that a borrower
of securities would file for bankruptcy or become insolvent, disposition of the
securities may be delayed pending court action.
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 Fund's 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 INVESTMENT 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., together with its affiliates, Wachovia Bank of
Georgia, N.A. and Wachovia Bank of South Carolina, N.A. (formerly known as The
South Carolina National Bank) (collectively, the "Wachovia Banks") have been
managing trust assets for over 100 years, with approximately $17.3 billion in
managed assets as of September 30, 1994. Wachovia Investment Management Group
has served as investment adviser to The Biltmore Funds since March 9, 1992.
Wachovia Bank of North Carolina, N.A., also serves as investment adviser of
Biltmore North Carolina Municipal Bond Fund, a portfolio of The Biltmore
Municipal Funds, another investment company. As part of their regular banking
operations, the Wachovia Banks may make loans to public companies. Thus, it may
be possible, from time to time, for the Fund to hold or acquire the securities
of issuers which are also lending clients of the Wachovia Banks. The lending
relationship will not be a factor in the selection of securities.
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 a 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 a Senior 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 a 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, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is the Fund's shareholder servicing agent (the "Shareholder
Servicing Agent"). The Fund may pay the Shareholder Servicing Agent a fee based
on the average daily net asset value of shares for which it provides shareholder
services. These shareholder services include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance and communicating or facilitating purchases and redemptions of
shares. This fee will be computed at an annual rate equal to 0.25 of 1% of the
Fund's average daily net assets for which the Shareholder Servicing Agent
provides services; however, the Shareholder Servicing Agent may choose
voluntarily to waive all or a portion of its fee at any time or pay all or some
of its fees to financial institutions or other financial service providers.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services also provides the
Fund with the administrative personnel and services necessary to operate the
Fund. Such services include the preparation of filings with the Securities and
Exchange Commission and other regulatory authorities, assistance with respect to
meetings of the Trustees, shareholder servicing and accounting services, and
other administrative services. Federated Administrative Services provides these
at an annual rate, computed and payable daily, as specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds
Administrative Fee and The Biltmore Municipal Funds
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year for the Fund and each of
the other portfolios of The Biltmore Funds shall aggregate at least $75,000.
Federated Administrative Services may choose voluntarily to waive or reimburse a
portion of its fee at any time.
CUSTODIAN. Wachovia Bank of North Carolina, N.A., Winston- Salem, North
Carolina, is custodian (the "Custodian") for the securities and cash of the
Fund. Under the Custodian Agreement, the Custodian holds
the Fund's portfolio securities in safekeeping and keeps all necessary records
and documents relating to its duties. For the services to be provided to the
Trust pursuant to the Custodian Agreement, the Trust pays the Custodian an
annual fee based upon the average daily net assets of the Fund and which is
payable monthly. 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, Pennsylvania, a subsidiary of Federated
Investors, 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 LLP,
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. and advised by the Adviser. 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
Fund 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, Wachovia Investments, Inc. or
authorized broker/dealers which have a sales agreement with the Distributor. All
purchase orders must be transmitted to the Fund by 5:00 p.m. (Eastern time).
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573. 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.
THROUGH THE TRUST DIVISIONS OF THE WACHOVIA BANKS. Trust customers of the
Wachovia Banks may place an order to purchase shares of the Fund by telephoning,
sending written instructions, or placing the order in person with their account
officer in accordance with the procedures established by the Wachovia Banks and
as set forth in the relevant account agreement.
Payment may be made to the Wachovia Banks by check, by wire of federal funds, or
by debiting a customer's account with the Wachovia Banks. Purchase orders must
normally be received by the Wachovia Banks by 3:00 p.m. (Eastern time), in order
for shares to be purchased at that day's price. It is the responsibility of the
Wachovia Banks to transmit orders promptly to the Fund. Shares of the Fund
cannot be purchased by wire on any day on which the Wachovia Banks, the New York
Stock Exchange and the Federal Reserve Wire System are not open for business.
THROUGH WACHOVIA INVESTMENTS, INC. Customers of Wachovia Investments, Inc. or
Wachovia Brokerage Service may place an order to purchase shares by telephoning
The Biltmore Service Center at 1-800-994-4414, sending written instructions, or
placing an order in person. Payment may be made by check, by wire of federal
funds (the customer's bank sends money to the Fund's bank through the Federal
Reserve Wire System) or by debiting a customer's account at Wachovia
Investments, Inc. Purchase orders must normally be received by Wachovia
Investments, Inc. before 3:30 p.m. (Eastern time). Wachovia Investments, Inc., a
wholly-owned subsidiary of Wachovia Corporation, is a registered broker/dealer
and member of the National Association of Securities Dealers, Inc. Wachovia
Brokerage Service is a business unit of Wachovia Investments, Inc.
BY MAIL. To purchase shares of the Fund through Wachovia Investments, Inc. by
mail, send a check made payable to Biltmore Balanced Fund to The Biltmore
Service Center, 101 Greystone Boulevard, SC-9215, Columbia, South Carolina
29226. Orders by mail are considered received after payment by check is
converted by Wachovia Investments, Inc. into federal funds. This is normally the
next business day after Wachovia Investments, Inc. receives the check.
BY WIRE. To purchase shares of the Fund through Wachovia Investments, Inc. by
wire, wire funds as follows:
Wachovia Investments, Inc.
ABA Number 0531-00494
Credit: 8735-001342
Further credit to: Biltmore Balanced Fund
Re: (Customer name and brokerage account number)
Shares of the Fund cannot be purchased by wire on any day on which the Wachovia
Banks, the New York Stock Exchange and the Federal Reserve Wire System are not
open for business.
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of the Fund. Shares will be
purchased at the public offering price next determined after the Fund receives
the purchase request. Purchase requests through registered broker/dealers must
normally be received by the broker/dealer and transmitted to the Fund before
3:30 p.m. (Eastern time) in order for shares to be purchased at that day's
public offering price.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares of the Fund is $250. This amount may be
waived from time to time. Subsequent investments may be in amounts of $50 or
more.
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 a Sales Charge as a
Percentage of 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 Wachovia Banks for funds which are held in a fiduciary, advisory, 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 trusts, pension profit-sharing plans and individual retirement
accounts operated for such persons, may purchase shares of the Fund at net asset
value. In addition, trustees, officers, directors and employees of the
Distributor and its affiliates, and any bank or investment dealer who has a
sales agreement with the Distributor relating to the Fund, may also purchase
shares at their net asset value.
SALES CHARGE REALLOWANCE. For shares sold with a sales charge, the Wachovia
Banks or an affiliated broker or a dealer will receive up to 100% of the
applicable sales charge for purchases of Fund shares made directly through the
Wachovia Banks or such broker or dealer. Any portion of the sales charge which
is not paid to a dealer will be retained by the Distributor.
The sales charge for shares sold other than through Wachovia Investments, Inc.,
the Wachovia Banks or registered broker/dealers will be retained by the
Distributor. However, the Distributor, at its sole discretion, may uniformly
offer to pay cash, or promotional incentives in the form of trips to sales
seminars at luxury resorts, tickets or other items, to all dealers selling
shares of the Fund. Such payments will be predicated upon the amount of shares
of the Fund that are sold by the dealers.
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 in this
prospectus under the section entitled "What Shares Cost," larger purchases
reduce the sales charge paid. The Fund will combine purchases made on the same
day by the investor, 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
$90,000 and then purchases $10,000 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, the Wachovia Banks, Wachovia Investments,
Inc. 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 purchases.
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 up to 4.50% of the total amount intended to be purchased in escrow (in
shares of the Fund) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period, unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
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 the Fund at the next-determined net asset value without any sales
charge. The Wachovia Banks, Wachovia Investments, Inc. or the Distributor must
be notified by the shareholder in writing or by his financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder redeems
his shares in the Fund, there may be tax consequences.
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 and the portfolios in The Biltmore Municipal 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, the Wachovia Banks, Wachovia
Investments, Inc. or the Distributor must be notified by the agent placing the
order at the time the concurrent purchases are made. The sales charge will be
reduced after the purchase is confirmed.
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 Banks, Wachovia Investments,
Inc. or through the Distributor.
CERTIFICATES AND CONFIRMATIONS
As the transfer agent, Federated Services Company maintains a share account for
each shareholder of record. Share certificates are not issued unless requested
in writing to the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder of record. Annual statements are sent to report dividends paid
during the year.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the Transfer Agent's subaccounting system to
minimize their internal recordkeeping requirements. The Transfer Agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding shares of the Fund in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Fund shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the institution with regard to the services provided, the fees
charged for those services, and any restrictions and limitations imposed.
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 the three portfolios of The Biltmore Municipal Funds (Biltmore Georgia
Municipal Bond Fund, Biltmore North Carolina Municipal Bond Fund, and Biltmore
South Carolina Municipal Bond Fund), 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
contemplating exchanges into The Biltmore Municipal Funds should consult their
tax advisers, since the tax advantages of each portfolio of The Biltmore
Municipal Funds may vary.
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 Fund, Wachovia
Investments, Inc., or in the case of customers of the Wachovia Banks, the
shareholder's account officer.
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 at net asset value.
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 Investments, Inc. 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 Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemptions
must be received in proper form and can be made through the Wachovia Banks,
Wachovia Investments, Inc., or directly to the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by calling the
Wachovia Banks (call toll-free 1-800-994-4414) to request the redemption.
Telephone redemption instructions may be recorded. Shares will be redeemed at
the net asset value next determined after the Fund receives the redemption
request from the Wachovia Banks. Redemption requests made through the Wachovia
Banks must be received by the Wachovia Banks before 3:00 p.m. (Eastern time) in
order for shares to be redeemed at that day's net asset value. The Wachovia
Banks are responsible for promptly submitting redemption requests and providing
proper written redemption instructions to the Fund. Registered broker/dealers
may charge customary fees and commissions for this service. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
of the Fund by phone by calling The Biltmore Service Center at 1-800-994-4414. A
shareholder who is a customer of the Wachovia Banks and whose account agreement
with the Wachovia Banks permits telephone redemption may redeem shares of the
Fund by telephoning his account officer. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request.
Redemption requests must be received by 4:00 p.m. (Eastern time) in order for
shares to be redeemed at that day's net asset value. In no event will proceeds
be credited more than seven days after a proper request for redemption has been
received. In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered.
BY MAIL. A shareholder may redeem Fund shares by sending a written request to
the Wachovia Banks. The written request should include the shareholder's name,
the Fund name, the account number, and the share or dollar amount requested. If
share certificates have been issued, they must be properly endorsed and should
be sent by registered or certified mail with the written request to the Fund.
Shareholders should call the Wachovia Banks for assistance in redeeming by mail.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
by sending a written request to Wachovia Investments, Inc. The written request
should include the shareholder's name and address, the Fund name, the brokerage
account number, and the share or dollar amount requested. Shareholders should
call Wachovia Investments, Inc. for assistance in redeeming by mail. Normally, a
check for the proceeds is mailed within five business days, 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 of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
a savings bank or savings and loan association whose deposits are insured by
the 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 his financial
institution. 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 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
financial publications and/or compare its performance to certain indices.
================================================================================
BILTMORE BALANCED FUND PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- --------------------------------------------------------------------------------------------------------
Common Stocks--52.6%
CAPITAL GOODS--4.2%
5,500 Browning-Ferris Industries, Inc. $ 148,500
46,085 General Electric Co. 2,119,910
41,214 Giddings & Lewis, Inc. 587,299
53,782 Harsco Corp. 2,205,062
35,323 Honeywell, Inc. 1,033,198
26,356 Keystone International, Inc. 477,703
45,893 York International Corp. 1,634,938
--------------
Total 8,206,610
--------------
CONSUMER DURABLES--0.4%
1,833 Chrysler Corp. 88,671
6,687 Echlin, Inc. 202,282
16,080 Ford Motor Co. 436,170
--------------
Total 727,123
--------------
CONSUMER NON-DURABLES--15.6%
69,290 Abbott Laboratories 2,208,619
23,275 American Greetings Corp. 645,881
23,524 American Home Products Co. 1,532,001
14,846 American Stores Co. 391,563
6,349 Avon Products, Inc. 392,844
11,267 Becton, Dickinson & Co. 532,366
37,578 Bergen Brunswig Corp., Cl. A 728,074
43,568 Bristol-Myers Squibb Co. 2,516,052
3,902 Coca Cola Co. 199,490
12,714 CPC International, Inc. 651,592
47,868 Fingerhut Companies, Inc. 789,822
70,305 Fruit of the Loom, Inc., Cl. A 1,924,599
20,431 IBP Inc. 686,992
12,665 *International Dairy Queen, Inc., Cl. A 215,305
10,486 Lee Enterprises, Inc. 352,592
15,396 Loews Corp. 1,329,830
7,484 Melville Corp. 235,746
53,576 Merck & Co., Inc. 1,995,706
8,972 Nike, Inc., Cl. B 573,086
61,519 PepsiCo, Inc. 2,176,235
43,269 Philip Morris Cos., Inc. 2,585,323
7,866 Russell Corp. $ 238,930
32,018 Sara Lee Corp. 780,439
43,987 Sbarro, Inc. 984,209
25,606 Service Corp., International 656,154
10,755 Stanley Works 384,491
6,498 Supervalu, Inc. 159,201
51,380 *Toys R Us, Inc. 1,881,793
22,089 Unifi, Inc. 549,464
15,754 Unilever N.V. 1,758,540
11,714 Universal Corp. 251,851
--------------
Total 30,308,790
--------------
ENERGY--5.8%
22,648 Amoco Corp. 1,375,866
7,672 Chevron Corp. 334,691
43,231 Coastal Corp. 1,113,198
29,617 Exxon Corp. 1,788,126
3,425 Halliburton Co. 119,447
47,698 MAPCO, Inc. 2,390,862
6,233 Mobil Corp. 531,363
26,355 Phillips Petroleum Co. 869,715
14,235 Royal Dutch Petroleum Co. 1,546,277
21,633 Schlumberger, Ltd. 1,149,253
--------------
Total 11,218,798
--------------
FINANCE--7.9%
2,823 Alex Brown, Inc. 80,103
20,911 AMBAC, Inc. 724,043
19,029 American Express Co. 563,734
19,318 American International Group, Inc. 1,770,012
11,725 Citicorp 488,053
38,896 Dow Jones & Co., Inc. 1,127,984
9,695 EXCEL, Ltd. 363,562
21,420 Federal Home Loan Mortgage Corp. 1,068,322
28,947 Federal National Mortgage Association 2,058,855
9,793 First Tennessee National Corp. 418,651
15,864 Huntington Bancshares, Inc. 294,476
23,363 KeyCorp 569,473
3,779 Legg Mason, Inc. $ 81,721
22,556 MBIA, Inc. 1,184,190
12,334 Morgan Stanley Group, Inc. 729,248
40,287 Providian Corp. 1,218,682
5,610 Raymond James Financial 80,644
2,427 Salomon, Inc. 87,979
6,838 SouthTrust Corp. 123,939
40,200 SPDR Trust 1,832,869
12,454 Travelers, Inc. 409,425
3,451 United Asset Management Corp. 124,236
--------------
Total 15,400,201
--------------
MATERIALS & SERVICES--4.6%
11,560 Ball Corp. 325,125
23,913 Crane Co. 621,738
12,061 Donnelley (R.R.) & Sons Co. 345,246
31,587 *FMC Corp. 1,839,943
9,431 International Paper Co. 674,316
10,329 NCH Corp. 636,525
35,537 Potash Corp. Saskatchewan, Inc. 1,266,006
64,936 Praxair, Inc. 1,314,954
49,852 Sonoco Products Co. 1,053,123
19,509 Tyco International, Ltd. 897,414
--------------
Total 8,974,390
--------------
NON-ENERGY MINERALS--0.5%
14,094 Georgia-Pacific Corp. 1,007,721
--------------
PROCESS INDUSTRIES--0.6%
30,889 Sigma-Aldrich 1,069,532
--------------
PRODUCER MANUFACTURING--0.2%
10,166 *Thermo Electron Corp. 447,304
--------------
TECHNOLOGY--7.2%
47,556 American Telephone & Telegraph, Inc. 2,336,188
33,875 Avnet, Inc. 1,215,266
7,014 *Bay Networks, Inc. 180,610
22,212 Boeing Co. 993,987
24,243 *Cisco Systems, Inc. 781,837
30,515 *Computer Sciences Corp. $ 1,407,504
6,130 *Conner Peripherals, Inc. 75,092
12,097 General Motors Corp., Cl. E 444,565
15,087 Hewlett-Packard Co. 1,478,526
2,719 Intel Corp. 171,637
11,130 Loral Corp. 441,026
57,095 MCI Communications Corp. 1,113,353
9,459 *Microsoft Corp. 594,735
6,472 Molex, Inc., Class A 196,602
10,296 Northern Telecom, Ltd. 329,472
9,355 Raytheon Co. 588,196
16,032 Xerox Corp. 1,575,144
4,676 *Zebra Technologies Corp., Cl. A 175,350
--------------
Total 14,099,090
--------------
TRANSPORTATION--1.3%
13,190 Burlington Northern, Inc. 643,012
27,029 Conrail, Inc. 1,405,508
8,333 Delta Air Lines, Inc. 417,692
--------------
Total 2,466,212
--------------
UTILITIES--4.3%
21,268 ALLTEL Corp. 598,162
5,453 Bellsouth Corp. 282,874
33,715 Carolina Power & Light Co. 901,876
43,777 GTE Corp. 1,340,671
3,893 NICOR, Inc. 87,592
13,511 NYNEX Corp. 508,351
27,014 Pacific Gas & Electric Co. 644,959
55,063 Pennsylvania Power & Light Co. 1,101,260
12,045 Scana Corp. 522,452
10,758 Southwestern Bell Corp. 445,112
33,506 Telefonos de Mexico S.A., ADR 1,775,818
3,000 U.S. West, Inc. 105,750
--------------
Total 8,314,877
--------------
Total Common Stocks (identified cost, $102,739,453) 102,240,648
--------------
ASSET-BACKED SECURITIES--1.3%
$ 1,060,000 Carco Auto Loan Master Trust, 7.875%, 7/15/99 $ 1,057,019
1,121,017 USAA Auto Loan Grantors Trust, 3.90%, (Series 1993-1), 3/15/99 1,089,135
385,671 World Omni Leasing, 4.60%, 5/17/99 373,619
--------------
Total 2,519,773
--------------
CONSUMER NON-DURABLE--0.4%
775,000 Wal-Mart Stores, Inc., 6.125%, 10/1/99 713,023
--------------
FINANCE--3.3%
1,450,000 First Colony Corp., 6.625%, 8/1/2003 1,273,564
775,000 General Electric Capital Corp., 8.00%, 2/1/97 775,961
1,680,000 Landeskreditbank Baden, 7.625%, 2/1/2023 1,509,094
2,000,000 Nationwide Life Insurance Co., 6.50%, 2/15/2004 1,731,740
1,346,600 Prudential Home Mortgage Securities, 6.75%, 12/25/2023 1,274,220
--------------
Total 6,564,579
--------------
FOREIGN BONDS--1.9%
1,750,000 Banque Parabas N.Y., 6.875%, 3/1/2009 1,441,632
1,000,000 International American Development Bank, 8.50%, 5/1/2001 1,015,300
1,500,000 Italy Rep, 6.875%, 9/27/2023 1,167,930
--------------
Total 3,624,862
--------------
TECHNOLOGY--0.7%
1,620,000 MCI Communications Corp., 7.75%, 3/23/2025 1,425,713
--------------
UTILITIES--0.8%
830,000 GTE Southwest, Inc. 5.82%, 12/1/99 748,187
860,000 Korea Electrical Power Corp., 6.375%, 12/1/2003 726,399
--------------
Total 1,474,586
--------------
Total Corporate Bonds (identified cost, $16,783,059) 16,322,536
--------------
U.S. Government Agencies--11.6%
FEDERAL NATIONAL MORTGAGE ASSOCIATION--2.0%
352,381 8.00%, 1/1/2023 336,964
505,226 8.00%, 6/1/2022 483,123
271,784 7.50%, 4/1/2077 260,742
2,245,000 6.20%, 11/12/2003 1,919,475
$ 995,793 9/25/2018 REMIC, PO $ 882,210
--------------
Total 3,882,514
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--2.1%
453,570 7.50%, 3/15/2023 417,566
938,671 7.00%, 5/15/2023 834,487
498,077 7.00%, 8/15/2023 442,821
2,736,306 6.50%, 4/15/2024 2,344,659
--------------
Total 4,039,533
--------------
STUDENT LOAN MARKETING ASSOCIATION--5.1%
3,200,000 5.965%, 11/27/96 3,207,328
3,000,000 5.81%, 4/16/96 2,994,240
3,800,000 5.74%, 9/23/96 3,799,620
--------------
Total 10,001,188
--------------
MISCELLANEOUS--2.4%
2,000,000 Federal Home Loan Bank, 4.587%, 8/27/98 1,820,000
2,000,000 Federal Home Loan Mortage Corporation, 7.125%, 7/21/99 1,357,118
1,500,000 U.S. Department of Veteran Affairs, 6.75%, 6/15/98, REMIC 1,444,219
--------------
Total 4,621,337
--------------
Total U.S. Government Agencies (identified cost, $25,038,710) 22,544,572
--------------
U.S. Treasury Obligations--20.2%
U.S. TREASURY NOTES--11.5%
1,635,000 7.875%, 4/15/98 1,642,913
2,025,000 7.875%, 11/15/99 2,031,318
1,905,000 7.50%, 11/15/2001 1,871,358
775,000 6.375%, 1/15/2000 728,624
1,600,000 6.25%, 1/31/97 1,561,744
400,000 6.00%, 12/31/97 381,936
2,580,000 5.75%, 8/15/2003 2,230,900
1,890,000 5.375%, 5/31/98 1,755,640
1,676,000 4.75%, 8/31/98 1,508,745
$ 8,850,000 3.875%, 10/31/95 $ 8,619,104
--------------
Total 22,332,282
--------------
U.S. TREASURY BOND--8.7%
16,988,000 8.125%, 8/15/2019 16,993,266
--------------
Total U.S Treasury Obligations (identified cost, $42,109,765) 39,325,548
--------------
**Repurchase Agreement--8.2%
15,868,355 Daiwa Securities America, Inc., 5.72%, dated 11/30/94, due 12/1/94
(at amortized cost) 15,868,355
--------------
Total Investments (identified cost, $202,539,342) $ 196,301,659+
--------------
</TABLE>
* Non-income producing security.
** The repurchase agreement is fully collateralized by U.S. Treasury
obligations
based on market prices at the date of the portfolio.
+ The cost for federal tax purposes amounts to $202,868,526. The net
unrealized
depreciation of investments on a federal tax basis amounts to $6,566,867,
which is comprised of $5,360,174 appreciation and $11,927,041 depreciation
at
November 30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($194,430,359) at November 30, 1994.
The following abbreviations are used throughout this portfolio:
ADR--American Depositary Receipts
PO--Principal Only
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, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at amoritzed cost and value (identified cost $202,539,342;
tax cost $202,868,526) $ 196,301,659
Dividends and interest receivable 1,253,942
Receivable for Fund shares sold 180,770
Receivable for investments sold 1,690,166
Deferred expenses 40,620
--------------
Total assets 199,467,157
Liabilities:
Payable for Fund shares redeemed $ 491,426
Payable for investments purchased 4,431,808
Accrued expenses 113,564
------------
Total liabilities 5,036,798
--------------
Net Assets for 19,576,137 shares of beneficial interest outstanding $ 194,430,359
--------------
Net Assets Consist of:
Paid-in capital $ 196,851,545
Net unrealized appreciation (depreciation) of investments (6,237,683)
Accumulated undistributed net realized gain (loss) on investments 2,736,353
Undistributed net investment income 1,080,144
--------------
Total Net Assets $ 194,430,359
--------------
Net Asset Value and Redemption Proceeds Per Share:
($194,430,359 / 19,576,137 shares of beneficial interest outstanding) $9.93
--------------
Computation of Offering Price:
Offering Price Per Share (100/95.5 of $9.93)* $10.40
--------------
</TABLE>
* See "What Shares Cost."
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE BALANCED FUND STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1994
<TABLE>
<S> <C> <C> <C>
Investment Income:
Dividend income $ 2,487,572
Interest income 5,339,319
--------------
Total income 7,826,891
Expenses:
Investment advisory fee $ 1,291,534
Trustees' fees 6,193
Administrative personnel and services fees 183,610
Custodian fees 36,899
Transfer and dividend disbursing agent fees and expenses 32,932
Fund share registration costs 34,005
Auditing fees 16,896
Legal fees 21,134
Printing and postage 18,780
Portfolio accounting fees 61,273
Insurance premiums 2,944
Miscellaneous 6,196
------------
Total expenses 1,712,396
Deduct--
Waiver of investment advisory fee $ 274,994
Reimbursement of other operating expenses
by Administrator 46,191 321,185
---------- ------------
Net expenses 1,391,211
--------------
Net investment income 6,435,680
--------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments (identified cost basis) 2,764,758
Net change in unrealized appreciation (depreciation) on investments (10,061,721)
--------------
Net realized and unrealized gain (loss) on investments (7,296,963)
--------------
Change in net assets resulting from operations ($ 861,283)
--------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE BALANCED FUND STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended November 30, 1994 1993*
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 6,435,680 $ 2,908,320
Net realized gain (loss) on investments ($3,060,817 and $669,807 net
gain, respectively, as computed for federal tax purposes) 2,764,758 641,512
Net change in unrealized appreciation (depreciation) on investments (10,061,721) 3,824,038
-------------- --------------
Change in net assets resulting from operations (861,283) 7,373,870
-------------- --------------
Distributions to Shareholders--
Dividends to shareholders from net investment income (6,032,536) (2,231,320)
Distributions to shareholders from net realized gain on investment
transactions (669,917) --
-------------- --------------
Change in net assets from distributions to shareholders (6,702,453) (2,231,320)
-------------- --------------
Fund Share (Principal) Transactions--
Proceeds from sale of shares 62,911,836 165,403,137
Net asset value of shares issued to shareholders in payment of
dividends declared 6,649,214 2,231,320
Cost of shares redeemed (33,837,708) (6,506,254)
-------------- --------------
Change in net assets from Fund share transactions 35,723,342 161,128,203
-------------- --------------
Change in net assets 28,159,606 166,270,753
Net Assets:
Beginning of period 166,270,753 --
-------------- --------------
End of period (including undistributed net investment income of
$1,080,144 and $677,000, respectively) $ 194,430,359 $ 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, 1994
(1) ORGANIZATION
The Biltmore Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end, management investment company.
The Trust consists of eleven diversified portfolios. The financial statements
included herein present only those of the Biltmore Balanced Fund (the "Fund").
The financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed equity securities, corporate bonds and other
fixed-income securities are valued at the last sale price reported on
national securities exchanges. Unlisted securities and bonds are generally
valued at the prices provided by an independent pricing service. U.S.
government obligations are generally valued at the bid prices as furnished
by an independent pricing service. Short-term securities with remaining
maturities of sixty days or less may be valued at amortized cost, which
approximates fair market 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 collateral to ensure the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
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").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code").
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 substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. A Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 on a straight-line method not to exceed a period of five years
from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) 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, 1994 1993*
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Shares sold 6,165,635 16,510,934
Shares issued to shareholders in payment of dividends declared 653,174 220,914
Shares redeemed (3,337,297) (637,223)
----------- ------------
Net change resulting from Fund share transactions 3,481,512 16,094,625
----------- ------------
</TABLE>
*For the period from May 10, 1993 (date of initial public investment) to
November 30, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Wachovia Investment Management Group, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.70 of 1% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive a portion of its fee. The
Adviser can modify or terminate the voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust and The Biltmore Municipal
Funds for the period. FAS may voluntarily choose to waive a portion of its fee
and reimburse a portion of the Fund's other operating expenses. FAS can modify
or terminate this voluntary waiver and reimbursement at any time at its sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund for which it is paid a fee. The FServ fee is based on the size, type,
and number of accounts and transactions made by shareholders.
FServ also maintains the Fund's accounting records for which it is paid a fee.
The FServ fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
Wachovia Bank of North Carolina, N.A. is the Fund's custodian. The fee is based
on the level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($31,904) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following April 3, 1993 (the date the Fund became
effective). For the fiscal year ended November 30, 1994, the Fund paid $4,254,
pursuant to this agreement.
Certain of the Officers of the Trust are Officers and Director or Trustees of
the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended November 30, 1994 were as follows:
<TABLE>
<S> <C>
Purchases $ 168,757,396
--------------
Sales $ 122,964,146
--------------
</TABLE>
================================================================================
REPORT OF ERNST & YOUNG LLP, 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, 1994, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended and the financial highlights (see page 2 of this Prospectus)
for the periods presented. 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, 1994, 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 Balanced Fund of The Biltmore Funds at
November 30, 1994, the results of its operations for the year then ended,
changes in its net assets for each of the two years in the period then ended and
the financial highlights for the periods presented, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 12, 1995
ADDRESSES
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 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, Federated Services Company
AND PORTFOLIO RECORDKEEPER 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 LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
THE BILTMORE SERVICE CENTER 101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226
BILTMORE BALANCED FUND PROSPECTUS
A DIVERSIFIED PORTFOLIO OF THE BILTMORE FUNDS
An Open-End, Management Investment Company
090297-82-1
January 31, 1995 3012915A (1/95)
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"), a portfolio of
The Biltmore Funds (the "Trust"), dated January 31, 1995. This
Statement is not a prospectus itself. To receive a copy of the
prospectus, write the Fund or call The Biltmore Service Center
toll-free at 1-800-994-4414.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objectives and
Policies 1
Types of Investments 1
Investment Limitations 7
The Biltmore Funds Management 10
Officers and Trustees 10
Fund Ownership 11
Trustees Compensation 11
Trustee Liability 12
Investment Advisory Services 12
Adviser to the Fund 12
Advisory Fees 12
Administrative Services 12
Brokerage Transactions 12
Portfolio Turnover 13
Purchasing Fund Shares 13
Conversion to Federal Funds 13
Exchanging Securities for Fund
Shares 13
Determining Market Value of
Securities 14
Redeeming Fund Shares 14
Redemption in Kind 14
Tax Status 15
The Fund's Tax Status 15
Shareholders' Tax Status 15
Capital Gains 15
Total Return 15
Yield 15
Performance Comparisons 15
Appendix 18
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 to provide long-term growth of
principal and current income. The investment objective cannot be changed
without approval of shareholders. Unless otherwise indicated, the
investment policies described below may be changed by the Board of
Trustees ("Trustees" or the "Board") without shareholder approval.
Shareholders will be notified before any material change in these
policies becomes effective. Capitalized terms not otherwise defined in
this Statement have the same meaning assigned in the prospectus.
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. Below
are securities in which the Fund may invest from time to time:
o common or preferred stocks and other equity securities which
generally have bond-like attributes, including zero coupon and/or
convertible securities;
o domestic issues of corporate debt obligations (including convertible
bonds) rated, at the time or purchase, A or better by Moody's
Investors Service, Inc. ("Moody's), Standard & Poor's Ratings Group
("S&P") or Fitch Investors Service, Inc. ("Fitch"), or if not rated,
determined by the Fund's investment adviser to be of comparable
quality;
o investments in American Depositary Receipts ("ADRs") of foreign
companies traded on the New York Stock Exchange or in the over-the-
counter market;
o obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities;
o asset-backed securities;
o 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;
o time and savings deposits (including certificates of deposit) in
commercial or savings banks;
o bankers' acceptances;
o demand master notes; and
o repurchase agreements collateralized by high quality, liquid
investments.
Money Market Instruments
The Fund may invest in money market instruments such as:
o 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;
o 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;
o 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
o bankers' acceptances.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in when-
issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
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:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and
the number of other potential buyers;
o dealer undertakings to make a market in the security; and
o 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 investment 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 Fund's
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
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 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 investment 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 investment 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. Furthermore, 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 investment 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 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 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 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 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.
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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan, having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment, to be "cash items."
The Fund does not 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.
James A. Hanley
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Malcolm T. Hopkins
Trustee
Private investor and consultant; Director, the Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution);
Director MAPCO, Inc. (diversified energy); Director, Metropolitan Series
Funds, Inc. and MetLife Portfolios, Inc. (investment companies);
Director, Kinder-Care Learning Centers, Inc. (child care); Director, U.S.
Home Corporation (residential builder and land development); and
Director, EMCOR Group, Inc. (engineering and construction).
Samuel E. Hudgins
Trustee
President, Percival Hudgins & Company, Inc. (investment bankers/financial
consultants); Director, Atlantic American Corporation (insurance holding
company); Director, Bankers Fidelity Life Insurance Company; Director and
Vice Chairman, Leath Furniture, Inc. (retail furniture); President,
Atlantic American Corporation (until 1988); Director, Vice Chairman and
Chief Executive Officer, Rhodes, Inc. (retail furniture) (until 1988);
Chairman and Director, Atlantic American Life Insurance Co., Georgia
Casualty & Surety Company, and Bankers Fidelity Life Insurance (until
1988).
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel
company); formerly, Vice Chairman, Massachusetts Mutual Life Insurance
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 Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Trustee, Federated Services
Company; Executive Vice President, Secretary and Trustee, Federated
Administrative Services; Executive Vice President and Director, Federated
Securities Corp.
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly, Associate
Corporate Counsel, Federated Investors; Vice President and Assistant
Treasurer for certain investment companies for which Federated Securities
Corp. is the principal distributor.
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 6, 1995, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Wachovia Bank of North
Carolina, Winston-Salem, North Carolina, on behalf of certain underlying
accounts, owned approximately 3,327,779 shares (16.99%), and Wachovia
Bank of South Carolina, Columbia, South Carolina, on behalf of certain
underlying accounts, owned approximately 2,057,349 shares (10.50%).
Trustees Compensation
NAME AND AGGREGATE TOTAL COMPENSATION
PAID
POSITION WITH THE COMPENSATION FROM TO THE TRUSTEES FROM
THE TRUST
TRUST THE TRUST+ AND FUND COMPLEX#
James A. Hanley,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
Malcolm T. Hopkins,
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
Samuel E. Hudgins,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
J. Berkley Ingram, Jr.
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
D. Dean Kaylor,
Trustee $15,851 $16,875 for the
Trust and
one other investment
company
+The aggregate compensation is paid by the Trust, which is comprised of
twelve portfolios.
# The Fund Complex is comprised of 15 portfolios.
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.
Because of the internal controls maintained by the Wachovia Banks to
restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Wachovia Banks, or their
affiliates' lending relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
For the fiscal year ended November 30, 1994, and for the period from May
10, 1993 (date of initial public investment) to November 30, 1993, the
Adviser earned $1,291,534, and $616,635, respectively, of which
$274,994, and $102,649, 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 ("FAS"), a subsidiary of Federated
Investors, provides administrative personnel and services to the Fund
for a fee as described in the prospectus. For the fiscal year ended
November 30, 1994, and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1993, FAS earned $183,610, and
$108,092, respectively. In addition, for the fiscal year ended November
30, 1994, and for the period from May 10, 1993 (date of initial public
investment) to November 30, 1993, FAS reimbursed $46,191, and $44,122,
respectively, in other Fund 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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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 fiscal year ended November 30, 1994, and for the period from May
10, 1993 (date of initial public investment) to November 30, 1993, the
Fund paid $262,992 and $157,549, respectively, in commissions on
brokerage transactions.
As of November 30, 1994, the Fund owned $775,961 and $2,119,910,
respectively, of securities issued by General Electric Capital Corp. and
General Electric Co., respectively, several of the Fund's regular
broker/dealers, each of which derives more than 15% of its 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. For the fiscal year
ended November 30, 1994, and for the period from May 10, 1993 (date of
initial public investment) to November 30, 1993, the Fund's portfolio
turnover rates were 74% and 60%, respectively.
Purchasing Fund Shares
Shares of the Fund are sold at net asset value plus an applicable sales
charge on days on which the Wachovia Banks, 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.
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 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.
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
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 values of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a national
securities exchange, if available;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
o for unlisted equity securities, the latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service; or
o 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 Trust 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. Any redemption beyond
this amount will also be in cash unless the Trustees determine that
payments should be in kind.
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:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
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 average annual total returns for the one-year period ended
November 30, 1994, and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1994, were (4.90%) and (0.13%),
respectively.
The average annual total return for the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned
at the end of the period by the net asset value per share at the end of
the period. The number of shares owned at the end of the period is based
on the number of shares purchased at the beginning of the period with
$1,000, less any applicable sales 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, 1994, was
3.91%.
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:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses;
o the relative amount of Fund cash flow; and
o 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:
o Lehman Brothers Government/Corporate (Total) index is comprised of
approximately 5,000 issues which include non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate
bonds guaranteed by the U.S. government and quasi-federal
corporations; and publicly issued, fixed rate, non-convertible
domestic bonds of companies in industry, public utilities and
finance. The average maturity of these bonds approximates nine years.
Tracked by Lehman Brothers, the index calculates total returns for
one month, three month, twelve month and ten year periods and year-to-
date.
o 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.
o 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.
o 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.
o Lipper Analytical Services, Inc. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in 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 and sales literature.
o 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.
o 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.
o 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.
o Lehman Brothers Aggregate Bond Index is a total return index
measuring both the capital price changes and income provided by the
underlying universe of securities, weighted by market value
outstanding. The Aggregate Bond Index is comprised of the Lehman
Brothers Government Bond Index, Corporate Bond Index, Mortgage-Backed
Securities Index and the Yankee Bond Index. These indices include:
U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; and Student
Loan Marketing Association; foreign obligations; and U.S. investment-
grade corporate debt and mortgage-backed obligations. All corporate
debt included in the Aggregate Bond Index has a minimum S&P rating of
BBB, a minimum Moody's rating of Baa, or a Fitch rating of BBB.
o 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).
o 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).
o 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 top United States corporations, the DJIA index is a
leading economic indicator for the stock market as a whole.
o 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 Standard &
Poor's figures.
o S&P 500/Lehman Brothers Government/Corporate (Weighted Index) and the
S&P 500/Lehman Brothers Government (Weighted Index) combine the
components of a stock-oriented index and a bond-oriented index to
obtain results which can be compared to the performance of a managed
fund. The indices' total returns will be assigned various weights
depending upon the Fund's current asset allocation.
o 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.
o 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.
o 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.
o Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
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 Ratings Group 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 edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in "Aaa" securities.
A--Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment 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 Ratings Group Commercial Paper Ratings
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated "Prime-1" (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. "Prime-1" repayment capacity will normally be evidenced by
the following characteristics:
o leading market positions in well-established industries;
o high rates of return on funds employed;
o conservative capitalization structure with moderate reliance on debt
and ample asset protection;
o broad margins in earnings coverage of fixed financial charges and
high internal cash generation; or
o well-established access to a range of financial markets and assured
sources of alternate liquidity.
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+."
090297-82-1
3012915B (1/95)
PROSPECTUS
JANUARY 31, 1995
The shares of Biltmore Quantitative 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 provide growth of principal and
income. The Fund pursues this objective by investing in a
professionally-managed and diversified portfolio consisting primarily of large
capitalization common stocks.
THE INVESTMENT COMPANY 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 (THE ``FDIC''), THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
BILTMORE
QUANTITATIVE EQUITY FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
The Fund has also filed a Statement of Additional Information dated January 31,
1995 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, call
1-800-994-4414 or write The Biltmore Service Center, 101 Greystone Boulevard,
SC-9215, Columbia, South Carolina 29226.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
================================================================================
TABLE OF CONTENTS
- ---------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ---------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ---------------------------------------------------
GENERAL INFORMATION 3
- ---------------------------------------------------
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Investment Process 3
Acceptable Investments 4
Corporate Obligations 4
Securities of Foreign Issuers 4
Stock Index Futures and Options 5
Put and Call Options 5
Restricted and Illiquid Securities 6
Temporary Investments 6
Repurchase Agreements 6
When-Issued and Delayed
Delivery Transactions 6
Lending of Portfolio Securities 6
Portfolio Turnover 6
Investment Limitations 7
- ---------------------------------------------------
THE BILTMORE FUNDS INFORMATION 7
Management of the Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Sub-Adviser 8
Distribution of Shares 8
Administrative Arrangements 8
Shareholder Servicing Arrangements 8
Administration of the Fund 8
Administrative Services 8
Custodian 9
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 9
Legal Services 9
Independent Auditors 9
Brokerage Transactions 9
Expenses of the Fund 9
- ---------------------------------------------------
NET ASSET VALUE 9
- ---------------------------------------------------
INVESTING IN THE FUND 10
Share Purchases 10
Through the Trust Divisions of the
Wachovia Banks 10
Through Wachovia Investments, Inc. 10
By Mail 10
By Wire 10
Through Authorized Broker/Dealers 10
Minimum Investment Required 10
What Shares Cost 11
Purchases at Net Asset Value 11
Sales Charge Reallowance 11
Reducing the Sales Charge 11
Quantity Discounts and Accumulated
Purchases 11
Letter of Intent 12
Reinvestment Privilege 12
Concurrent Purchases 12
Systematic Investment Program 12
Certificates and Confirmations 12
Subaccounting Services 12
Dividends 13
Capital Gains 13
Exchange Privilege 13
Exchange by Telephone 13
- ---------------------------------------------------
REDEEMING SHARES 14
By Telephone 14
By Mail 14
Signatures 14
Systematic Withdrawal Program 14
Accounts with Low Balances 15
- ---------------------------------------------------
SHAREHOLDER INFORMATION 15
Voting Rights 15
Massachusetts Business Trusts 15
- ---------------------------------------------------
EFFECT OF BANKING LAWS 15
- ---------------------------------------------------
TAX INFORMATION 16
- ---------------------------------------------------
PERFORMANCE INFORMATION 16
- ---------------------------------------------------
FINANCIAL STATEMENTS 18
- ---------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 27
- ---------------------------------------------------
ADDRESSES BACK COVER
================================================================================
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.60%
12b-1 Fees None
Other Expenses 0.30%
Shareholder Servicing Agent Fee (2) 0.00%
Total Fund Operating Expenses (after waiver) (3) 0.90%
</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 0.70%.
(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 time, the Fund will be able to pay up to
0.25 of 1% of the Fund's average daily net assets for shareholder servicing
agent fees. See "The Biltmore Funds Information."
(3) Total Fund Operating Expenses would have been 1.00% 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>
<S> <C> <C> <C> <C>
Example 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return; (2) redemption at the
end of each time period; and (3) payment of the maximum
sales load. As noted in the table above, the Fund charges no
redemption fees............................................. $54 $72 $93 $151
</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 QUANTITATIVE EQUITY FUND FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 27.
<TABLE>
<CAPTION>
Period Ended November 30, 1994*
<S> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Income from investment operations
Net investment income 0.12
Net realized and unrealized gain (loss) on investments (0.43)
---------
Total from investment operations (0.31)
Less distributions
Dividends to shareholders from net investment income (0.09)
---------
NET ASSET VALUE, END OF PERIOD $ 9.60
---------
Total Return** (3.08%)
Ratios to Average Net Assets
Expenses 0.90%(b)
Net investment income 1.83%(b)
Expense waiver/reimbursement (a) 0.10%(b)
Supplemental Data
Net assets, end of period (000 omitted) $91,979
Portfolio turnover rate 64%
</TABLE>
* Reflects operations for the period from March 28, 1994 (date of initial
public investment) to November 30, 1994.
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Computed on an annualized basis.
(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 Quantitative 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.
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 Emerging
Markets Fund, Biltmore Equity Fund, Biltmore Equity Index Fund, Biltmore Fixed
Income Fund, Biltmore Money Market Fund (Institutional Shares and Investment
Shares), Biltmore Prime Cash Management Fund (Institutional Shares), 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)
(hereinafter referred to collectively as, the "Funds").
================================================================================
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide 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 in a
professionally-managed and diversified portfolio consisting primarily of large
capitalization common stocks. The average market capitalization of the stocks in
the Fund's universe will be in excess of $1 billion. These securities will
primarily be composed of issues of domestic companies. Under normal market
conditions, the Fund intends to invest at least 65% of its total assets in
equity securities.
INVESTMENT PROCESS. To select stocks for the Fund, the Fund's sub-adviser
initially identifies a broad universe of approximately 900 common stocks.The
sub-adviser utilizes four criteria when determining what common stocks will be
included in the Fund's universe: each stock must be highly capitalized, each
stock must be traded on the New York or American Stock Exchanges or in the
over-the-counter markets, each stock must be among the most liquid and highly
traded stocks on its respective exchange, and each stock must be actively
followed by a minimum of three industry analysts.
The Fund's sub-adviser then screens the stocks in the universe, using a
quantitative computer valuation model, to evaluate the relative attractiveness
of each stock. The sub-adviser's model focuses on two measurement factors: the
relative value of the stocks (including their present and historical price-to-
earnings and market price-to-book value ratios, and the present value of each
stock's projected dividend income) and the stock's growth prospects and earnings
momentum (including changes, over time, in analysts' earning forecasts, and
positive or negative surprises in reported earnings). The Fund's sub-adviser
will vary the importance placed on each factor, depending on market trends.
Using the valuation model described above, the Fund's investment adviser then
ranks each stock in the universe by decile. The stocks are classified by
industry group, based on industry categories and weightings found in the
Standard & Poor's 500 Composite Stock Price Index (the "Index"). In managing the
Fund, the adviser continuously monitors the rankings of the stocks in the
universe and employs an active selling discipline, replacing less attractive
stocks (as determined by the valuation model) with more attractive stocks to
maintain a high average rank for the portfolio. In maintaining the
diversification of the portfolio, the adviser gives consideration to the
industry weightings found in the Index.
Although the Fund intends to hold a broadly diversified portfolio of common
stocks that, in the aggregate, exhibit investment characteristics similar to the
stocks found in the Index, the Fund will not limit its investments solely to
stocks represented in the Index. By investing in those common stocks that are
included in the universe described above (a large number of which are not
included in the Index), the Fund will seek to provide a higher rate of total
return than the Index. There can be no assurance that the Fund's investment
performance will match or exceed that of the Index.
The Index is an unmanaged, statistical measure of stock market performance. As
such, it does not reflect the actual cost of investing in common stocks. By
contrast, the Fund is actively managed and therefore incurs the normal costs of
a mutual fund, including brokerage and execution costs, advisory fees, and
administrative and custodial costs and expenses. Standard & Poor's Corporation
("S&P") selects the common stocks to be included in the Index solely on a
statistical basis. Inclusion of a particular security in the Index in no way
implies an opinion by S&P as to the stock's appropriateness as an investment.
The Fund is not sponsored, endorsed, sold or promoted by, or affiliated with,
S&P.
ACCEPTABLE INVESTMENTS. Although the Fund normally seeks to remain substantially
fully invested in the common stocks in the universe identified by the Fund's
investment adviser, the Fund may also invest in:
other common or preferred stocks of U.S. companies which are either listed on
the New York or American Stock Exchanges or traded in the over-the-counter
markets and are considered by the Fund's investment adviser to have an
established market;
convertible securities;
investments in American Depositary Receipts ("ADRs") of foreign companies
traded on the New York or American Stock Exchanges or in the 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 Aa or better by Moody's
Investors Service, Inc. ("Moody's") or AA by Standard & Poor's Ratings Group.
(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 two 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. The prices of fixed income
securities fluctuate inversely to the direction of interest rates. 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.
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. 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. 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 Fund's 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 the Fund's
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. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous. Settlement dates may be
a month or more after entering into these transactions, and the market values of
the securities purchased may vary from the purchase prices. Accordingly, the
Fund may pay more or less than the market value of the securities on the
settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter in transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or 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. There is the risk that when lending portfolio
securities, the securities may not be available to the Fund on a timely basis
and the Fund may therefore, lose the opportunity to sell the securities at a
desirable price. In addition, in the event that a borrower of securities would
file for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
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. The Fund's investment adviser does not
anticipate that the Fund's annual portfolio turnover rate will exceed 200% under
normal market conditions. High portfolio turnover (i.e. over 100%) may involve
correspondingly greater brokerage commissions and other transaction costs, which
would be directly borne by the Fund. In addition, high portfolio turnover may
result in increased short-term capital gains which, when distributed to
shareholders, are treated as ordinary income. Nevertheless, transactions for the
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. The portfolio turnover
rate of the Fund may vary significantly from year to year, as a result of the
presence or absence of defensive investment positions taken by the Fund's
investment adviser.
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 the 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 0.70 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., together with its affiliates, Wachovia Bank of
Georgia, N.A. and Wachovia Bank of South Carolina, N.A. (formerly known as The
South Carolina National Bank) (collectively, the "Wachovia Banks") have been
managing trust assets for over 100 years, with approximately $17.3 billion in
managed assets as of September 30, 1994. Wachovia Bank of North Carolina, N.A.
has served as investment adviser to The Biltmore Funds since February 24, 1992.
Wachovia Bank of North Carolina, N.A., also serves as investment adviser of
Biltmore North Carolina Municipal Bond Fund, a portfolio of The Biltmore
Municipal Funds, another investment company. As part of their regular banking
operations, the Wachovia Banks may make loans to public companies. Thus, it may
be possible, from time to time, for the Fund to hold or acquire the securities
of issuers which are also lending clients of the Wachovia Banks. The lending
relationship will not be a factor in the selection of securities.
The Fund's portfolio manager is Cherry Stribling. Mr. Stribling is a Vice
President of Wachovia Bank of North Carolina, N.A., and, as a Portfolio
Investment Manager, managed the Wachovia Stock Fund, a bank collective
investment fund with an investment objective similar to the Fund's. Mr.
Stribling also manages individual and institutional accounts with the same
portfolio management style as the Fund. Mr. Stribling has managed the Fund since
its inception.
SUB-ADVISER. Pursuant to the terms of an investment sub-advisory agreement
between the Adviser and Twin Capital Management, Inc. ("Twin Capital" or the
"Sub-Adviser"), Twin Capital furnishes certain investment advisory services to
the Adviser, including investment research, the quantitative analysis described
in the "Investment Process" section of this prospectus, statistical and other
factual information, and recommendations, based on Twin Capital's analysis, and
assists the Adviser in identifying securities for potential purchase and/or sale
on behalf of the Fund's portfolio. For the services provided and the expenses
incurred by the Sub-Adviser pursuant to the sub-advisory agreement, Twin Capital
is entitled to receive an annual fee of $55,000, payable by the Adviser, in
quarterly installments. Twin Capital may elect to waive some or all of its fee.
In no event shall the Fund be responsible for any fees due to the Sub-Adviser
for its services to the Adviser. Twin Capital, which is located at 3244
Washington Road, McMurray, Pennsylvania, 15317-3153, provides investment counsel
to both individuals and institutions, including banks, thrift institutions, and
pension and profit-sharing plans. As of December 31, 1994, Twin Capital
furnished services, substantially similar to the services it provides to the
Adviser, to other accounts with assets in excess of $1.5 billion. Twin Capital
has not previously acted as an investment adviser to an investment company. The
Sub-Adviser is controlled by Geoffrey Gerber, its President.
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, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is the Fund's shareholder servicing agent (the "Shareholder
Servicing Agent"). The Fund may pay the Shareholder Servicing Agent a fee based
on the average daily net asset value of shares for which it provides shareholder
services. These shareholder services include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance and communicating or facilitating purchases and redemptions of
shares. This fee will be computed at an annual rate equal to 0.25 of 1% of the
Fund's average daily net assets for which the Shareholder Servicing Agent
provides services; however, the Shareholder Servicing Agent may choose
voluntarily to waive all or a portion of its fee at any time or pay all or some
of its fees to financial institutions or other financial service providers.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services also 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
services at an annual rate as specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds
Administrative Fee and The Biltmore Municipal Funds
<S> <C>
0.150 of 1% of the first $250 million
0.125 of 1% of the next $250 million
0.100 of 1% of the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year for the Fund and each of
the other portfolios of The Biltmore Funds shall aggregate at least $75,000.
Federated Administrative Services may choose voluntarily to waive or reimburse a
portion of its fee at any time.
CUSTODIAN. Wachovia Bank of North Carolina, N.A., Winston-Salem, North Carolina,
is custodian (the "Custodian") for the securities and cash of the Fund. Under
the Custodian Agreement, the Custodian holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. For the services to be provided to the Trust pursuant to the Custodian
Agreement, the Trust pays the Custodian an annual fee based upon the average
daily net assets of the Fund and which is payable monthly. 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, Pennsylvania, a subsidiary of Federated
Investors, 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 is 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 LLP,
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. and advised by the Adviser. 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
Fund 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, Wachovia Investments, Inc. or
authorized broker/dealers which have a sales agreement with the Distributor. All
purchase orders must be transmitted to the Fund by 5:00 p.m. (Eastern time).
Texas residents must purchase shares through Federated Securities Corp. at
1-800-618-8573. 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.
THROUGH THE TRUST DIVISIONS OF THE WACHOVIA BANKS. Trust customers of the
Wachovia Banks may place an order to purchase shares of the Fund by telephoning,
sending written instructions, or placing the order in person with their account
officer in accordance with the procedures established by the Wachovia Banks and
as set forth in the relevant account agreement.
Payment may be made to the Wachovia Banks by check, by wire of federal funds, or
by debiting a customer's account with the Wachovia Banks. Purchase orders must
normally be received by the Wachovia Banks by 3:00 p.m. (Eastern time), in order
for shares to be purchased at that day's price. It is the responsibility of the
Wachovia Banks to transmit orders promptly to the Fund. Shares of the Fund
cannot be purchased by wire on any day on which the Wachovia Banks, the New York
Stock Exchange and the Federal Reserve Wire System are not open for business.
THROUGH WACHOVIA INVESTMENTS, INC. Customers of Wachovia Investments, Inc. or
Wachovia Brokerage Service may place an order to purchase shares by telephoning
The Biltmore Service Center at 1-800-994-4414, sending written instructions, or
placing an order in person. Payment may be made by check, by wire of federal
funds (the customer's bank sends money to the Fund's bank through the Federal
Reserve Wire System) or by debiting a customer's account at Wachovia
Investments, Inc. Purchase orders must normally be received by Wachovia
Investments, Inc. before 3:30 p.m. (Eastern time). Wachovia Investments, Inc., a
wholly-owned subsidiary of Wachovia Corporation, is a registered broker/dealer
and member of the National Association of Securities Dealers, Inc. Wachovia
Brokerage Service is a business unit of Wachovia Investments, Inc.
BY MAIL. To purchase shares of the Fund through Wachovia Investments, Inc. by
mail, send a check made payable to Biltmore Quantitative Equity Fund to The
Biltmore Service Center, 101 Greystone Boulevard, SC-9215, Columbia, South
Carolina 29226. Orders by mail are considered received after payment by check is
converted by Wachovia Investments, Inc. into federal funds. This is normally the
next business day after Wachovia Investments, Inc. receives the check.
BY WIRE. To purchase shares of the Fund through Wachovia Investments, Inc. by
wire, wire funds as follows:
Wachovia Investments, Inc.
ABA Number 0531-00494
Credit: 8735-001342
Further credit to: Biltmore Quantitative Equity Fund
Re: (Customer name and brokerage account number)
Shares of the Fund cannot be purchased by wire on any day on which the Wachovia
Banks, the New York Stock Exchange and the Federal Reserve Wire System are not
open for business.
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of the Fund. Shares will be
purchased at the public offering price next determined after the Fund receives
the purchase request. Purchase requests through registered broker/dealers must
normally be received by the broker/dealer and transmitted to the Fund before
3:30 p.m. (Eastern time) in order for shares to be purchased at that day's
public offering price.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares of the Fund is $250. This amount may be
waived from time to time. Subsequent investments may be in amounts of $50 or
more.
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 a Sales Charge as a
Percentage of 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 Wachovia Banks for funds which are held in a fiduciary, advisory, 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 trusts, pension profit-sharing plans and individual retirement
accounts operated for such persons, may purchase shares of the Fund at net asset
value. In addition, trustees, officers, directors and employees of the
Distributor and its affiliates, and any bank or investment dealer who has a
sales agreement with the Distributor relating to the Fund, may also purchase
shares at their net asset value.
SALES CHARGE REALLOWANCE. For shares sold with a sales charge, the Wachovia
Banks or an affiliated broker or a dealer will receive up to 100% of the
applicable sales charge for purchases of Fund shares made directly through the
Wachovia Banks or such broker or dealer. Any portion of the sales charge which
is not paid to a dealer will be retained by the Distributor.
The sales charge for shares sold other than through Wachovia Investments, Inc.,
the Wachovia Banks or registered broker/dealers will be retained by the
Distributor. However, the Distributor, at its sole discretion, may uniformly
offer to pay cash, or promotional incentives in the form of trips to sales
seminars at luxury resorts, tickets or other items, to all dealers selling
shares of the Fund. Such payments will be predicated upon the amount of shares
of the Fund that are sold by the dealers.
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 in this
prospectus under the section entitled "What Shares Cost," larger purchases
reduce the sales charge paid. The Fund will combine purchases made on the same
day by the investor, 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
$90,000 and then purchases $10,000 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, the Wachovia Banks, Wachovia Investments,
Inc. 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 purchases.
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 up to 4.50% of the total amount intended to be purchased in escrow (in
shares of the Fund) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period, unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
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 the Fund at the next-determined net asset value without any sales
charge. The Wachovia Banks, Wachovia Investments, Inc. or the Distributor must
be notified by the shareholder in writing or by his financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder redeems
his shares in the Fund, there may be tax consequences.
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 and the portfolios in The Biltmore Municipal 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, the Wachovia Banks, Wachovia
Investments, Inc. or the Distributor must be notified by the agent placing the
order at the time the concurrent purchases are made. The sales charge will be
reduced after the purchase is confirmed.
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 Banks, Wachovia Investments,
Inc. or through the Distributor.
CERTIFICATES AND CONFIRMATIONS
As the transfer agent, Federated Services Company maintains a share account for
each shareholder of record. Share certificates are not issued unless requested
in writing to the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder of record. Annual statements are sent to report dividends paid
during the year.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the Transfer Agent's subaccounting system to
minimize their internal recordkeeping requirements. The Transfer Agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding shares of the Fund in a fiduciary, agency, custodial, or similar
capacity may charge or pass through subaccounting fees as part of or in addition
to normal trust or agency account fees. They may also charge fees for other
services provided which may be related to the ownership of Fund shares. This
prospectus should, therefore, be read together with any agreement between the
customer and the institution with regard to the services provided, the fees
charged for those services, and any restrictions and limitations imposed.
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 the three portfolios of The Biltmore Municipal Funds (Biltmore Georgia
Municipal Bond Fund, Biltmore North Carolina Municipal Bond Fund, and Biltmore
South Carolina Municipal Bond Fund), 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 contemplating
exchanges into The Biltmore Municipal Funds should consult their tax advisers,
since the tax advantages of each portfolio of The Biltmore Municipal Funds may
vary.
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 Fund, Wachovia
Investments, Inc., or in the case of customers of the Wachovia Banks, the
shareholder's account officer.
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 at net asset value.
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 Investments, Inc. 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 Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemptions
must be received in proper form and can be made through the Wachovia Banks,
Wachovia Investments, Inc., or directly to the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by calling the
Wachovia Banks (call toll-free 1-800-994-4414) to request the redemption.
Telephone redemption instructions may be recorded. Shares will be redeemed at
the net asset value next determined after the Fund receives the redemption
request from the Wachovia Banks. Redemption requests made through the Wachovia
Banks must be received by the Wachovia Banks before 3:00 p.m. (Eastern time) in
order for shares to be redeemed at that day's net asset value. The Wachovia
Banks are responsible for promptly submitting redemption requests and providing
proper written redemption instructions to the Fund. Registered broker/dealers
may charge customary fees and commissions for this service. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
of the Fund by phone by calling The Biltmore Service Center at 1-800-994-4414. A
shareholder who is a customer of the Wachovia Banks and whose account agreement
with the Wachovia Banks permits telephone redemption may redeem shares of the
Fund by telephoning his account officer. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request.
Redemption requests must be received by 4:00 p.m. (Eastern time) in order for
shares to be redeemed at that day's net asset value. In no event will proceeds
be credited more than seven days after a proper request for redemption has been
received. In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered.
BY MAIL. A shareholder may redeem Fund shares by sending a written request to
the Wachovia Banks. The written request should include the shareholder's name,
the Fund name, the account number, and the share or dollar amount requested. If
share certificates have been issued, they must be properly endorsed and should
be sent by registered or certified mail with the written request to the Fund.
Shareholders should call the Wachovia Banks for assistance in redeeming by mail.
A shareholder who is a customer of Wachovia Investments, Inc. may redeem shares
by sending a written request to Wachovia Investments, Inc. The written request
should include the shareholder's name and address, the Fund name, the brokerage
account number, and the share or dollar amount requested. Shareholders should
call Wachovia Investments, Inc. for assistance in redeeming by mail. Normally, a
check for the proceeds is mailed within five business days, 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 of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
a savings bank or savings and loan association whose deposits are insured by
the 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 his financial
institution. 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 of the
Funds in the Trust have equal voting rights, except that in matters affecting 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's or the Fund's operation and for the election of Trustees
under certain circumstances.
As of January 6, 1995, the Wachovia Banks and their various affiliates and
subsidiaries, acting in various capacities for numerous accounts, were the
owners of record of in excess of 25% of the outstanding shares 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 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 will 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 required to pay 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 detailed 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.
================================================================================
BILTMORE QUANTITATIVE EQUITY FUND PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------------
Common Stocks--93.2%
CAPITAL GOODS--5.3%
10,000 *Clark Equipment Co. $ 551,250
22,939 Cummins Engine, Inc. 997,847
8,800 Deere & Co. 565,400
9,400 Eaton Corp. 447,675
49,842 General Electric Co. 2,292,732
-------------
Total 4,854,904
-------------
CONSUMER DURABLES--4.1%
9,400 Briggs & Stratton Corp. 314,900
41,504 Chrysler Corp. 2,007,756
22,226 Ford Motor Co. 602,880
5,286 Goodyear Tire and Rubber Co. 179,063
13,000 Leggett & Platt, Inc. 459,875
13,000 Maytag Corp. 193,375
-------------
Total 3,757,849
-------------
CONSUMER NON-DURABLES--25.9%
10,370 Abbott Laboratories 330,544
29,466 American Stores Co. 777,166
9,629 *Amgen, Inc. 562,093
6,702 Anheuser-Busch Cos., Inc. 329,236
27,900 Archer-Daniels-Midland Co. 770,738
15,200 Baxter International, Inc. 391,400
37,500 Bergen Brunswig Corp., Class A 726,562
15,200 Bristol-Myers Squibb Co. 877,800
50,000 Circuit City Stores, Inc. 1,231,250
13,000 ConAgra, Inc. 401,375
12,700 Dayton-Hudson Corp. 1,036,638
59,801 IBP, Inc. 2,010,809
19,257 Johnson & Johnson 1,027,842
42,500 Luby's Cafeterias, Inc. 935,000
7,000 Mattel, Inc. 187,250
51,400 Mylan Laboratories 1,477,750
34,340 Penney (J.C.) Co., Inc. 1,579,640
43,140 PepsiCo, Inc. 1,526,078
28,319 Philip Morris Cos., Inc. 1,692,060
13,300 Procter & Gamble Co. $ 831,250
</TABLE>
================================================================================
BILTMORE QUANTITATIVE EQUITY FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------------
Common Stocks--continued
CONSUMER NON-DURABLES--CONTINUED
54,100 Rite-Aid Corp. 1,224,012
25,000 *Safeway, Inc. 762,500
17,935 Schering-Plough Corp. 1,342,883
14,600 Seagram Co., Ltd. 425,225
6,000 Temple-Inland, Inc. 269,250
5,758 Unilever N.V. 642,737
9,629 V.F. Corp. 467,006
-------------
Total 23,836,094
-------------
CONSUMER SERVICES--1.3%
10,000 Capital Cities/ABC, Inc. 817,500
21,000 Surgical Care Affiliates, Inc. 404,250
-------------
Total 1,221,750
-------------
ENERGY--8.0%
12,460 Amoco Corp. 756,945
23,000 Ashland Oil, Inc. 782,000
23,000 British Petroleum Company, PLC 1,825,625
25,800 Coastal Corp. 664,350
21,145 Exxon Corp. 1,276,629
14,608 Mobil Corp. 1,245,332
7,700 Royal Dutch Petroleum Co. 836,412
-------------
Total 7,387,293
-------------
FINANCE--16.3%
33,000 Bank of New York Co., Inc. 919,875
28,000 Charles Schwab Corp. 892,500
29,000 Chase Manhattan Corp. 1,036,750
20,400 CIGNA Corp. 1,292,850
25,000 Citicorp 1,040,625
49,559 Comdisco, Inc. 1,059,324
38,892 DQE 1,176,483
12,272 GATX Corp. 490,880
33,865 General Public Utilities Corp. 872,024
24,756 KeyCorp 603,427
25,000 MBIA, Inc. 1,312,500
11,800 NationsBank Corp. 529,525
29,478 PHH Corp. 1,035,415
51,258 SouthTrust Corp. $ 929,051
</TABLE>
================================================================================
BILTMORE QUANTITATIVE EQUITY FUND
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------------
Common Stocks--continued
FINANCE--CONTINUED
17,800 Transamerica Corp. 843,275
29,476 USLife Corp. 950,601
-------------
Total 14,985,105
-------------
MATERIALS & SERVICES--8.3%
14,300 Armstrong World Industries, Inc. 572,000
27,281 Banta Corp. 859,351
20,000 Dow Chemical Co. 1,280,000
17,300 Du Pont (E.I.) de Nemours & Co., Inc. 932,038
23,977 Ennis Business Forms, Inc. 317,695
8,700 Georgia-Pacific Corp. 622,050
25,723 Louisiana Pacific Corp. 720,244
27,500 Newell Co. 591,250
18,600 Olin Corp. 946,275
29,500 Union Carbide Corp. 844,438
-------------
Total 7,685,341
-------------
TECHNOLOGY--10.8%
16,800 *Advanced Micro Devices, Inc. 424,200
43,965 *Compaq Computer Corp. 1,720,131
18,478 Computer Associates International, Inc. 840,749
42,700 Comsat Corp. 827,313
11,115 Lockheed Corp. 764,156
23,788 Martin Marietta Corp. 1,031,804
38,467 Micron Technology, Inc. 1,596,380
92,500 *Quantum Corp. 1,456,875
19,738 Raytheon Co. 1,241,027
-------------
Total 9,902,635
-------------
TRANSPORTATION--1.1%
4,700 CSX Corp. 326,650
4,059 *Federal Express Corp. 230,856
7,800 Norfolk Southern Corp. 471,900
-------------
Total 1,029,406
-------------
</TABLE>
================================================================================
BILTMORE QUANTITATIVE EQUITY FUND
<TABLE>
<CAPTION>
Principal
Amount
or Shares Value
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------------
Common Stocks--continued
UTILITIES--12.1%
47,671 Ameritech Corp. $ 1,883,004
28,000 BellSouth Corp. 1,452,500
11,705 Duke Power Co. 476,979
8,835 New England Electric System 277,198
32,500 Pacific Telesis Group 942,500
14,254 Scana Corp. 618,267
31,057 Southern Co. 644,433
37,193 Southwestern Bell Corp. 1,538,860
68,004 Sprint Corp. 2,031,619
43,706 Williams Cos., Inc. 1,234,695
-------------
Total 11,100,055
-------------
Total Common Stocks (identified cost, $87,448,843) 85,760,432
-------------
**Repurchase Agreement--6.8%
$ 6,264,154 Daiwa Securities America, Inc., 5.72%, dated 11/30/94, due 12/1/94
(at amortized cost) 6,264,154
-------------
Total Investments (identified cost, $93,712,997) $ 92,024,586+
-------------
</TABLE>
* Non-income producing security.
** Repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $93,712,997. The
net unrealized depreciation of investments on a federal tax basis amounts to
$1,688,411, which is comprised of $4,102,439 appreciation and $5,790,850
depreciation at November 30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($91,978,925) at November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE QUANTITATIVE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at amortized cost and value
(identified and tax cost $93,712,997) $ 92,024,586
Dividends receivable 221,160
Receivable for Fund shares sold 24,000
Interest receivable 995
Deferred expenses 30,033
-------------
Total assets 92,300,774
Liabilities:
Payable for Fund shares redeemed $ 162,194
Accrued expenses 159,655
----------
Total liabilities 321,849
-------------
Net Assets for 9,582,109 shares of beneficial interest outstanding $ 91,978,925
-------------
Net Assets Consist of:
Paid-in capital $ 95,753,725
Net unrealized appreciation (depreciation) of investments (1,688,411)
Accumulated net realized gain (loss) on investments (2,350,440)
Undistributed net investment income 264,051
-------------
Total Net Assets $ 91,978,925
-------------
Net Asset Value, and Redemption Proceeds Per Share:
($91,978,925 / 9,582,109 shares of beneficial interest outstanding) $9.60
-------------
Computation of Offering Price:
Offering Price Per Share: (100/95.5 of $9.60)* $10.05
-------------
</TABLE>
* See "What Shares Cost."
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE QUANTITATIVE EQUITY FUND STATEMENT OF OPERATIONS
PERIOD ENDED NOVEMBER 30, 1994*
<TABLE>
<S> <C> <C>
Investment Income:
Interest income $ 153,028
Dividend income 1,563,933
------------
Total income 1,716,961
Expenses:
Investment advisory fee $ 439,878
Trustees' fees 4,779
Administrative personnel and services fees 59,254
Custodian fees 12,568
Transfer and dividend disbursing agent fees and expenses 14,648
Legal fees 5,334
Printing and postage 23,814
Portfolio accounting fees 49,318
Insurance premiums 6,721
Miscellaneous 11,634
----------
Total expenses 627,948
Deduct--
Waiver of investment advisory fee 62,841
----------
Net expenses 565,107
------------
Net investment income 1,151,854
------------
Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain (loss) on investments (identified cost basis) (2,350,440)
Net change in unrealized appreciation (depreciation) on investments (1,688,411)
------------
Net realized and unrealized gain/(loss) on investments (4,038,851)
------------
Change in net assets resulting from operations $ (2,886,997)
------------
</TABLE>
* For the period from March 28, 1994 (date of initial public investment) to
November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE QUANTITATIVE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period Ended November 30, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 1,151,854
Net realized loss on investment transactions ($2,350,440 net loss as computed for federal
tax purposes) (2,350,440)
Change in unrealized appreciation (depreciation) of investments (1,688,411)
--------------
Change in net assets resulting from operations (2,886,997)
--------------
Distributions to Shareholders--
Dividends to shareholders from net investment income (887,803)
--------------
Fund Share (Principal) Transactions--
Proceeds from sale of shares 104,320,677
Net asset value of shares issued to shareholders in payment of dividends declared 879,725
Cost of shares redeemed (9,446,677)
--------------
Change in net assets from Fund share transactions 95,753,725
--------------
Change in net assets 91,978,925
--------------
Net Assets:
Beginning of period --
--------------
End of period (including undistributed net investment income of $264,051) $ 91,978,925
--------------
</TABLE>
* For the period from March 28, 1994 (date of initial public investment) to
November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
================================================================================
BILTMORE QUANTITATIVE EQUITY FUND NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30,1994
(1) ORGANIZATION
The Biltmore Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended, (the "Act"), as an open-end, management investment company.
The Trust consists of eleven diversified portfolios. The financial statements
included herein present only those of the Biltmore Quantitative Equity Fund (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on national securities exchanges. Unlisted securities and
short-term securities are generally valued at the prices provided by an
independent pricing service. Short-term securities with remaining
maturities of sixty days or less may be valued at amortized cost, which
approximates fair market 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 collateral to ensure the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
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").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code").
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 substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
At November 30, 1994, the Fund, for federal tax purposes, had a capital
loss carryforward of $2,350,440, 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 carryforward will expire in 2002.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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, not to exceed a period of five
years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) 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, 1994*
<S> <C>
- ---------------------------------------------------------------------------------------------------------
Shares sold 10,458,666
Shares issued to shareholders in payment of dividends declared 89,773
Shares redeemed (966,330)
---------------
Net change resulting from Fund share transactions 9,582,109
---------------
</TABLE>
*For the period from March 28, 1994 (date of initial public investment) to
November 30, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Wachovia Investment Management Group, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.70 of 1% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive a portion of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust and The Biltmore Municipal
Funds for the period. FAS may voluntarily choose to waive a portion of its fee.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund for which it is paid a fee. The FServ fee is based on the size, type,
and number of accounts and transactions made by shareholders.
FServ also maintains the Fund's accounting records for which it is paid a fee.
The FServ fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
Wachovia Bank of North Carolina, N.A. is the Fund's custodian. The fee is based
on the level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($34,484) were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following January 18, 1994 (the date the Fund became
effective). For the fiscal year ended November 30, 1994, the Fund paid $1,500
pursuant to this agreement.
Certain of the Officers of the Trust are Officers and Directors or Trustees of
the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended November 30, 1994, were as follows:
<TABLE>
<S> <C>
]Purchases $ 145,873,120
--------------
Sales $ 56,073,837
--------------
</TABLE>
================================================================================
REPORT OF ERNST & YOUNG LLP, 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 Quantitative Equity Fund (one of the
portfolios comprising The Biltmore Funds) as of November 30, 1994, 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 March
28, 1994 (date of initial public investment) to November 30, 1994. 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, 1994, 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 Quantitative Equity Fund of The Biltmore Funds at November 30, 1994,
and the results of its operations, changes in its net assets and financial
highlights for the period from March 28, 1994 to November 30, 1994, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 12, 1995
================================================================================
ADDRESSES
- --------------------------------------------------------------------------------
BILTMORE QUANTITATIVE EQUITY 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, Federated Services Company
AND PORTFOLIO RECORDKEEPER Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
COUNSEL TO THE BILTMORE FUNDS Kirkpatrick & Lockhart
1800 M Street, N.W.
Washington, D.C. 20036-5891
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
- --------------------------------------------------------------------------------
THE BILTMORE SERVICE CENTER 101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226
- --------------------------------------------------------------------------------
BILTMORE QUANTITATIVE EQUITY FUND
A DIVERSIFIED PORTFOLIO OF THE BILTMORE FUNDS
An Open-End, Management Investment Company
090297-81-3
January 31, 1995 3101206A (1/95)
Biltmore Quantitative 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 Quantitative Equity Fund (the "Fund"), a
portfolio of The Biltmore Funds (the "Trust"), dated January 31.
1995. This Statement is not a prospectus itself. To receive a copy
of the prospectus, write the Fund or call The Biltmore Service
Center toll-free at 1-800-994-4414.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
Investment Limitations 5
The Biltmore Funds Management 8
Officers and Trustees 8
Fund Ownership 9
Trustees Compensation 9
Trustee Liability 10
Investment Advisory Services 10
Adviser to the Fund and Sub-
Adviser 10
Advisory and Sub-Advisory Fees 10
Administrative Services 10
Brokerage Transactions 10
Portfolio Turnover 11
Purchasing Fund Shares 11
Conversion to Federal Funds 11
Exchanging Securities for Fund
Shares 11
Determining Market Value of
Securities 12
Redeeming Fund Shares 12
Redemption in Kind 12
Tax Status 13
The Fund's Tax Status 13
Shareholders' Tax Status 13
Capital Gains 13
Total Return 13
Yield 13
Performance Comparisons 13
Standard & Poor's Corporation 14
Appendix 16
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 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"
or the "Board") without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
Capitalized terms not otherwise defined in this Statement have the same
meaning assigned in the prospectus.
Types of Investments
As more fully described in the prospectus, the Fund invests in a
professionally-managed and diversified portfolio consisting primarily of
large capitalization common stocks. The Fund's investment adviser seeks
to identify undervalued stocks with improving prospects by utilizing a
computer valuation model 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 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.
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 Board. The Board considers the following criteria in
determining the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and
the number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Obligations of Foreign Issuers
Obligations of foreign issuers may include debt obligations of
supranational entities, which include international organizations
designed or supported by governmental entities to promote economic
reconstruction or development, and international banking institutions
and related government agencies. Examples of these include, but are not
limited to, the International Bank for Reconstruction and Development
(World Bank), European Investment Bank and InterAmerican Development
Bank.
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 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
nonconvertible 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 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 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.
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
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
securities are marked to market daily and maintained until the
transaction has been settled. The Fund does not intend to engage in when-
issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
Temporary Investments
From time to time, during periods of other than normal market
conditions, the Fund may also invest in the following temporary
investments 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:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow an amount limited to a specific
line of credit from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
o 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:
o Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
o Farmers Home Administration;
o Federal Home Loan Banks;
o Federal Home Loan Mortgage Corporation;
o Federal National Mortgage Association;
o Government National Mortgage Association; and
o Student Loan Marketing Association.
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.
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 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 or to facilitate management of
the portfolio by enabling the Fund to meet redemption requests
when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while borrowings in excess of 5% of 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 any 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 or if the Fund would own more than 10% of the outstanding
voting securities of that 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.
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 policy
of the Fund to waive 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 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
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, over-the-counter
options, certain securities not determined to be liquid under
guidelines established by the Trustees, 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 Exchanges 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.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan, having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment, to be "cash items."
The Fund does not 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.
James A. Hanley
Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).
Malcolm T. Hopkins
Trustee
Private investor and consultant; Director, the Columbia Gas System, Inc.
(integrated natural gas production, transmission and distribution);
Director MAPCO, Inc. (diversified energy); Director, Metropolitan Series
Funds, Inc. and MetLife Portfolios, Inc. (investment companies);
Director, Kinder-Care Learning Centers, Inc. (child care); Director, U.S.
Home Corporation (residential builder and land development); and
Director, EMCOR Group, Inc. (engineering and construction).
Samuel E. Hudgins
Trustee
President, Percival Hudgins & Company, Inc. (investment
bankers/financial consultants); Director, Atlantic American Corporation
(insurance holding company); Director, Bankers Fidelity Life Insurance
Company; Director and Vice Chairman, Leath Furniture, Inc. (retail
furniture); President, Atlantic American Corporation (until 1988);
Director, Vice Chairman and Chief Executive Officer, Rhodes, Inc. (retail
furniture) (until 1988); Chairman and Director, Atlantic American Life
Insurance Co., Georgia Casualty & Surety Company, and Bankers Fidelity
Life Insurance (until 1988).
J. Berkley Ingram, Jr.
Trustee
Real estate investor and partner; Director, VF Corporation (apparel
company); formerly, Vice Chairman, Massachusetts Mutual Life Insurance
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 Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary and Trustee,
Federated Administrative Services; Executive Vice President and Director,
Federated Securities Corp.
Ronald M. Petnuch
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; formerly, Associate
Corporate Counsel, Federated Investors; Vice President and Assistant
Treasurer for certain investment companies for which Federated Securities
Corp. is the principal distributor.
Joseph M. Huber
Secretary
Corporate Counsel, Federated Investors.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 6, 1995, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Wachovia Bank of North
Carolina, Winston-Salem, North Carolina, on behalf of certain underlying
accounts, owned approximately 4,104,644 shares (43.18%), and Wachovia
Bank of South Carolina, Columbia, South Carolina, on behalf of certain
underlying accounts, owned approximately 1,194,586 shares (12.57%).
Trustees Compensation
NAME AND AGGREGATE TOTAL COMPENSATION
PAID
POSITION WITH THE COMPENSATION FROM TO THE TRUSTEES FROM
THE TRUST
TRUST THE TRUST+ AND FUND COMPLEX#
James A. Hanley,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
Malcolm T. Hopkins,
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
Samuel E. Hudgins,
Trustee $22,086 $23,400 for the
Trust and
one other investment
company
J. Berkley Ingram, Jr.
Trustee $16,920 $18,000 for the
Trust and
one other investment
company
D. Dean Kaylor,
Trustee $15,851 $16,875 for the
Trust and
one other investment
company
+The aggregate compensation is paid by the Trust, which is comprised of
twelve portfolios.
# The Fund Complex is comprised of 15 portfolios.
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 and Sub-Adviser
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.
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.
Because of the internal controls maintained by the Wachovia Banks to
restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Wachovia Banks' or their
affiliates lending relationships with an issuer.
Twin Capital Management, Inc. (the "Sub-Adviser" or "Twin Capital")
serves as the sub-adviser under the terms of an investment sub-advisory
agreement between the Adviser and the Sub-Adviser. Twin Capital,
incorporated as a Pennsylvania corporation in 1989, is a registered
investment adviser under the Investment Advisers Act of 1940.
Advisory and Sub-Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. For its services as Sub-
Adviser, Twin Capital receives an annual sub-advisory fee, payable
solely by the Adviser, as described in the prospectus.
For the period from March 28, 1994 (date of initial public investment)
to November 30, 1994, the Adviser earned $439,878, of which $62,841 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, 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 March 28, 1994 (date of
initial public investment) to November 30, 1994, FAS earned $59,254.
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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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 March 28, 1994
(date of initial public investment) to November 30, 1994, the Fund paid
$163,527 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 March 28, 1994 (date of initial public investment)
to November 30, 1994, the Fund's portfolio turnover rate was 64%.
Purchasing Fund Shares
Shares of the Fund are sold at net asset value plus an applicable sales
charge on days on which the Wachovia Banks, 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.
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 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.
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
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 values of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a national
securities exchange, if available;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
o for unlisted equity securities, the latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service or for
short-term obligations with maturities of less than 60 days, at
amortized cost; or
o 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 Trust 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. Any redemption beyond
this amount will also be in cash unless the Trustees determine that
payments should be in kind.
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:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Shareholders' Tax Status
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
the shares.
Total Return
The Fund's cumulative total return for the period from March 25, 1994
(start of performance) to November 30, 1994, was (7.43%). Cumulative
total return reflects the Fund's total performance over a specific
period of time. This total return assumes and is reduced by the payment
of the maximum sales load. The Fund's total return is representative of
only eight months of investment activity since the start of performance
of the Fund.
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, 1994, was
2.02%.
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:
o stock market fluctuations;
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses;
o the relative amount of Fund cash flow; and
o 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:
o Lipper Analytical Services, Inc. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in maximum offering price over a specific period of time. From time
to time, the Fund will quote its Lipper ranking in the "equity,
growth and income funds" category in advertising and sales
literature.
o 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.
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks (the
"Index"), is a composite index of common stocks in industry,
transportation, and financial and public utility companies. In
addition, the 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 on index
figures.
o Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
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.
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 advisability of investing in securities
generally or in the Fund particularly, or the ability of the Index 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
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 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 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 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 of merchant ability or fitness for a particular
purpose or use with respect to the 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.
Appendix
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by Standard &
Poor's Ratings Group ("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.
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 edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in "Aaa" securities.
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 Ratings Group Commercial Paper Ratings
A-1--This highest category 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
designation.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated "Prime-1" (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. "Prime-1" repayment capacity will normally be evidenced by
the following characteristics:
o leading market positions in well-established industries;
o high rates of return on funds employed;
o conservative capitalization structure with moderate reliance on debt
and ample asset protection;
o broad margins in earnings coverage of fixed financial charges and
high internal cash generation; or
o well-established access to a range of financial markets and assured
sources of alternate liquidity.
Fitch Investors Service, Inc. Commercial Paper Ratings
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating is
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+."
090297-81-3
3101206B (1/95)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (1-11) Filed in Part A; (12)To be filed
by Amendment.
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the
Registrant and Amendments 1-6 thereto; (12)
(2) Copy of By-Laws of the Registrant;(1)
(i) Amended By-Laws of the Registrant;(2)
(3) Not applicable;
(4) Not Applicable;
(5) Conformed copy of Investment Advisory Contract of the
Registrant and Exhibits A-I thereto;(12)
(i) Conformed Copy of Sub-Advisory Agreement of the
Registrant; (10)
(ii) Conformed copy of Exhibit J to Investment
Advisory Contract to add Biltmore Emerging
Markets Fund to the present Investment Advisory
Contract; +
+ All exhibits have been electronically filed.
(1) Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed December 18, 1991. (File Nos.
33-44590 and 811-6504)
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on form N-1A filed March 6, 1992. (File Nos. 33-44590
and 811-6504)
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed May 12, 1992. (File Nos. 33-44590
and 811-6504).
(5) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on form N-1A filed September 29, 1992. (File Nos. 33-
44590 and 811-6504)
(6) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on form N-1A filed December 2, 1992 (File Nos. 33-44590
and 811-6504)
(8) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on form N-1A filed January 11, 1994 (File Nos. 33-44590
and 811-6504)
(9) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. on form N-1A filed January 28, 1994. (File Nos. 33-44590
and 811-6504)
(10) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed June 29, 1994. (File Nos. 33-44590
and 811-6504)
(12) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed October 6, 1994. (File Nos. 33-44590
and 811-6504)
(6) Conformed copy of Distributor's Contract of the Registrant
and Exhibits A-G thereto; (12)
(i)Conformed copy of Exhibit H to Distributor's
Contract of the Registrant to add Biltmore Emerging
Markets Fund;+
(7) Not applicable;
(8) Conformed copy of Custodian Agreement of the Registrant and
Exhibits A-D thereto; (12)
(9) (i) Conformed copy of Portfolio
Accounting and Shareholder Recordkeeping
Agreement of the Registrant and Schedules A,
and H thereto; (12)
(ii) Copy of Schedule I to Portfolio Accounting and
Shareholder Recordkeeping Agreement of the
Registrant; (12)
(iii) Conformed Copy of Exhibit F to Transfer Agency
and Service Agreement of the Registrant;(3)
(iv) Conformed Copy of Schedule G to Transfer Agency
and Service Agreement of the Registrant;(8)
(v) Conformed Copy of Sub-Transfer Agency and
Service Agreement;(7)
(vi) Conformed Copy of Administrative Services
Agreement of the Registrant through and
including copies of exhibits A-D and Amendment
1 thereto; (12)
( vii) Copy of Exhibit E to Administrative Services
Agreement of the Registrant; (12)
(viii) Conformed Copy of Shareholder Services
Plan; (7)
(ix) Conformed Copy of Exhibit A to Shareholder
Services Plan of the Registrant and Amendment
No.1 thereto; (12)
(x) Conformed Copy of Amendment No. 2 to Exhibit A
of the Shareholder Services Plan of the
Registrant;+
(xi) Conformed copy of Shareholder Services
Agreement; (8)
(xii) Conformed copy of Exhibit A to Shareholder
Services Agreement of the Registrant; (12)
(10) Conformed copy of Opinion and Consent of Counsel
as to legality of shares being registered; (12)
(11) Conformed copy of Consent of Independent
Auditors; +
(12) Not applicable;
+ All exhibits have been electronically filed.
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed May 12, 1992. (File Nos. 33-44590
and 811-6504).
(6) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on form N-1A filed December 2, 1992 (File Nos. 33-44590
and 811-6504)
(8) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on form N-1A filed January 11, 1994 (File Nos. 33-44590
and 811-6504)
(12) Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 14 on Form N-1A filed October 6, 1994
(File Nos. 33-44590 and 811-6504)
(13) Conformed copy of Initial Capital
Understanding;(2)
(14) Not Applicable;
(15) (i) Conformed copy of Distribution Plan and
Exhibits A-B thereto; (12)
(ii) Copy of Dealer Agreement; (6)
(iii) Copy of Exhibit to Dealer Agreement;(6)
(iv) Copy of Rule 12b-1 Agreement;(2)
(v) Copy of Exhibits A and B to 12b-1
Agreement;(6)
(16) (i) Copy of Schedule for Computation of Fund
Performance Data, Biltmore Money Market
Fund (5);
(ii) Copy of Schedule for Computation of Fund
Performance Data, Biltmore Prime Cash
Management Fund (10);
(iii) Copy of Schedule for Computation of Fund
Performance Data, Biltmore Equity Fund (7);
(iv) Copy of Schedule for Computation of Fund
Performance Data, Biltmore Fixed Income
Fund (7);
(v) Copy of Schedule for Computation of Fund
Performance Data, Biltmore Equity Index
Fund (7);
(vi) Copy of Schedule for Computation of Fund
Performance Data, Biltmore Short-Term
Fixed Income Fund (7);
(vii) Copy of Schedule for Computation of Fund
Performance Data, Biltmore Special Values
Fund (7);
(viii)Copy of Schedule for Computation of Fund
Performance Data, Biltmore Balanced
Fund (7);
(ix) Copy of Schedule for Computation of Fund
Performance Data, Biltmore Quantitative
Equity Fund (11);
(17) Copy of Financial Data Schedules; +
(18) Conformed Copy of Power of Attorney(8)
Item 25. Persons Controlled by or Under Common Control with Registrant
None
+ All exhibits have been electronically filed.
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on form N-1A filed March 6, 1992. (File Nos. 33-44590
and 811-6504)
(5) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on form N-1A filed September 29, 1992. (File Nos.
33-44590 and 811-6504)
(7) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on form N-1A filed July 29, 1993 (File Nos. 33-44590 and
811-6504)
(8) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on form N-1A filed January 28, 1994. (File Nos. 33-
44590 and 811-6504)
(10) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed June 29, 1994. (File Nos. 33-44590
and 811-6504)
(11) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed July 26, 1994. (File Nos. 33-44590
and 811-6504)
(12) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed October 6, 1994. (File Nos. 33-44590
and 811-6504)
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of January 8,1995
Shares of beneficial interest
(no par value)
Biltmore Balanced Fund 583
Biltmore Equity Fund 876
Biltmore Equity Index Fund 315
Biltmore Emerging Markets Fund 56
Biltmore Fixed Income Fund 542
Biltmore Special Values Fund 217
Biltmore Short-Term Fixed Income Fund 306
Biltmore Money Market Fund
(Investment Shares) 18
Biltmore Money Market Fund
(Institutional Shares) 8
Biltmore Tax-Free Money Market Fund
(Investment Shares) 13
Biltmore Tax-Free Money Market Fund
(Institutional Shares) 6
Biltmore U.S. Treasury Money Market Fund
(Investment Shares) 11
Biltmore U.S. Treasury Money Market Fund
(Institutional Shares) 6
Biltmore Prime Cash Management Fund 27
Biltmore Quantitative Equity Fund 189
Item 27. Indemnification: (2)
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment
adviser, see the section entitled "The Biltmore Funds
Information - Management of the Trust" in Part A. The
Officers of the investment adviser are: Chairman of the
Board, L. M. Baker, Jr.; President and Chief Executive
Officer, J. Walter McDowell; Chief Financial Officer and
Executive Vice President, Robert F. McCoy; Chief Loan
Administration Officer and Executive Vice President, Robert
L. Alphin; Executive Vice President, Hugh M. Durden;
Executive Vice President, Mickey W. Dry; Executive Vice
President, Walter E. Leonard, Jr.; and Executive Vice
President, Richard B. Roberts. The business address of each
of the Officers of the investment adviser is Wachovia Bank of
North Carolina, N.A., 310 North Main Street, Winston-Salem,
N.C. 27150.
The Directors of the investment adviser are listed below with
their occupations: L.M. Baker, Jr., President and Chief
Executive Officer, Wachovia Corporation, Chairman, Wachovia
Bank of North Carolina, N.A.; H.C. Bissell, Chairman of the
Board and Chief Executive Officer, The Bissell Companies,
Inc.; Bert Collins, President and Chief Executive Officer,
North Carolina Mutual Life Insurence Company; Felton J.
Capel, Chairman of the Board and President, Century
Associates of North Carolina; Richard L. Daugherty, North
Carolina Senior Executive and Vice President, IBM
Corporation; Estell C. Lee, Chairman of
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on form N-1A filed March 6, 1992. (File No. 33-44590)
the Board and President, The Lee Company; John G. Medlin, Jr.,
Chairman of the Board, Wachovia Corporation; David J.
Whichard II, Chairman, The Daily Reflector; John C. Whitaker,
Jr., Chairman of the Board and Chief Executive Officer, Inmar
Enterprises, Inc.; Herbert Brenner, President, Brenner
Companies, Inc.; William Cavanaugh, III, President and Chief
Operating Officer, Carolina Power and Light Company; J.
Walter McDowell, President and Chief Executive Officer,
Wachovia Bank of North Carolina, N.A.; John F. Ward, Senior
Vice President, Sara Lee Corporation; Anderson D. Warlick,
President and Chief Operating Officer, Parkdale Mills, Inc.;
Wyndham Robertson, Vice President for Communications,
University of North Carolina.
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: Alexander Hamilton
Funds; American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust;
Automated Government Money Trust; BayFunds; The Biltmore
Funds; The Biltmore Municipal Funds; California Municipal
Cash Trust; Cash Trust Series, Inc.; Cash Trust Series II; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government
Bond Fund; First Priority Funds; First Union Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.;
Fortress Utility Fund, Inc.; Fountain Square Funds; Fund for
U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Independence One
Mutual Funds; Insight Institutional Series, Inc.; Insurance
Management Series; Intermediate Municipal Trust;
International Series Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market
Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; Money Market Management,
Inc.; The Medalist Funds; Money Market Obligations Trust;
Money Market Trust; The Monitor Funds; Municipal Securities
Income Trust; Newpoint Funds; New York Municipal Cash Trust;
111 Corcoran Funds; Peachtree Funds; The Planters Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal
Trust; SouthTrust Vulcan Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Tower Mutual Funds; Trademark Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for
U.S. Treasury Obligations; Vision Fiduciary Funds, Inc.;
Vision Group of Funds, Inc.; and World Investment Series,
Inc.
Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty
Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief --
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice --
Federated Investors Tower President, and Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice President and
Federated Investors Tower President, and Assistant Treasurer
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Federated Assistant
Federated Investors Tower Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
(Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper)
Federated Administrative Services Federated Investors Tower
(Administrator) Pittsburgh, PA 15222-3779
Wachovia Investment Management Group 301 North Main Street
(Adviser) Winston-Salem, NC 21750
Twin Capital Management, Inc. 3244 Washington Road
(Sub-Adviser to Biltmore McMurrary, PA 15315-3153
Quantitative Equity Fund only)
Wachovia Bank of North Carolina Wachovia Trust Operations
(Custodian) 301 North Main Street
Winston-Salem, NC 21750
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders on behalf of each of its portfolios.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
Registrant hereby undertakes to file a post-effective amendment on
behalf of Biltmore Emerging Markets Fund, a portfolio of The
Biltmore Funds, using financial statements for Biltmore Emerging
Markets Fund, which need not be certified, within four to six
months from the effective date of Post-Effective Amendment No. 14.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, THE BILTMORE FUNDS,
certifies that it meets all of the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule 485(b) of
the Securities Act of 1933 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 27th day of January, 1995.
THE BILTMORE FUNDS
BY: /s/Mark A. Sheehan
Mark A. Sheehan, Assistant Secretary
Attorney in Fact for John W. McGonigle
January 27, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Mark A. Sheehan
Mark A. Sheehan Attorney In Fact January 27, 1995
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John W. McGonigle* President and Treasurer
James A. Hanley* Trustee
Malcolm T. Hopkins* Trustee
Samuel E. Hudgins* Trustee
J. Berkley Ingram, Jr.* Trustee
D. Dean Kaylor* Trustee
* By Power of Attorney
Exhibit (11) under N-1A
Exhibit 23 under Item 601/Reg SK
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our reports dated
January 12, 1995, in Post-Effective Amendment Number 15 to the Registration
Statement (Form N-1A Number 33-44590) and the related Prospectuses of The
Biltmore Funds ( Biltmore Money Market Fund, Biltmore Tax-Free Money Market
Fund, Biltmore U.S. Treasury Money Market Fund, Biltmore Prime Cash
Management Fund, Biltmore Balanced Fund, Biltmore Equity Fund, Biltmore
Equity Index Fund, Biltmore Quantitative Equity Fund, Biltmore Fixed Income
Fund, Biltmore Short-Term Fixed Income Fund and Biltmore Special Values
Fund) dated January 31, 1995.
/s/Ernst & Young LLP
Pittsburgh, Pennsylvania
January 25, 1995
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of THE BILTMORE FUNDS
and the Assistant General Counsel of Federated Investors, and each of
them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names,
place and stead, in any and all capacities, to sign any and all
documents to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, the Securities Exchange Act of
1934 and the Investment Company Act of 1940, by means of the Securities
and Exchange Commission's electronic disclosure system known as EDGAR;
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to sign and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as each of them might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John W. McGonigle President and Treasurer September 2, 1993
John W. McGonigle (Chief Executive Officer,
Principal Financial and
Accounting Officer)
/s/ James A. Hanley Trustee September 2, 1993
James A. Hanley
/s/ Malcolm T. Hopkins Trustee September 2, 1993
Malcolm T. Hopkins
/s/ Samuel E. Hudgins Trustee September 2, 1993
Samuel E. Hudgins
/s/ J. Berkley Ingram, Jr. Trustee September 2, 1993
J. Berkley Ingram, Jr.
/s/ D. Dean Kaylor. Trustee September 2, 1993
D. Dean Kaylor
Sworn to and subscribed before me this 2nd day of September, 1993.
(SEAL)
/s/ Mary Jo Wagner ___________________________________
Notary Public
Notarial Seal
Mary Jo Wagner, Notary Public
Pittsburgh, Allegheny County
My Commission Expires February 21,
1998
Member, Pennsylvania Association of
Notaries
Exhibit 5 (ii) under Form N-1A
Exhibit 10 (i) under Item 601/Reg. S-K
EXHIBIT J
to the
Investment Advisory Contract
Biltmore Emerging Markets Fund
For all services rendered by the Adviser hereunder, the above-named
Portfolio of the Trust shall pay to the Adviser and the Adviser agrees to
accept as full compensation for all services rendered hereunder, an annual
investment advisory fee equal to 1.00% of the average daily net assets of the
Portfolio.
The portion of the fees based upon the average daily net assets of the
Portfolio shall be accrued daily at the annual rate of 1.00% applied to the
daily net assets of the Portfolio.
The advisory fee so accrued shall be paid to the Adviser daily.
Witness the due execution as of the 8th day of December, 1994.
Attest: Wachovia Bank of North Carolina,
N.A.
By: /s/ James G. Vanderberry By: /s/ Michael J. Tierney
Secretary Sr. Vice President
Attest: The Biltmore Funds
By: /s/ S. Elliott Cohan By: /s/ Ronald M. Petnuch
Assistant Secretary Vice President
Exhibit 6(i) under Form N-1A
Exhibit 1(i) under Item 601/Reg. S-K
EXHIBIT H
to the
Distribution Agreement
Biltmore Emerging Markets Fund
In consideration of the mutual covenants set forth in the Distribution
Agreement (the "Agreement") dated March 9, 1992 between The Biltmore Funds
and Federated Securities Corp. ("FSC"), The Biltmore Funds executes and
delivers this Exhibit on behalf of the Portfolios first set forth in this
Exhibit.
FSC shall retain the initial sales charge, if any, on purchases of
shares of the above Portfolios as set forth in The Biltmore Funds'
Registration Statement. FSC is authorized to collect the gross proceeds
derived from the sale of such shares, remit the net asset value thereof to
the applicable Portfolio upon receipt of the proceeds and retain the initial
sales charge, if any.
FSC may reallow any or all of the initial sales charges which it is
paid under the Agreement to such brokers and other financial institutions as
FSC may from time to time determine.
Witness the due execution hereof this 8th day of December, 1994.
Attest: The Biltmore Funds
/s/ Joseph M. Huber By: /s/ John W. McGonigle
Secretary President
Attest: Federated Securities Corp.
/s/ S. Elliott Cohan By: /s/ Edward C. Gonzales
Secretary Executive Vice President
Exhibit 9 (x) under Form N-1A
Exhibit 10 (viii) under Item 601/Reg. S-K
Amendment No. 2
to
EXHIBIT A
of the
Shareholder Services Plan
THE BILTMORE FUNDS
Biltmore Balanced Fund
Biltmore Equity Fund
Biltmore Equity Index Fund
Biltmore Fixed Income Fund
Biltmore Short-Term Fixed Income Fund
Biltmore Quantitative Equity Fund
Biltmore Emerging Markets Fund
This Plan is adopted by The Biltmore Funds with respect to the Funds of
the Trust set forth above.
In compensation for the services provided pursuant to this Plan,
Providers will be paid a monthly fee computed at the annual rate not to
exceed 0.25 of 1.00% of the average aggregate net asset value of the shares
of each of the Funds listed above and held during the month.
Witness the due execution hereof this 8th day of December, 1994.
The Biltmore Funds
By:/s/ John W. McGonigle
President
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> Biltmore Balanced Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 202,574,532
<INVESTMENTS-AT-VALUE> 196,301,659
<RECEIVABLES> 3,124,878
<ASSETS-OTHER> 40,620
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 199,467,157
<PAYABLE-FOR-SECURITIES> 4,466,998
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 604,990
<TOTAL-LIABILITIES> 5,071,988
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 196,851,545
<SHARES-COMMON-STOCK> 19,576,137
<SHARES-COMMON-PRIOR> 16,094,625
<ACCUMULATED-NII-CURRENT> 1,080,144
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,736,353
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6,272,873)
<NET-ASSETS> 194,395,169
<DIVIDEND-INCOME> 2,487,572
<INTEREST-INCOME> 5,339,319
<OTHER-INCOME> 0
<EXPENSES-NET> 1,391,211
<NET-INVESTMENT-INCOME> 6,435,680
<REALIZED-GAINS-CURRENT> 2,764,758
<APPREC-INCREASE-CURRENT> (10,096,911)
<NET-CHANGE-FROM-OPS> (896,473)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,032,536
<DISTRIBUTIONS-OF-GAINS> 669,917
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,165,635
<NUMBER-OF-SHARES-REDEEMED> 3,337,297
<SHARES-REINVESTED> 653,174
<NET-CHANGE-IN-ASSETS> 28,124,416
<ACCUMULATED-NII-PRIOR> 677,000
<ACCUMULATED-GAINS-PRIOR> 641,512
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,291,534
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,712,396
<AVERAGE-NET-ASSETS> 185,212,407
<PER-SHARE-NAV-BEGIN> 10.330
<PER-SHARE-NII> 0.350
<PER-SHARE-GAIN-APPREC> (0.380)
<PER-SHARE-DIVIDEND> 0.330
<PER-SHARE-DISTRIBUTIONS> 0.040
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.930
<EXPENSE-RATIO> 75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> Biltmore Equity Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 86,432,152
<INVESTMENTS-AT-VALUE> 86,627,565
<RECEIVABLES> 1,015,453
<ASSETS-OTHER> 15,569
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 87,658,587
<PAYABLE-FOR-SECURITIES> 535,103
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 101,711
<TOTAL-LIABILITIES> 636,814
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,771,793
<SHARES-COMMON-STOCK> 8,430,672
<SHARES-COMMON-PRIOR> 6,031,010
<ACCUMULATED-NII-CURRENT> 314,166
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,748,207
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 187,607
<NET-ASSETS> 87,021,773
<DIVIDEND-INCOME> 1,702,801
<INTEREST-INCOME> 379,725
<OTHER-INCOME> 0
<EXPENSES-NET> 636,249
<NET-INVESTMENT-INCOME> 1,446,277
<REALIZED-GAINS-CURRENT> 1,790,525
<APPREC-INCREASE-CURRENT> (922,981)
<NET-CHANGE-FROM-OPS> 2,313,821
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,351,595
<DISTRIBUTIONS-OF-GAINS> 473,495
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,415,092
<NUMBER-OF-SHARES-REDEEMED> 2,185,478
<SHARES-REINVESTED> 170,048
<NET-CHANGE-IN-ASSETS> 25,024,534
<ACCUMULATED-NII-PRIOR> 219,483
<ACCUMULATED-GAINS-PRIOR> 431,177
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 511,439
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 752,714
<AVERAGE-NET-ASSETS> 72,747,056
<PER-SHARE-NAV-BEGIN> 10.280
<PER-SHARE-NII> 0.200
<PER-SHARE-GAIN-APPREC> 0.120
<PER-SHARE-DIVIDEND> 0.200
<PER-SHARE-DISTRIBUTIONS> 0.080
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.320
<EXPENSE-RATIO> 87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> Biltmore Equity Index Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 181,244,672
<INVESTMENTS-AT-VALUE> 183,515,594
<RECEIVABLES> 949,715
<ASSETS-OTHER> 36,783
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 184,502,092
<PAYABLE-FOR-SECURITIES> 365,412
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 284,934
<TOTAL-LIABILITIES> 650,346
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 180,368,811
<SHARES-COMMON-STOCK> 17,903,963
<SHARES-COMMON-PRIOR> 14,252,482
<ACCUMULATED-NII-CURRENT> 783,440
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 580,010
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,119,485
<NET-ASSETS> 183,851,746
<DIVIDEND-INCOME> 4,280,704
<INTEREST-INCOME> 594,674
<OTHER-INCOME> 0
<EXPENSES-NET> 776,147
<NET-INVESTMENT-INCOME> 4,099,231
<REALIZED-GAINS-CURRENT> 596,542
<APPREC-INCREASE-CURRENT> (3,907,225)
<NET-CHANGE-FROM-OPS> 788,548
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,872,917
<DISTRIBUTIONS-OF-GAINS> 255,437
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,136,588
<NUMBER-OF-SHARES-REDEEMED> 1,878,820
<SHARES-REINVESTED> 393,713
<NET-CHANGE-IN-ASSETS> 34,586,020
<ACCUMULATED-NII-PRIOR> 557,126
<ACCUMULATED-GAINS-PRIOR> 238,906
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 503,953
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 910,594
<AVERAGE-NET-ASSETS> 167,920,561
<PER-SHARE-NAV-BEGIN> 10.470
<PER-SHARE-NII> 0.250
<PER-SHARE-GAIN-APPREC> (0.190)
<PER-SHARE-DIVIDEND> 0.240
<PER-SHARE-DISTRIBUTIONS> 0.020
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.270
<EXPENSE-RATIO> 46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> Biltmore Fixed Income Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 158,632,571
<INVESTMENTS-AT-VALUE> 146,798,909
<RECEIVABLES> 5,352,672
<ASSETS-OTHER> 34,661
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 152,186,242
<PAYABLE-FOR-SECURITIES> 3,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 435,586
<TOTAL-LIABILITIES> 3,435,586
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 164,349,149
<SHARES-COMMON-STOCK> 16,591,943
<SHARES-COMMON-PRIOR> 14,031,227
<ACCUMULATED-NII-CURRENT> 172,040
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,936,871)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (11,833,662)
<NET-ASSETS> 148,750,656
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,500,681
<OTHER-INCOME> 0
<EXPENSES-NET> 1,017,156
<NET-INVESTMENT-INCOME> 8,483,525
<REALIZED-GAINS-CURRENT> (3,910,216)
<APPREC-INCREASE-CURRENT> (10,860,025)
<NET-CHANGE-FROM-OPS> (6,286,716)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,390,071
<DISTRIBUTIONS-OF-GAINS> 893,398
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,885,157
<NUMBER-OF-SHARES-REDEEMED> 3,277,961
<SHARES-REINVESTED> 953,520
<NET-CHANGE-IN-ASSETS> 8,425,287
<ACCUMULATED-NII-PRIOR> 78,586
<ACCUMULATED-GAINS-PRIOR> 866,743
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 862,327
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,209,726
<AVERAGE-NET-ASSETS> 143,607,194
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.550
<PER-SHARE-GAIN-APPREC> (0.970)
<PER-SHARE-DIVIDEND> 0.550
<PER-SHARE-DISTRIBUTIONS> 0.060
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.970
<EXPENSE-RATIO> 71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> Biltmore Money Market Fund
Institutional Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 194,305,717
<INVESTMENTS-AT-VALUE> 194,305,717
<RECEIVABLES> 837,025
<ASSETS-OTHER> 14,467
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 195,157,209
<PAYABLE-FOR-SECURITIES> 9,016,713
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 802,620
<TOTAL-LIABILITIES> 9,819,333
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185,337,876
<SHARES-COMMON-STOCK> 129,232,911
<SHARES-COMMON-PRIOR> 177,090,062
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 129,232,911
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,076,136
<OTHER-INCOME> 0
<EXPENSES-NET> 744,279
<NET-INVESTMENT-INCOME> 6,331,857
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,331,857
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,146,447
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 385,548,512
<NUMBER-OF-SHARES-REDEEMED> 433,405,663
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,594,283)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 859,936
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,463,124
<AVERAGE-NET-ASSETS> 172,477,137
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.040
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> Biltmore Money Market Fund
Investment Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 194,305,717
<INVESTMENTS-AT-VALUE> 194,305,717
<RECEIVABLES> 837,025
<ASSETS-OTHER> 14,467
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 195,157,209
<PAYABLE-FOR-SECURITIES> 9,016,713
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 802,620
<TOTAL-LIABILITIES> 9,819,333
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185,337,876
<SHARES-COMMON-STOCK> 56,104,965
<SHARES-COMMON-PRIOR> 9,842,097
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 56,104,965
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,076,136
<OTHER-INCOME> 0
<EXPENSES-NET> 744,279
<NET-INVESTMENT-INCOME> 6,331,857
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,331,857
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,185,410
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 94,114,744
<NUMBER-OF-SHARES-REDEEMED> 47,851,876
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,594,283)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 859,936
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,463,124
<AVERAGE-NET-ASSETS> 172,477,137
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.030
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> Biltmore Prime Cash Management Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 816,862,942
<INVESTMENTS-AT-VALUE> 816,862,942
<RECEIVABLES> 2,803,092
<ASSETS-OTHER> 252,865
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 819,918,899
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,911,174
<TOTAL-LIABILITIES> 3,911,174
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 816,007,725
<SHARES-COMMON-STOCK> 816,007,725
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 816,007,725
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 26,163,164
<OTHER-INCOME> 0
<EXPENSES-NET> 1,053,251
<NET-INVESTMENT-INCOME> 25,109,913
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 25,109,913
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25,109,913
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,747,708,257
<NUMBER-OF-SHARES-REDEEMED> 931,700,532
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 816,007,725
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,748,930
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,662,441
<AVERAGE-NET-ASSETS> 586,246,336
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.040
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> Biltmore Quantitative Equity Fund
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 93,712,997
<INVESTMENTS-AT-VALUE> 92,024,586
<RECEIVABLES> 246,155
<ASSETS-OTHER> 30,033
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 92,300,774
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 321,849
<TOTAL-LIABILITIES> 321,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95,753,725
<SHARES-COMMON-STOCK> 9,582,109
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 264,051
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,350,440)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,688,411)
<NET-ASSETS> 91,978,925
<DIVIDEND-INCOME> 1,563,933
<INTEREST-INCOME> 153,028
<OTHER-INCOME> 0
<EXPENSES-NET> 565,107
<NET-INVESTMENT-INCOME> 1,151,854
<REALIZED-GAINS-CURRENT> (2,350,440)
<APPREC-INCREASE-CURRENT> (1,688,411)
<NET-CHANGE-FROM-OPS> (2,886,997)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 887,803
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,458,666
<NUMBER-OF-SHARES-REDEEMED> 966,330
<SHARES-REINVESTED> 89,773
<NET-CHANGE-IN-ASSETS> 91,978,925
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 439,878
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 627,948
<AVERAGE-NET-ASSETS> 92,739,261
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.120
<PER-SHARE-GAIN-APPREC> (0.430)
<PER-SHARE-DIVIDEND> 0.090
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.600
<EXPENSE-RATIO> 90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> Biltmore Short-Term Fixed Income Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 150,083,233
<INVESTMENTS-AT-VALUE> 146,936,469
<RECEIVABLES> 5,423,298
<ASSETS-OTHER> 38,332
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 152,398,099
<PAYABLE-FOR-SECURITIES> 3,946,090
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 125,603
<TOTAL-LIABILITIES> 4,071,693
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 154,702,480
<SHARES-COMMON-STOCK> 15,477,202
<SHARES-COMMON-PRIOR> 15,586,073
<ACCUMULATED-NII-CURRENT> 138,211
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,367,521)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,146,764)
<NET-ASSETS> 148,326,406
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,755,311
<OTHER-INCOME> 0
<EXPENSES-NET> 896,129
<NET-INVESTMENT-INCOME> 6,859,182
<REALIZED-GAINS-CURRENT> (2,862,364)
<APPREC-INCREASE-CURRENT> (2,079,336)
<NET-CHANGE-FROM-OPS> 1,917,482
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,884,557
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,860,561
<NUMBER-OF-SHARES-REDEEMED> 4,674,812
<SHARES-REINVESTED> 705,380
<NET-CHANGE-IN-ASSETS> (6,132,770)
<ACCUMULATED-NII-PRIOR> 163,586
<ACCUMULATED-GAINS-PRIOR> (505,157)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 816,857
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,158,697
<AVERAGE-NET-ASSETS> 148,942,344
<PER-SHARE-NAV-BEGIN> 9.910
<PER-SHARE-NII> 0.450
<PER-SHARE-GAIN-APPREC> (0.330)
<PER-SHARE-DIVIDEND> 0.450
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.580
<EXPENSE-RATIO> 60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> Biltmore Special Value Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 18,324,505
<INVESTMENTS-AT-VALUE> 17,776,270
<RECEIVABLES> 49,753
<ASSETS-OTHER> 4,229
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,830,252
<PAYABLE-FOR-SECURITIES> 365,653
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33,705
<TOTAL-LIABILITIES> 399,358
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,855,871
<SHARES-COMMON-STOCK> 1,788,054
<SHARES-COMMON-PRIOR> 1,178,428
<ACCUMULATED-NII-CURRENT> 15,510
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 107,748
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (548,235)
<NET-ASSETS> 17,430,894
<DIVIDEND-INCOME> 217,148
<INTEREST-INCOME> 40,245
<OTHER-INCOME> 0
<EXPENSES-NET> 165,106
<NET-INVESTMENT-INCOME> 92,287
<REALIZED-GAINS-CURRENT> 107,758
<APPREC-INCREASE-CURRENT> (511,222)
<NET-CHANGE-FROM-OPS> (311,177)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 74,663
<DISTRIBUTIONS-OF-GAINS> 333,979
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 726,898
<NUMBER-OF-SHARES-REDEEMED> 157,522
<SHARES-REINVESTED> 40,250
<NET-CHANGE-IN-ASSETS> 5,359,146
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 333,969
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 117,003
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 324,575
<AVERAGE-NET-ASSETS> 14,636,454
<PER-SHARE-NAV-BEGIN> 10.240
<PER-SHARE-NII> 0.060
<PER-SHARE-GAIN-APPREC> (0.220)
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.280
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.750
<EXPENSE-RATIO> 113
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> Biltmore Tax-Free Money Market Fund
Institutional Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 137,600,274
<INVESTMENTS-AT-VALUE> 137,600,274
<RECEIVABLES> 972,051
<ASSETS-OTHER> 28,438
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 138,600,763
<PAYABLE-FOR-SECURITIES> 1,533,878
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 379,867
<TOTAL-LIABILITIES> 1,913,745
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 136,687,018
<SHARES-COMMON-STOCK> 93,866,997
<SHARES-COMMON-PRIOR> 59,268,563
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 93,866,997
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,466,650
<OTHER-INCOME> 0
<EXPENSES-NET> 572,007
<NET-INVESTMENT-INCOME> 2,894,643
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,894,643
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,150,380
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 175,432,174
<NUMBER-OF-SHARES-REDEEMED> 140,833,740
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 53,442,439
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 620,752
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,158,474
<AVERAGE-NET-ASSETS> 124,151,210
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.020
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.020
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> Biltmore Tax-Free Money Market Fund
Investment Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 137,600,274
<INVESTMENTS-AT-VALUE> 137,600,274
<RECEIVABLES> 972,051
<ASSETS-OTHER> 28,438
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 138,600,763
<PAYABLE-FOR-SECURITIES> 1,533,878
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 379,867
<TOTAL-LIABILITIES> 1,913,745
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 136,687,018
<SHARES-COMMON-STOCK> 42,820,021
<SHARES-COMMON-PRIOR> 23,976,016
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 42,820,021
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,466,650
<OTHER-INCOME> 0
<EXPENSES-NET> 572,007
<NET-INVESTMENT-INCOME> 2,894,643
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,894,643
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 744,263
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 88,065,585
<NUMBER-OF-SHARES-REDEEMED> 69,221,580
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 53,442,439
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 620,752
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,158,474
<AVERAGE-NET-ASSETS> 124,151,210
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.020
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.020
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> Biltmore U.S. Treasury Money Market Fund
Institutional Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 134,433,895
<INVESTMENTS-AT-VALUE> 134,433,895
<RECEIVABLES> 10,886
<ASSETS-OTHER> 9,104
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 134,453,885
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 526,297
<TOTAL-LIABILITIES> 526,297
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 133,927,588
<SHARES-COMMON-STOCK> 87,531,434
<SHARES-COMMON-PRIOR> 65,352,944
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 87,531,434
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,087,226
<OTHER-INCOME> 0
<EXPENSES-NET> 433,316
<NET-INVESTMENT-INCOME> 3,653,910
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,653,910
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,707,306
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 337,402,499
<NUMBER-OF-SHARES-REDEEMED> 315,224,009
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 51,633,228
<ACCUMULATED-NII-PRIOR> 0
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<TABLE> <S> <C>
<S> <C>
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<NUMBER> 14
<NAME> Biltmore U.S. Treasury Money Market Fund
Investment Shares
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