BILTMORE FUNDS, 485BPOS, 1996-01-30

BILTMORE FUNDS
485BPOS, 1996-01-30

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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
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Pre-Effective Amendment No. ............
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Post-Effective Amendment No. 17 .......... X
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and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 18 ......................... X
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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, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
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If appropriate, check the following box:

This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and:

X filed the Notice required by that Rule on January 16, 1996; or
intends to file the Notice required by that Rule on or about ;
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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 L.L.P. Piper & Marbury L.L.P.
1800 Massachusetts Avenue, N.W. 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-1800 Washington, D.C. 20036-2430

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of THE BILTMORE FUNDS which is
comprised of twelve 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,
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.............(1-12) Financial Highlights.
Item 4. General Description of
Registrant..............(1-12) General Information; (1-12)
Investment Objective; (1-12) Investment
Policies; (1-12) Investment Limitations;
(7-10) Regulatory Compliance; (1,2,4,5)
Investment Risks; (3,5) Investment
Considerations; (3,5) Debt Considerations;
(1) Equity Investment Considerations; (1)
Debt Investment Considerations; (3,5)
Equity Investments; (2,3,5,11) Debt
Investments; (12) Risk Considerations of
Emerging Markets; (11) Portfolio Turnover.
Item 5. Management of the Fund...(1-12) The Biltmore Funds Information; (1-
12) Management of The Trust; (1-12)
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; (1-6,11,12) Shareholder
Servicing Arrangements; (1-12)
Administration of the Fund; Legal Services;
Independent Auditors; (1-12) Expenses of
the Fund (and Institutional/ Investment
Shares); (1-6,11,12) Brokerage
Transactions.
Item 6. Capital Stock and Other
Securities..............(1-12) Dividends; (1-12) Capital Gains; (1-
12) Shareholder Information; (1-12)
Voting Rights; (1-12) 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; (1-12) Investing in
(the Fund/Institutional/Investment) Shares;
(1-12) Share Purchases; (1-6,11) (1-
6,11,12) and (7-10, Investment Shares only)
By Mail; (1-6, 11,12) and (7-10, Investment
Shares only) By Wire; (1-6, 11,12) Through
Authorized Broker-Dealers; (1-6, 11,12) and
(7-10 Investment Shares only) Through
Wachovia Investments, Inc.; (1-12) 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; (1-12) What Shares
Cost; (1-6,11,12) Sales Charge Reallowance;
(1-6,11,12) Reducing the Sales Charge; (1-
6,11,12) Quantity Discounts and Accumulated
Purchases; (1-6,11,12) Letter of Intent;
(1-6,11,12) Reinvestment Privilege; (1-
6,11,12) Concurrent Purchases; (1-6,11,12)
Systematic Investment Program; (1-6,11,12)
Exchange Privilege; (1-12) Certificates and
Confirmations; (1-6,11,12) Subaccounting
Services; (7-10) Exchanges.
Item 8. Redemption or Repurchase.(1-12) Redeeming (Institutional/Investment)
Shares; (1-12) By Telephone; (1-6,11,12)
and (7-10, Investment Shares only) By Mail;
(7-10, Investment Shares only) Through the
Wachovia Banks; (7-10, Investment Shares
only) Through Service Organizations; (1-6,
11,12 and 7-10, Investment Shares Only)
Accounts With Low Balances; (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;
(1-12) Investment Limitations.
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; (1-12)
Other Services; (1-12) Administration; (1-
12) Custodian; (1-12) Transfer Agent; (1-
12) Legal Services; (1-12) Independent
Auditors.
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; (1-12)
Determining Net Asset Value; (1-12)
Redeeming (Institutional/Investment)
Shares; (1-6,11,12) Redemption in Kind; (1-
12) Determining Market Value of Securities;
(1-12) Massachusetts Business Trusts.
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.....(1-12) The Financial Statements for the
fiscal period ended November 30, 1995, are
incorporated herein by reference from the
Funds' Annual Reports dated November 30,
1995.

Prospectus

January 31, 1996

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,
1996 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.

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TABLE OF CONTENTS

Through Authorized Broker/Dealers 13

Minimum Investment Required 13
What Shares Cost 13
Purchases at Net Asset Value 13

Sales Charge Reallowance 13

Reducing the Sales Charge 14
Quantity Discounts and Accumulated
Purchases 14
Letter of Intent 14
Reinvestment Privilege 14
Concurrent Purchases 14
Plan Right of Accumulation 15
Systematic Investment Program 15
Certificates and Confirmations 15
Subaccounting Services 15
Dividends 15
Capital Gains 15
Exchange Privilege 15
Exchange by Telephone 16
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REDEEMING SHARES 16
By Telephone 16
By Mail 17
Signatures 17
Systematic Withdrawal Program 17

Accounts with Low Balances 17

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SHAREHOLDER INFORMATION 18
Voting Rights 18
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EFFECT OF BANKING LAWS 18
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TAX INFORMATION 19
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PERFORMANCE INFORMATION 19
- ---------------------------------------------------
ADDRESSES BACK COVER

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SUMMARY OF FUND EXPENSES

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)

<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.54%
12b-1 Fees None
Other Expenses 0.22%
Shareholder Servicing Agent Fee (2) 0.00%
Total Fund Operating Expenses (after waiver) (3) 0.76%
</TABLE>

(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 0.70%.

(2) As of the date of this prospectus, the Fund is not paying or accruing
shareholder servicing agent fees. The Fund will not pay or accrue
shareholder servicing agent fees until a separate class of shares has been
created for certain trust and institutional investors. At that time, the
Fund will be able to pay up to 0.25 of 1% of the Fund's average daily net
assets for shareholder servicing agent fees. See "The Biltmore Funds
Information."

(3) Total Fund Operating Expenses would have been 0.92% absent the voluntary
waiver described above in Note 1.

<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 $135
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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BILTMORE BALANCED FUND
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Funds's
independent auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the year ended November 30, 1995, and on the following
table for the periods presented, is included in the Annual Report to
shareholders dated November 30, 1995, which is incorporated herein by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
Year Ended November 30, 1995 1994 1993(a)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.93 $ 10.33 $ 10.00
Income from investment operations
Net investment income 0.40 0.35 0.19
Net realized and unrealized gain (loss) on investments 2.13 (0.38) 0.29
--------- --------- -----------
Total from investment operations 2.53 (0.03) 0.48
Less distributions
Distributions from net investment income (0.38) (0.33) (0.15)
Distributions from net realized gain on investments (0.16) (0.04) 0.00
--------- --------- -----------
Total distributions (0.54) (0.37) (0.15)
--------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.92 $ 9.93 $ 10.33
--------- --------- -----------
Total Return (b) 26.32% (0.39%) 4.89%
Ratios to Average Net Assets
Expenses 0.76% 0.75% 0.75%*
Net investment income 3.58% 3.46% 3.30%*
Expense waiver/reimbursement (c) 0.16% 0.17% 0.19%*
Supplemental Data
Net assets, end of period (000 omitted) $207,421 $194,430 $166,271
Portfolio turnover 102% 74% 60%
</TABLE>

* Computed on an annualized basis.
- - -

(a) Reflects operations for the period from May 10, 1993 (date of initial
- - -
public investment) to November 30, 1993.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated November 30, 1995, which can be obtained free of charge.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL INFORMATION

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.);

.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; and

.time and savings deposits (including certificates of deposit) in commercial or
savings banks.

In addition to the acceptable investments discussed above, the Fund may borrow
money, enter into repurchase agreements, lend portfolio securities, invest in
money market instruments, restricted and illiquid securities, securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities,
securities of other investment companies, warrants, demand master notes 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, 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. 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.
Although debt obligations with longer maturities offer potentially greater
returns, they will generally experience the greatest market price changes.
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. 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; however, the adviser could be incorrect in its
expectations about the direction and the extent of these market factors.

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. The United
States equity market tends to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.

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 and Banks for Cooperatives; 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 mortgagebacked 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 interest rates because many borrowers refinance their mortgages to take
advantage of the more favorable rates. Prepayments on mortgagebacked 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.

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. The Fund will not enter into these
transactions for speculative purposes.

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.

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.

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.

INVESTMENT LIMITATIONS

The Fund will not:

.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.

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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.

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. (collectively, the
"Wachovia Banks") have been managing trust assets for over 100 years, with over
$19 billion in managed assets as of September 30, 1995. Wachovia Asset
Management 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 and
municipalities. Thus, it may be possible, from time to time, for the Fund to
hold or acquire the securities of issuers which are also lending clients of the
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
Wachovia Asset Management. 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>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year 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.

BROKERAGE TRANSACTIONS

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.

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NET ASSET VALUE

The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.

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INVESTING IN THE FUND

SHARE PURCHASES

Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Shares 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.

Payment may be made to the Wachovia Banks by check, by wire of federal funds, or
by debiting a customer's account with the Wachovia Banks. Purchase orders must
normally be received by the Wachovia Banks by 3:00 p.m. (Eastern time), in order
for shares to be purchased at that day's price. It is the responsibility of the
Wachovia Banks to transmit orders promptly to the Fund. Shares of the Fund
cannot be purchased by wire on any day on which the Wachovia Banks, the New York
Stock Exchange and the Federal Reserve Wire System are not open for business.

THROUGH WACHOVIA INVESTMENTS, INC. Customers of Wachovia Investments, Inc. or
Wachovia Brokerage Service may place an order to purchase shares by telephoning
The Biltmore Service Center at 1-800-994-4414, sending written instructions, or
placing an order in person. Payment may be made by check or by debiting a
customer's account at Wachovia Investments, Inc. Purchase orders must normally
be received by Wachovia Investments, Inc. before 3:30 p.m. (Eastern time).
Wachovia Investments, Inc., a wholly-owned subsidiary of Wachovia Corporation,
is a registered broker/dealer and 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.

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 as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of
the Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; or (iii) the following holidays: New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and
Christmas Day.

PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset
value, without a sales charge, by investment advisers registered under the
Investment Advisers Act of 1940 purchasing on behalf of their clients, and by
the Wachovia Banks for funds which are held in a fiduciary, advisory, agency,
custodial, or similar capacity. Trustees, officers, directors and 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. 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. Finally, purchases made by participants in 401(k) Defined Contribution
Plans (each a "Delaware/Wachovia 401(k) Plan" or "Plan") which have in excess of
an aggregate investment of $1 million in certain Delaware Group Funds ("Eligible
Delaware Funds") and certain portfolios of the Trust, including the Fund
("Eligible Biltmore Funds" together, the "Eligible Funds") by offering
investment options that include the Eligible Funds, will be made at net asset
value, without the imposition of the sales charge otherwise provided in the
table above. "Eligible Biltmore Funds" refers to the Fund, the Biltmore Emerging
Markets Fund, the Biltmore Equity Fund, the Biltmore Fixed Income Fund, the
Biltmore Special Values Fund and the Investment Shares class of the Biltmore
Money Market Fund (the "Money Fund").

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.

PLAN RIGHT OF ACCUMULATION. Purchases of the Fund by a Delaware/Wachovia 401(k)
Plan will be aggregated with the current value of shares of the Eligible Funds
already held by, and being concurrently purchased by, the Plan in order to
compute reduced sales charges as shown in the table in this prospectus under the
section entitled "What Shares Cost." However, participants in a
Delaware/Wachovia 401(k) Plan or any other employee benefit plan may not combine
their holdings in, or purchases through, the Plan with Fund purchases made
outside the Plan for the purpose of obtaining reduced sales charges.

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 Asset Management
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.

In addition to the exchange privilege described above, participants in a
Delaware/Wachovia 401(k) Plan are, with respect to the Plan, permitted to: (1)
exchange all or part of their Class A shares of other Eligible Delaware Funds,
as well as Eligible Biltmore Funds, at net asset value; and (2) exchange all or
part of their Eligible Biltmore Fund shares into Class A shares of the Eligible
Delaware Funds, at net asset value, without payment of a front-end sales charge.
However, a participant in any Plan that has an aggregate investment of $1
million or less in the Eligible Funds who exchanges into an Eligible Fund from
the Money Fund must pay the applicable front-end sales charge at the time of the
exchange (unless the Money Fund shares were acquired in an exchange from an
Eligible Fund subject to a front-end sales charge or by reinvestment of
dividends).

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.
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REDEEMING SHARES

The Fund redeems shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemptions
must be received in proper form and can be made through the Wachovia Banks,
Wachovia Investments, Inc., or directly to the Fund.

BY TELEPHONE. A shareholder may redeem shares of the Fund by calling the
Wachovia Banks (call toll-free 1-800-994-4414) to request the redemption.
Telephone redemption instructions may be recorded. Shares will be redeemed at
the net asset value next determined after the Fund receives the redemption
request from the Wachovia Banks. Redemption requests made through the Wachovia
Banks must be received by the Wachovia Banks before 3:00 p.m. (Eastern time) in
order for shares to be redeemed at that day's net asset value. The Wachovia
Banks are responsible for promptly submitting redemption requests and providing
proper written redemption instructions to the Fund. Registered broker/dealers
may charge

customary fees and commissions for this service. If reasonable procedures are
not followed by the Fund, it may be liable for 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 three business days, but in no event
more than seven days, after receipt of a proper written redemption request.

SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Fund, or a redemption payable other
than to the shareholder of record, must have signatures on written redemption
requests guaranteed by:

.a trust company or commercial bank whose deposits are insured by the 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.

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SHAREHOLDER INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each 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.

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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 Asset Management, and its affiliate banks, are
subject to such banking laws and regulations.

The Wachovia Banks believe, based on the advice of their counsel, that they may
perform the services for the Fund contemplated by their investment advisory
contract and 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 Wachovia Banks from continuing to
perform all or a part of the above services for their customers and/or the Fund.
If the Wachovia Banks were prohibited from engaging in these customer-related
activities, the Trustees would consider alternative 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 Wachovia Banks. It is not expected that existing Fund
shareholders would suffer any adverse financial consequences (if another service
provider with equivalent abilities to the Wachovia Banks is found) as a result
of any of these occurrences.

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings 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.

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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.

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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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

Addresses

Biltmore Balanced Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Investment Adviser Wachovia Asset Management
301 North Main Street
Winston-Salem, North Carolina 27150

Custodian Wachovia Bank of North Carolina, N.A.
Wachovia Trust Operations
301 North Main Street
Winston-Salem, North Carolina 27150
Transfer Agent, Dividend Disbursing Agent, Federated Services Company
and Portfolio Recordkeeper Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Counsel to The Biltmore Funds Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800

Counsel to the Independent Trustees Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
Independent Auditors Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
The Biltmore Service Center 101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226

Biltmore Balanced Fund Prospectus
A Diversified Portfolio of The Biltmore Funds
An Open-End, Management Investment Company

Cusip 090297821
January 31, 1996 3012915A (1/96)
822-12 (1/96)

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, 1996. This Statement is not
a prospectus itself. To receive a copy of the prospectus, write the Fund or
call The Biltmore Service Center toll-free at 1-800-994-4414
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1996

FEDERATED SECURITIES
CORP.

Distributor
A subsidiary of FEDERATED
INVESTORS

GENERAL INFORMATION ABOUT THE FUND DETERMINING NET ASSET VALUE 14
1
DETERMINING MARKET VALUE OF
INVESTMENT OBJECTIVES AND POLICIES1 SECURITIES 15

Types of Investments 1 REDEEMING FUND SHARES 15
Investment Limitations 7
Redemption in Kind 15
THE BILTMORE FUNDS MANAGEMENT 10
MASSACHUSETTS BUSINESS TRUSTS 15
Officers and Trustees 10
TAX STATUS 16
Fund Ownership 11
Trustees Compensation 12 The Fund's Tax Status 16
Trustee Liability 12 Shareholders' Tax Status 16
INVESTMENT ADVISORY SERVICES 12 Capital Gains 16
TOTAL RETURN 16
Adviser to the Fund 12
Advisory Fees 12 YIELD 16
BROKERAGE TRANSACTIONS 13
PERFORMANCE COMPARISONS 17
OTHER SERVICES 13
FINANCIAL STATEMENTS 19
Administration 13
APPENDIX 20
Custodian 13
Transfer Agent 14
Legal Services 14
Independent Auditors 14
Portfolio Turnover 14
PURCHASING FUND SHARES 14

Conversion to Federal Funds 14
Exchanging Securities for Fund
Shares 14

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. ^
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 net assets in warrants. No
more than 2% of the Fund's net assets, to be included within the overall 5%

limit on investments in warrants, may be warrants which are not listed on
the New York Stock Exchange or the American Stock Exchange.
PURCHASING SECURITIES TO EXERCISE CONTROL
The 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, birthdates, 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.</R

James A. Hanley
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931

Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).

Samuel E. Hudgins
3100 Cumberland Circle
Suite 1525
Atlanta, GA
March 4, 1929

Trustee
President, Percival Hudgins & Company, LLC (investment bankers/financial
consultants); Director, Atlantic American Corporation (insurance holding
company); Director, Bankers Fidelity Life Insurance Company; Director and Vice
Chairman, Leath Furniture, Inc. (retail furniture); President, Atlantic American
Corporation (until 1988); Director, Vice Chairman and Chief Executive Officer,
Rhodes, Inc. (retail furniture) (until 1988); Chairman and Director, Atlantic
American Life Insurance Co., Georgia Casualty & Surety Company, and Bankers
Fidelity Life Insurance (until 1988).

J. Berkley Ingram, Jr.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924

Trustee
Real estate investor and partner; formerly, Vice Chairman, Massachusetts Mutual
Life Insurance Company.

D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930

Trustee
Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).

Charles S. Way, Jr.
200 Meeting Street
Suite 401
Charleston, S.C.
December 18, 1937

Trustee
President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chairman of the Executive Committee, Kiawah Resort Associates,
L.P.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
October 26, 1938

President and ^Treasurer
President and Chief Executive Officer, Federated Investors Management Company;
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, Federated
Research, and Federated Services Company;^ and Director, Federated Securities
Corp.

Ronald M. Petnuch

Federated Investors Tower
Pittsburgh, PA
February 27, 1960

Vice President and Assistant Treasurer
Senior Vice President, Federated Services Company; Director of Proprietary
Client Services and member of the Office of the President, Federated
Administrative Services; formerly Associate Corporate Counsel, Federated
Investors; Vice President and Assistant Treasurer for certain investment
companies for which Federated Securities Corp. is the principal distributor.

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959

Secretary
Senior Corporate Counsel, Federated Investors.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of ^January 10, 1996, the following shareholder of record owned 5% or more
of the outstanding shares of the Fund: Wachovia Bank of North Carolina,
Winston-Salem, North Carolina, on behalf of certain underlying accounts, owned
approximately^ 4,143,906 shares (22.80%).

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, $21,857 $22,725 for the Trust and one other
Trustee investment company in the Fund
Complex

Samuel E. Hudgins, $22,937 $23,850 for the Trust and one other
Trustee investment company in the Fund
Complex

J. Berkley Ingram, Jr., $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

D. Dean Kaylor, $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

Charles S. Way, Jr., $ 0 $ 0 for the Trust and one other
Trustee investment company in the Fund
Complex

*Information is furnished for the fiscal year ended November 30, 1995.
+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

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, 1995 and 1994, and for the period
from May 10, 1993 (date of initial public investment) to November 30, 1993, the
Adviser earned $1,394,516, $1,291,534, and $616,635, respectively, of which
$316,346, $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.
BROKERAGE TRANSACTIONS

makes decisions on portfolio transactions and selects brokers and dealers
subject to guidelines established by the Trustees. The adviser may select
brokers and dealers who offer brokerage and research services. These services
may be furnished directly to the Fund or to the adviser and may include: advice
as to the advisability of investing in securities; security analysis and
economic reports; economic studies; industry studies; receipt of quotations for
portfolio evaluations; and similar services. Research services provided by
brokers and dealers may be used by the adviser or its affiliates 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 their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offfer brokerage
and research transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided. For the fiscal years ended November 30, 1995
and1994, and for the period from May 10, 1993 (date of initial public
investment) to November 30, 1993, the Fund paid $140,316, $262,992, and
$157,549, respectively, in commissions on brokerage transactions.
As of November 30, 1995, the Fund owned $3,239,499 of securities issued by
General Electric Co., one of the Fund's regular broker/dealers, ^which derives
more than 15% of its gross revenues from securities-related activities.
Although investment decisions for the Fund are made independently frm those of
the other accounts managed by the adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available to investments or opportunities for
sales will be allocated in a manner believed by the adviser to be equitable to
each. In some cases, this procedure may adversely affect the price paid or

received by the Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and the ability
to participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES

ADMINISTRATION
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 years ended November 30, 1995 and
1994, and for the period from May 10, 1993 (date of initial public investment)
to November 30, 1993, FAS earned $178,968, $183,610, and $108,092, respectively.
In addition, for the fiscal years ended November 30, 1995 and 1994, and for the
period from May 10, 1993 (date of initial public investment) to November 30,
1993, FAS reimbursed $0, $46,191, and $44,122, respectively, in other Fund
operating expenses.
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
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.

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

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

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.
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.

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, 1995, and for the period from May 10, 1993 (date of initial public
investment) to November 30, 1995, were 20.61% and 9.45%, 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, 1995, was
2.84%.
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.
FINANCIAL STATEMENTS

The financial statements for the fiscal period ended November 30, 1995, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1995 (File Nos. 33-44590 and 811-6504). A copy of the Annual Report may be
obtained without charge by contacting The Biltmore Service Center at the address
located on the back cover of the prospectus or by calling The Biltmore Service
Center at 1-800-994-4414.

APPENDIX

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+."

Prospectus
January 31, 1996

The shares of Biltmore Equity Fund (the "Fund") offered by this prospectus
represent interests in a diversified portfolio of securities, which is one of a
series of investment portfolios in The Biltmore Funds (the "Trust"), an
open-end management investment company (a mutual fund).

The investment objective of the Fund is to produce growth of principal and
income. The Fund pursues this objective by investing primarily in a
professionally-managed and diversified portfolio of quality mid to
large-capitalization common stocks.

Cusip 090297821
3012915B (1/96)

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, 1996 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.

a criminal offense.

[LOGO OF WACHOVIA INVESTMENTS]

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TABLE OF CONTENTS

Corporate Obligations 4
Stock Index Futures and Options 4
Put and Call Options 5
Restricted and Illiquid Securities 5
Temporary Investments 5
Repurchase Agreements 5
When-Issued and Delayed
Delivery Transactions 5
Lending of Portfolio Securities 6
Investment Considerations 6
Equity Investments 6
Securities of Foreign Issuers 6
Debt Investments 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
Brokerage Transactions 8
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 9
Through Authorized Broker/Dealers 10
Minimum Investment Required 10
What Shares Cost 10
Purchases at Net Asset Value 10
Sales Charge Reallowance 10
Reducing the Sales Charge 11
Quantity Discounts and Accumulated
Purchases 11
Letter of Intent 11
Reinvestment Privilege 11
Concurrent Purchases 11
Plan Right of Accumulation 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 15
Voting Rights 15
- ---------------------------------------------------
EFFECT OF BANKING LAWS 15
- ---------------------------------------------------
TAX INFORMATION 15
- ---------------------------------------------------
PERFORMANCE INFORMATION 16
- ---------------------------------------------------
ADDRESSES BACK COVER

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SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)

<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.63%
12b-1 Fees None
Other Expenses 0.27%
Shareholder Servicing Agent Fee (2) 0.00%
Total Fund Operating Expenses (after waiver) (3) 0.90%
</TABLE>

(3) Total Fund Operating Expenses would have been 0.97% absent the voluntary
waiver described above in Note 1.

<TABLE>
<S> <C> <C> <C> <C>
Example 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return;
(2) redemption at the end of each time period; and
(3) payment of the maximum sales load. As noted in
the table above, the Fund charges no redemption fees. $54 $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 EQUITY FUND FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the year ended November 30, 1995, and on the following
table for the periods presented, is included in the Fund's Annual Report to
shareholders dated November 30, 1995, which is incorporated herein by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
Year Ended November 30, 1995 1994 1993(a)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.32 $ 10.28 $ 10.00
Income from investment operations
Net investment income 0.23 0.20 0.12
Net realized and unrealized gain (loss) on investments and futures
contracts 2.64 0.12 0.25
--------- --------- ---------
Total from investment operations 2.87 0.32 0.37
--------- --------- ---------
Less distributions
Distributions from net investment income (0.25) (0.20) (0.09)
Distributions from net realized gain on investments (0.23) (0.08) --
--------- --------- ---------
Total distributions (0.48) (0.28) (0.09)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 12.71 $ 10.32 $ 10.28
--------- --------- ---------
Total Return (b) 28.74% 3.10% 3.68%
Ratios to Average Net Assets
Expenses 0.90% 0.87% 0.81%*
Net investment income 1.99% 1.98% 2.18%*
Expense waiver/reimbursement (c) 0.07% 0.16% 0.32%*
Supplemental Data
Net assets, end of period (000 omitted) $130,150 $87,022 $61,997

Portfolio turnover 65% 35% 50%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from May 10, 1993 (date of initial
public investment) to November 30, 1993.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended November 30, 1995, which can be obtained
free of charge.

===============================================================================

GENERAL INFORMATION

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."); and

. 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.).

engage in put and call options, futures, and options on futures for hedging
purposes.

Corporate Obligations. The Fund may invest in preferred stocks, bonds, notes,
and debentures of corporate issuers. These obligations will be rated at the time
of purchase in the top three rating categories, or, if unrated, will be of
comparable quality as determined by the Fund's investment adviser. In addition,
the Fund may invest in convertible securities, which are fixed income securities
that may be exchanged or converted into a predetermined number of shares at the
option of the holder during a specified time period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or debentures,
units consisting of "usable" bonds and warrants or a combination of the features
of several of these securities. The investment characteristics of each
convertible security vary widely, which allows convertible securities to be
employed for different investment objectives.

convertible bonds, 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.

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.

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. For temporary defensive purposes (up to 100% of total
assets) and to maintain liquidity (up to 35% of total assets), the Fund may
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; and

. 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.

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.

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 CONSIDERATIONS

EQUITY INVESTMENTS. As with other mutual funds that invest 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. The United
States equity market tends to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.

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.

DEBT INVESTMENTS. The market value of debt obligations, and therefore a 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. 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.
Although debt obligations with longer maturities offer potentially greater
returns, they will generally experience the greatest market price changes.
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. The Funds' investment adviser will
attempt to minimize the fluctuation of the Fund's net asset value by predicting
the direction of interest rates; however, the adviser could be incorrect in its
expectations about the direction and the extent of these market factors.

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
Asset Management (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.

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.

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 over $19 billion in managed
assets as of September 30, 1995. Wachovia Asset Management 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 and municipalities. Thus, it
may be possible, from time to time, for the Fund to hold or acquire the
securities of issuers which are also lending clients of the Wachovia Banks. The
lending relationship will not be a factor in the selection of securities.

The Fund's portfolio managers are Frank N. Donnelly, F. Stanley King and Michael
O. Mercer. Mr. Donnelly assumed co-management responsibilities in 1995. Mr. King
has co-managed the Fund since its inception. Mr. Mercer has co-managed the Fund
since 1993.

Mr. Donnelly is a Senior Vice President and Senior Investment Officer in
institutional portfolio management for Wachovia Asset Management in Atlanta. Mr.
Donnelly joined Wachovia Capital Managment as a counselor in 1987. He became an
institutional portfolio manager in Atlanta in 1990. He received his

bachelor of science degree in economics from Siena College in 1971 and an MBA
from Babcock School of Management, Wake Forest University in 1983.

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 been with Wachovia Bank
of North Carolina, N.A. since 1983.

DISTRIBUTION OF SHARES

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

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

<TABLE>
<CAPTION>
Average Aggregate Daily
Maximum Net Assets of the Trust
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>

BROKERAGE TRANSACTIONS

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

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.

placing an order in person. Payment may be made by check or by debiting a
customer's account at Wachovia Investments, Inc. Purchase orders must normally
be received by Wachovia Investments, Inc. before 3:30 p.m. (Eastern time).
Wachovia Investments, Inc., a wholly-owned subsidiary of Wachovia Corporation,
is a registered broker/dealer and 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.

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

a "Delaware/Wachovia 401(k) Plan" or "Plan") which have in excess of an
aggregate investment of $1 million in certain Delaware Group Funds ("Eligible
Delaware Funds") and certain portfolios of the Trust, including the Fund
("Eligible Biltmore Funds" together, the "Eligible Funds") by offering
investment options that include the Eligible Funds, will be made at net asset
value, without the imposition of the sales charge otherwise provided in the
table above. "Eligible Biltmore Funds" refers to the Fund, the Biltmore Balanced
Fund, Biltmore Emerging Markets Fund, Biltmore Fixed Income Fund, Biltmore
Special Values Fund, and Investment Shares class of the Biltmore Money Market
Fund (the "Money Fund").

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.

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.

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.

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.

under the section entitled "What Shares Cost." However, participants in a
Delaware/Wachovia 401(k) Plan or any other employee benefit plan may not benefit
plan may not combine their holdings in, or purchases through, the Plan with Fund
purchases made outside the Plan for the purpose of obtaining reduced sales
charges.

SYSTEMATIC INVESTMENT PROGRAM

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

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

CAPITAL GAINS

Capital gains, when realized by the Fund, will be distributed at least once
every 12 months.

EXCHANGE PRIVILEGE

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.

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 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.

===============================================================================

REDEEMING SHARES

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 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.

SYSTEMATIC WITHDRAWAL PROGRAM

program.

ACCOUNTS WITH LOW BALANCES

===============================================================================

SHAREHOLDER INFORMATION

VOTING RIGHTS

under certain circumstances.

===============================================================================

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 Asset Management, and its affiliate banks, are
subject to such banking laws and regulations.

===============================================================================

TAX INFORMATION

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.

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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

===============================================================================

Addresses

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Biltmore Equity Fund Federated Investors Tower
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 Asset Management
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

- -------------------------------------------------------------------------------

Transfer Agent, Dividend Disbursing Agent, Federated Services Company
and Portfolio Recordkeeper Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

- -------------------------------------------------------------------------------

Counsel to The Biltmore Funds Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800

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Counsel to the Independent Trustees Piper & Marbury L.L.P.
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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The Biltmore Service Center 101 Greystone Boulevard
SC-9215

Columbia, South Carolina 29226

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Biltmore Equity Fund Prospectus
A Diversified Portfolio Of The Biltmore Funds
An Open-End, Management Investment Company

Cusip 090297839
January 31, 1996 3012914A (1/96)

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, 1996. This Statement is not
a prospectus itself. To receive a copy of the prospectus, write the Fund or
call The Biltmore Service Center toll-free at 1-800-994-4414.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1996

FEDERATED SECURITIES CORP.

Distributor
A subsidiary of FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE Exchanging Securities for Fund
FUND 1 Shares 12

INVESTMENT OBJECTIVE AND POLICIES1

Types of Investments 1
Investment Limitations 5
THE BILTMORE FUNDS MANAGEMENT 8

Officers and Trustees 8
Fund Ownership 9
Trustees Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10

Adviser to the Fund 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 11

OTHER SERVICES 11

Administration 11
Custodian 11
Transfer Agent 12
Legal Services 12
Independent Auditors 12
Portfolio Turnover 12
PURCHASING FUND SHARES 12

Conversion to Federal Funds 12

DETERMINING NET ASSET VALUE 13

DETERMINING MARKET VALUE OF
SECURITIES 13

REDEEMING FUND SHARES 13

Redemption in Kind 13
MASSACHUSETTS BUSINESS TRUSTS 13

TAX STATUS 14

The Fund's Tax Status 14
Shareholders' Tax Status 14
Capital Gains 14
TOTAL RETURN 14

YIELD 14

PERFORMANCE COMPARISONS 15

FINANCIAL STATEMENTS 15

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 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 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:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and the
number of other potential buyers;
odealer undertakings to make a market in the security; and
othe 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

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 and
Banks for Cooperatives;
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 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.
No more than 2% of the Fund's net assets, to be included within the
overall 5% limit on investments in warrants, may be warrants which are

not listed on the New York Stock Exchange or the American Stock Exchange.

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, birthdates, 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
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931

Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).

Samuel E. Hudgins
3100 Cumberland Circle
Suite 1525
Atlanta, GA
March 4, 1929

Trustee
President, Percival Hudgins & Company, LLC (investment bankers/financial
consultants); Director, Atlantic American Corporation (insurance holding
company); Director, Bankers Fidelity Life Insurance Company; Director and Vice
Chairman, Leath Furniture, Inc. (retail furniture); President, Atlantic
American Corporation (until 1988); Director, Vice Chairman and Chief Executive
Officer, Rhodes, Inc. (retail furniture) (until 1988); Chairman and Director,
Atlantic American Life Insurance Co., Georgia Casualty & Surety Company, and
Bankers Fidelity Life Insurance (until 1988).

J. Berkley Ingram, Jr.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924

Trustee
Real estate investor and partner; formerly, Vice Chairman, Massachusetts
Mutual Life Insurance Company.

D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930

Trustee
Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).

Charles S. Way, Jr.
200 Meeting Street
Suite 401
Charleston, S.C.
December 18, 1937

Trustee
President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chairman of the Executive Committee, Kiawah Resort Associates,
L.P.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
October 26, 1938

Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
February 27, 1960

Investors; Vice President and Assistant Treasurer for certain investment
companies for which Federated Securities Corp. is the principal distributor.

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959

Secretary
Senior Corporate Counsel, Federated Investors.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 10, 1996, the following 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 939,683 shares (8.48%), and Wachovia Bank of Georgia, Winston-
Salem, North Carolina, on behalf of certain underlying accounts, owned
approximately ^880,361 shares (7.94%).

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, $21,857 $22,725 for the Trust and one other
Trustee investment company in the Fund
Complex

Samuel E. Hudgins, $22,937 $23,850 for the Trust and one other
Trustee investment company in the Fund
Complex

J. Berkley Ingram, Jr., $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

D. Dean Kaylor, $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

Charles S. Way, Jr., $ 0 $ 0 for the Trust and one other
Trustee investment company in the Fund
Complex

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 Asset Management (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, 1995 and 1994, and for the period
from May 10, 1993 (date of initial public investment) to November 30, 1993,

the Adviser earned $754,597, $ 511,439, and $244,017, respectively, of which
$76,995, $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.
BROKERAGE TRANSACTIONS

services may be furnished directly to the Fund or to the adviser and may
include: advice as to the advisability of investing in securities; security
analysis and economic reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the adviser or its affiliates
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 their expenses. The adviser and
its affiliates exercise reasonable business judgment in selecting brokers who
offfer brokerage and research transactions. They determine in good faith that
commissions charged by such persons are reasonable in relationship to the
value of the brokerage and research services provided. For the fiscal years
ended November 30, 1995 and 1994, and for the period from May 10, 1993 (date
of initial public investment) to November 30, 1993, the Fund paid $176,610,
$142,056, and $125,447, respectively, in commissions on brokerage
transactions.
As of November 30, 1995, the Fund owned ^$3,171,173, $501,287, and $523,036
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.
Although investment decisions for the Fund are made independently frm those of
the other accounts managed by the adviser, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the adviser are prepared to invest in, or
desire to dispose of, the same security, available to investments or
opportunities for sales will be allocated in a manner believed by the adviser
to be equitable to each. In some cases, this procedure may adversely affect

the price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.
OTHER SERVICES

ADMINISTRATION
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 years ended November 30,
1995 and 1994, and for the period from May 10, 1993 (date of initial public
investment) to November 30, 1993, FAS earned $96,714, $75,000, and $75,000,
respectively, of which $0, $2,936, and $32,208, respectively, were voluntarily
waived. In addition, for the fiscal years ended November 30, 1995 and 1994,
and for the period from May 10, 1993 (date of initial public investment) to
November 30, 1993, FAS reimbursed $0, $40,467, and $37,225, respectively, in
other Fund operating expenses.
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
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 LLP,
Washington, D.C. Piper & Marbury L.L.P., Washington, D.C., serves as counsel
to the independent Trustees.
INDEPENDENT AUDITORS
The independent auditors are Ernst & Young LLP, Pittsburgh, Pennsylvania.
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 years ended November 30, 1995 and 1994, the
Fund's portfolio turnover rates were 65% and 35%, respectively.
PURCHASING FUND 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 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:
ofor equity securities, according to the last sale price on a national
securities exchange, if available;
oin the absence of recorded sales for listed equity securities, according to
the mean between the last closing bid and asked prices;
ofor unlisted equity securities, the latest bid prices;
ofor bonds and other fixed income securities, as determined by an independent
pricing service;
ofor short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service; or
ofor 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.
MASSACHUSETTS BUSINESS TRUSTS

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.
TAX STATUS

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, and 1995, and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1995, were 22.9% and 11.23%,
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, 1995 , was
1.52%.
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 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:
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in 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.
oDOW 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.
oSTANDARD & 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.
oMORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
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.
FINANCIAL STATEMENTS

The financial statements for the fiscal period ended November 30, 1995, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1995 (File Nos. 33-44590 and 811-6504). A copy of the Annual Report may be
obtained without charge by contacting The Biltmore Service Center at the
address located on the back cover of the prospectus or by calling The Biltmore
Service Center at 1-800-994-4414.

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+."
Cusip 09090297839
3012914B (1/96)

Prospectus
January 31, 1996

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, 1996, 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.

[LOGO OF WACHOVIA INVESTMENTS]

===============================================================================

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 5

Restricted and Illiquid Securities 6

Investment Considerations 6

Equity Investments 6

Investment Limitations 6

- ---------------------------------------------------

THE BILTMORE FUNDS INFORMATION 6

Management of the Trust 6

Board of Trustees 6

Investment Adviser 6

Advisory Fees 6

Adviser's Background 6

Distribution of Shares 7

Administrative Arrangements 7

Shareholder Servicing Arrangements 7

Administration of the Fund 7

Administrative Services 7

Brokerage Transactions 7

Expenses of the Fund 8

- ---------------------------------------------------

NET ASSET VALUE 8

- ---------------------------------------------------

INVESTING IN THE FUND 8

Share Purchases 8

Through the Trust Divisions of the

Wachovia Banks 8

Through Wachovia Investments, Inc. 8

By Mail 8

Through Authorized Broker/Dealers 9

Minimum Investment Required 9

What Shares Cost 9

Purchases at Net Asset Value 9

Sales Charge Reallowance 9

Reducing the Sales Charge 9

Quantity Discounts and Accumulated

Purchases 10

Letter of Intent 10

Reinvestment Privilege 10

Concurrent Purchases 10

Systematic Investment Program 10

Certificates and Confirmations 10

Subaccounting Services 11

Dividends 11

Capital Gains 11

Exchange Privilege 11

Exchange by Telephone 12

- ---------------------------------------------------

REDEEMING SHARES 12

By Telephone 12

By Mail 12

Signatures 12

Systematic Withdrawal Program 13

Accounts with Low Balances 13

- ---------------------------------------------------

SHAREHOLDER INFORMATION 13

Voting Rights 13

- ---------------------------------------------------

EFFECT OF BANKING LAWS 13

- ---------------------------------------------------

TAX INFORMATION 14

- ---------------------------------------------------

PERFORMANCE INFORMATION 14

- ---------------------------------------------------

STANDARD & POOR'S CORPORATION 15

- ---------------------------------------------------

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) 0.25%
12b-1 Fees None
Other Expenses 0.23%
Shareholder Servicing Agent Fee (2) 0.00%
Total Fund Operating Expenses (after waiver) (3) 0.48%
</TABLE>

(3) Total Fund Operating Expenses would have been 0.53% absent the voluntary
waiver described above in Note 1.

<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. $50 $60 $71 $103
</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)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the year ended November 30, 1995, and on the following
table for the periods presented is included in the Fund's Annual Report to
shareholders dated November 30, 1995, which is incorporated herein by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
Year Ended November 30, 1995 1994 1993(a)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.27 $ 10.47 $ 10.00
Income from investment operations
Net investment income 0.28 0.25 0.15
Net realized and unrealized gain (loss) on investments and
futures contracts 3.37 (0.19) 0.43
--------- --------- -----------
Total from investment operations 3.65 0.06 0.58
--------- --------- -----------
Less distributions
Distributions from net investment income (0.27) (0.24) (0.11)
Distributions from net realized gain on investments (0.03) (0.02) --
--------- --------- -----------
Total distributions (0.30) (0.26) (0.11)
--------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.62 $ 10.27 $ 10.47
--------- --------- -----------
Total Return (b) 36.15% 0.56% 5.80%
Ratios to Average Net Assets
Expenses 0.48% 0.46% 0.43%*
Net investment income 2.39% 2.44% 2.54%*
Expense waiver/reimbursement (c) 0.05% 0.08% 0.12%*
Supplemental Data
Net assets, end of period (000 omitted) $186,841 $183,852 $149,266

Portfolio turnover 60% 9% 9 %
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from May 10, 1993 (date of initial
public investment) to November 30, 1993.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended November 30, 1995, which can be obtained
free of charge.

================================================================================

GENERAL INFORMATION

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 and Banks for Cooperatives, 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 Fund 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

. time and savings deposits (including certificates of deposit) in domestic,
commercial and savings banks.

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.

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. The Fund will not enter into these transactions for speculative
purposes.

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

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.

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.

operations, the Wachovia Banks may make loans to public companies and
municipalities. Thus, it may be possible, from time to time, for the Fund to
hold or acquire the securities of issuers which are also lending clients of the
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.

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

<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of the Biltmore Funds
Administrative Fee and The Biltmore Municipal Funds
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

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

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.

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.

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>

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.

age 21 when it calculates 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.

SYSTEMATIC INVESTMENT PROGRAM

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

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.

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.

===============================================================================

REDEEMING SHARES

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.

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.

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 of January 10, 1996, 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.

================================================================================

EFFECT OF BANKING LAWS

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
Asset Management, and its affiliate banks, are subject to such banking laws and
regulations.

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 Wachovia Banks. It is not expected that existing Fund
shareholders would suffer any adverse financial consequences (if another service
provider with equivalent abilities to the Wachovia Banks is found) as a result
of any of these occurrences.

================================================================================

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.

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.

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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

================================================================================

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.

================================================================================

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 Asset Management

301 North Main Street

Winston-Salem, North Carolina 27150

- --------------------------------------------------------------------------------

Custodian

Wachovia Bank of North Carolina, N.A.

Wachovia Trust Operations

301 North Main Street

Winston-Salem, North Carolina 27150

- --------------------------------------------------------------------------------

Transfer Agent, Dividend Disbursing Agent, Federated Services Company
and Portfolio Recordkeeper

Federated Investors Tower

Pittsburgh, Pennsylvania 15222-3779

- --------------------------------------------------------------------------------

Counsel to The Biltmore Funds

Kirkpatrick & Lockhart LLP

1800 Massachusetts Avenue, N.W.

Washington, D.C. 20036-1800

- --------------------------------------------------------------------------------

Counsel to the Independent Trustees

Piper & Marbury L.L.P.

1200 Nineteenth Street, N.W.

Washington, D.C. 20036-2430

- --------------------------------------------------------------------------------

Independent Auditors

Ernst & Young LLP

One Oxford Centre

Pittsburgh, Pennsylvania 15219

- --------------------------------------------------------------------------------

The Biltmore Service Center

101 Greystone Boulevard

SC-9215

Columbia, South Carolina 29226

- --------------------------------------------------------------------------------

Biltmore Equity Index Fund
A Diversified Portfolio Of The Biltmore Funds
An Open-End, Management Investment Company

Cusip 090297847

January 31, 1996

3012919A (1/96)
822-11 (1/96)

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, 1996. This Statement is not
a prospectus itself. To receive a copy of the prospectus, write the Fund or
call The Biltmore Service Center toll-free at 1-800-994-4414.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1996

FEDERATED SECURITIES CORP.

Distributor
A subsidiary of FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE Exchanging Securities for Fund
FUND 1 Shares 11

INVESTMENT OBJECTIVE AND POLICIES1

Types of Investments 1
Investment Limitations 4
THE BILTMORE FUNDS MANAGEMENT 7

Officers and Trustees 7
Fund Ownership 8
Trustees Compensation 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9

Adviser to the Fund 9
Advisory Fees 9
BROKERAGE TRANSACTIONS 10

OTHER SERVICES 10

Administration 10
Custodian 10
Transfer Agent 11
Legal Services 11
Independent Auditors 11
Portfolio Turnover 11
PURCHASING FUND SHARES 11

Conversion to Federal Funds 11

DETERMINING NET ASSET VALUE 12

DETERMINING MARKET VALUE OF
SECURITIES 12

REDEEMING FUND SHARES 12

Redemption in Kind 12
MASSACHUSETTS BUSINESS TRUSTS 12

TAX STATUS 13

The Fund's Tax Status 13
Shareholders' Tax Status 13
Capital Gains 13
TOTAL RETURN 13

YIELD 13

PERFORMANCE COMPARISONS 14

FINANCIAL STATEMENTS 14

STANDARD & POOR'S CORPORATION 14

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:
othe full faith and credit of the U.S. Treasury;

othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
othe 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:
oFarm Credit System, including the National Bank for Cooperatives and
Banks for Cooperatives;
oFederal Home Loan Banks;
oFederal Home Loan Mortgage Corporation;
oFederal National Mortgage Association;
oGovernment National Mortgage Association; and
oStudent 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:
oinstruments 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;
ocommercial 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;
otime 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
obankers' 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 net assets in warrants.
No more than 2% of the Fund's net assets, to be included within the
overall 5% limit on investments in warrants which are not listed on the
New York Stock Exchange or the American Stock Exchange.
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, birthdates, 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
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931

Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).

Samuel E. Hudgins
3100 Cumberland Circle
Suite 1525
Atlanta, GA
March 4, 1929

Trustee
President, Percival Hudgins & Company, LLC (investment bankers/financial
consultants); Director, Atlantic American Corporation (insurance holding
company); Director, Bankers Fidelity Life Insurance Company; Director and Vice
Chairman, Leath Furniture, Inc. (retail furniture); President, Atlantic
American Corporation (until 1988); Director, Vice Chairman and Chief Executive
Officer, Rhodes, Inc. (retail furniture) (until 1988); Chairman and Director,
Atlantic American Life Insurance Co., Georgia Casualty & Surety Company, and
Bankers Fidelity Life Insurance (until 1988).

J. Berkley Ingram, Jr.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924

Trustee
Real estate investor and partner; formerly, Vice Chairman, Massachusetts
Mutual Life Insurance Company.

D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930

Trustee
Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).

Charles S. Way, Jr.
200 Meeting Street
Suite 401
Charleston, S.C.
December 18, 1937

Trustee
President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chairman of the Executive Committee, Kiawah Resort Associates,
L.P.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
October 26, 1938

Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
February 27, 1960

Investors; Vice President and Assistant Treasurer for certain investment
companies for which Federated Securities Corp. is the principal distributor.

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959

Secretary
Senior Corporate Counsel, Federated Investors.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 10, 1996, the following shareholder of record owned 5% or
more of the outstanding shares of the Fund: Wachovia Bank of North Carolina,
Winston-Salem, North Carolina, on behalf of certain underlying accounts, owned
approximately 8,398,037 shares (55.62%).

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, $21,857 $22,725 for the Trust and one other
Trustee investment company in the Fund
Complex

Samuel E. Hudgins, $22,937 $23,850 for the Trust and one other
Trustee investment company in the Fund
Complex

J. Berkley Ingram, Jr., $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

D. Dean Kaylor, $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

Charles S. Way, Jr., $ 0 $ 0 for the Trust and one other
Trustee investment company in the Fund
Complex

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 ^Asset Management ^("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, 1995 and 1994, and for the period
from May 10, 1993 (date of initial public investment) to November 30, 1993,
the Adviser earned $545,415, $503,953, and $249,910, respectively, of which
$97,171, $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.
BROKERAGE TRANSACTIONS

analysis and economic reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the adviser or its affiliates
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 their expenses. The adviser and
its affiliates exercise reasonable business judgment in selecting brokers who
offfer brokerage and research transactions. They determine in good faith that
commissions charged by such persons are reasonable in relationship to the
value of the brokerage and research services provided. For the fiscal years
ended November 30, 1995 and 1994, and for the period from May 10, 1993 (date
of initial public investment) to November 30, 1993, the Fund paid $28,337,
$32,790, and $20,407, respectively, in commissions on brokerage
transactions.
As of November 30, 1995, the Fund owned $4,241,458, $771,545, $320,739,
$364,455, and $143,790 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.
Although investment decisions for the Fund are made independently frm those of
the other accounts managed by the adviser, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the adviser are prepared to invest in, or
desire to dispose of, the same security, available to investments or
opportunities for sales will be allocated in a manner believed by the adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or

disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.
OTHER SERVICES

ADMINISTRATION
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 years ended November 30,
1995 and 1994, and for the period from May 10, 1993 (date of initial public
investment) to November 30, 1993, FAS earned $163,299, $166,703, and $102,301,
respectively. In addition, for the fiscal years ended November 30, 1995 and
1994, and for the period from May 10, 1993 (date of initial public investment)
to November 30, 1993, FAS reimbursed $0, $50,455, and $49,405, respectively,
in other Fund operating expenses.
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
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 LLP,
Washington, D.C. Piper & Marbury L.L.P., Washington, D.C., serves as counsel
to the independent Trustees.
INDEPENDENT AUDITORS
The independent auditors are Ernst & Young LLP, Pittsburgh, Pennsylvania.
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 years ended November 30, 1995 and 1994, the Fund's
portfolio turnover rates were 60% and 9%, respectively.
PURCHASING FUND SHARES

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.
MASSACHUSETTS BUSINESS TRUSTS

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.
TAX STATUS

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, 1995, and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1995, were 30.07% and 13.48%,
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, 1995, was
1.82%.
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.
FINANCIAL STATEMENTS

The financial statements for the fiscal period ended November 30, 1995, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1995 (File Nos. 33-44590 and 811-6504). A copy of the Annual Report may be
obtained without charge by contacting The Biltmore Service Center at the
address located on the back cover of the prospectus or by calling The Biltmore
Service Center at 1-800-994-4414.
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.
Cusip 090297847

Prospectus

January 31, 1996

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, 1996 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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS

Through Authorized Broker/Dealers 12

Minimum Investment Required 12
What Shares Cost 12
Purchases at Net Asset Value 12
Sales Charge Reallowance 13
Reducing the Sales Charge 13
Quantity Discounts and Accumulated
Purchases 13
Letter of Intent 13
Reinvestment Privilege 13
Concurrent Purchases 13
Plan Right of Accumulation 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
- ---------------------------------------------------
EFFECT OF BANKING LAWS 17
- ---------------------------------------------------
TAX INFORMATION 18
- ---------------------------------------------------
PERFORMANCE INFORMATION 18
- ---------------------------------------------------
ADDRESSES BACK COVER

- --------------------------------------------------------------------------------
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SUMMARY OF FUND EXPENSES

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)

<TABLE>
<S> <C> <C>
Management Fee (after waiver) (1) 0.50%
12b-1 Fees None
Other Expenses 0.24%
Shareholder Servicing Agent Fee (2) 0.00%
Total Fund Operating Expenses (after waiver) (3) 0.74%
</TABLE>

(1) The management fee 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%.

(3) Total Fund Operating Expenses would have been 0.84% absent the voluntary
waiver described above in Note 1.

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

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- --------------------------------------------------------------------------------

BILTMORE FIXED INCOME FUND FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the year ended November 30, 1995, and on the following
table for the periods presented is included in the Annual Report to shareholders
dated November 30, 1995 which is incorporated herein by reference. This table
should be read in conjunction with the Fund's financial statements and notes
thereto, which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
Year Ended November 30, 1995 1994 1993(a)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.97 $ 10.00 $ 10.00
Income from investment operations
Net investment income 0.58 0.56 0.31
Net realized and unrealized gain (loss) on investments 0.92 (0.98) (0.01)
--------- --------- -----------
Total from investment operations 1.50 (0.42) 0.30
--------- --------- -----------
Less distributions
Distributions from net investment income (0.57) (0.55) (0.30)
Distributions from net realized gain on investment
transactions -- (0.06) --
--------- --------- -----------
Total distributions (0.57) (0.61) (0.30)
--------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.90 $ 8.97 $ 10.00
--------- --------- -----------
Total Return (b) 17.20% (4.30%) 3.02%
Ratios to Average Net Assets
Expenses 0.74% 0.71% 0.68%*
Net investment income 6.07% 5.90% 5.44%*
Expense waiver/reimbursement (c) 0.10% 0.13% 0.19%*
Supplemental Data
Net assets, end of period (000 omitted) $169,846 $148,751 $140,325
Portfolio turnover 155% 148% 149%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from May 10, 1993 (date of initial
public investment) to November 30, 1993.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended November 30, 1995, which can be obtained
free of charge.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL INFORMATION

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;

.convertible securities;

.mortgage- and asset-backed securities (see below);

.commercial paper that at the time of purchase is rated not less than Prime-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; and

.time and savings deposits (including certificates of deposit) in commercial or
savings banks.

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 and Banks for Cooperatives; 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.

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.

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.

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.

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.

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.

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. 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; however, the adviser
could be incorrect in its expectations about the direction and the extent of
these market factors.

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.

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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.

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.

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 over $19 billion in managed
assets as of September 30, 1995. Wachovia Asset Management 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 and municipalities. Thus, it
may be possible, from time to time, for the Fund to hold or acquire the
securities of issuers which are also lending clients of the 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 Asset Management. 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.

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>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year 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.

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.

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NET ASSET VALUE

The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.

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INVESTING IN THE FUND

SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Shares 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.

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.

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

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. 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. Purchases made by participants in 401(k) Defined Contribution Plans (each
a "Delaware/Wachovia 401(k) Plan" or "Plan") which have in excess of an
aggregate investment of $1 million in certain Delaware Group Funds ("Eligible
Delaware Funds") and certain portfolios of the Trust, including the Fund
("Eligible Biltmore Funds" together, the "Eligible Funds") by offering
investment options that include the Eligible Funds, will be made at net asset
value, without the imposition of the sales charge otherwise provided in the
table above. "Eligible Biltmore Funds" refers to the Fund, the Biltmore Balanced
Fund, the Biltmore

Emerging Markets Fund, the Biltmore Equity Fund, the Biltmore Special Values
Fund, and the Investment Shares class of the Biltmore Money Market Fund (the
"Money Fund").

REDUCING THE SALES CHARGE. The sales charge can be reduced on the purchase of
shares of the Fund through:

.quantity discounts and accumulated purchases;
.signing a 13-month letter of intent;
.using the reinvestment privilege; or
.concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table 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.

PLAN RIGHT OF ACCUMULATION. Purchases of the Fund by a Delaware/Wachovia 401(k)
Plan will be aggregated with the current value of all shares of the Eligible
Funds already held by, and being concurrently purchased by, the Plan in order to
compute reduced sales charges as shown in the table in this prospectus under the
section entitled "What Shares Cost." However, participants in a
Delaware/Wachovia 401(k) Plan or any other employee benefit plan may not combine
their holdings in, or purchases through, the Plan with Fund purchases made
outside the Plan for the purpose of obtaining reduced sales charges.

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.

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

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.

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.

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REDEEMING SHARES

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.

The Fund does not accept signatures guaranteed by a notary public.

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.

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.

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SHAREHOLDER INFORMATION

VOTING RIGHTS

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EFFECT OF BANKING LAWS

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TAX INFORMATION

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.

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PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield.

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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

Addresses
Biltmore Fixed Income Fund

Federated Investors Tower

Pittsburgh, Pennsylvania 15222-3779
Distributor

Federated Securities Corp.

Federated Investors Tower

Pittsburgh, Pennsylvania 15222-3779

Investment Adviser

Wachovia Asset Management

301 North Main Street

Winston-Salem, North Carolina 27150

Custodian

Wachovia Bank of North Carolina, N.A.

Wachovia Trust Operations

301 North Main Street

Winston-Salem, North Carolina 27150
Transfer Agent, Dividend Disbursing Agent,

Federated Services Company
and Portfolio Recordkeeper

Federated Investors Tower

Pittsburgh, Pennsylvania 15222-3779

Counsel to The Biltmore Funds

Kirkpatrick & Lockhart LLP

1800 Massachusetts Avenue, N.W.

Washington, D.C. 20036-1800

Counsel to the Independent Trustees

Piper & Marbury L.L.P.

1200 Nineteenth Street, N.W.

Washington, D.C. 20036-2430
Independent Auditors

Ernst & Young LLP

One Oxford Centre

Pittsburgh, Pennsylvania 15219
The Biltmore Service Center

101 Greystone Boulevard

SC-9215

Columbia, South Carolina 29226
Biltmore Fixed Income Fund
A Diversified Portfolio Of The Biltmore Funds
An Open-End, Management Investment Company

Cusip 090297854
January 31, 1996

3012917A (1/96)
822-13 (1/96)

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, 1996. 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, 1996

FEDERATED SECURITIES CORP.

Distributor
A subsidiary of FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE Exchanging Securities for Fund
FUND 1 Shares 13

INVESTMENT OBJECTIVES AND POLICIES1

Types of Investments 1
Investment Limitations 6
THE BILTMORE FUNDS MANAGEMENT 9

Officers and Trustees 9
Fund Ownership 11
Trustees Compensation 11
Trustee Liability 11
INVESTMENT ADVISORY SERVICES 11

Adviser to the Fund 11
Advisory Fees 12
BROKERAGE TRANSACTIONS 12

OTHER SERVICES 12

Administration 12
Custodian 13
Transfer Agent 13
Legal Services 13
Independent Auditors 13
Portfolio Turnover 13
PURCHASING FUND SHARES 13

Conversion to Federal Funds 13

DETERMINING NET ASSET VALUE 14

DETERMINING MARKET VALUE OF
SECURITIES 14

REDEEMING FUND SHARES 14

Redemption in Kind 14
MASSACHUSETTS BUSINESS TRUSTS 14

TAX STATUS 15

The Fund's Tax Status 15
Shareholders' Tax Status 15
Capital Gains 15
TOTAL RETURN 15

YIELD 15

PERFORMANCE COMPARISONS 16

FINANCIAL STATEMENTS 17

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. 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:
oinstruments 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;

ocommercial 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;
otime 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
obankers' 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:

othe frequency of trades and quotes for the security;

othe number of dealers willing to purchase or sell the security and the
number of other potential buyers;
odealer undertakings to make a market in the security; and
othe 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 net assets in warrants.
No more than 2% of the Fund's net assets, to be included within the
overall 5% limit on investments in warrants, may be warrants which are
not listed on the New York Stock Exchange or the American Stock
Exchange.

PURCHASING SECURITIES TO EXERCISE CONTROL
The 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, birthdates, 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
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931

Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).

Samuel E. Hudgins
3100 Cumberland Circle
Suite 1525
Atlanta, GA
March 4, 1929

Trustee
President, Percival Hudgins & Company, LLC (investment bankers/financial
consultants); Director, Atlantic American Corporation (insurance holding
company); Director, Bankers Fidelity Life Insurance Company; Director and Vice
Chairman, Leath Furniture, Inc. (retail furniture); President, Atlantic
American Corporation (until 1988); Director, Vice Chairman and Chief Executive
Officer, Rhodes, Inc. (retail furniture) (until 1988); Chairman and Director,
Atlantic American Life Insurance Co., Georgia Casualty & Surety Company, and
Bankers Fidelity Life Insurance (until 1988).

J. Berkley Ingram, Jr.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924

Trustee

Real estate investor and partner; formerly, Vice Chairman, Massachusetts
Mutual Life Insurance Company.

D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930

Trustee
Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).

- --------------------------
Charles S. Way, Jr.
200 Meeting Street
Suite 401
Charleston, S.C.
December 18, 1937

Trustee
President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chairman of the Executive Committee, Kiawah Resort Associates,
L.P.

John W. McGonigle

Federated Investors Tower
Pittsburgh, PA
October 26, 1938

Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
February 27, 1960

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959

Secretary
Senior Corporate Counsel, Federated Investors.

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, $21,857 $22,725 for the Trust and one other
Trustee investment company in the Fund
Complex

Samuel E. Hudgins, $22,937 $23,850 for the Trust and one other
Trustee investment company in the Fund
Complex

J. Berkley Ingram, Jr., $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

D. Dean Kaylor, $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

Charles S. Way, Jr., $ 0 $ 0 for the Trust and one
other
Trustee investment company in the
Fund Complex

INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment adviser is Wachovia Asset Management ^(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.

analysis and economic reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the adviser or its affiliates
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 their expenses. The adviser and
its affiliates exercise reasonable business judgment in selecting brokers who
offfer brokerage and research 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. As of November 30,
1995, the Fund owned $1,074,000 and $2,032,000 of securities issued by Morgan
Stanley Group, Inc. and Merrill Lynch, Pierce, Fenner & Smith, respectively,
two of its regular broker/dealers, which derives more than 15% of its gross
revenues from securities-related activities.
Although investment decisions for the Fund are made independently frm those of
the other accounts managed by the adviser, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the adviser are prepared to invest in, or
desire to dispose of, the same security, available to investments or
opportunities for sales will be allocated in a manner believed by the adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.

OTHER SERVICES

ADMINISTRATION
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 years ended November 30,
1995 and 1994, and for the period from May 10, 1993 (date of initial public
investment) to November 30, 1993, FAS earned $143,274, $142,981, and $93,341.
In addition, FAS reimbursed $0, $48,849, and $52,005 in other Fund operating
expenses.
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
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 LLP,
Washington, D.C. Piper & Marbury L.L.P., Washington, D.C., serves as counsel
to the independent Trustees.
INDEPENDENT AUDITORS
The independent auditors are Ernst & Young LLP, Pittsburgh, Pennsylvania.
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 years ended November 30, 1995 and1994, the Fund's
portfolio turnover rates were 155% and 148%, respectively.
PURCHASING FUND 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 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

REDEEMING FUND SHARES

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.
TAX STATUS

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, 1995, and for the period from May 10, 1993 (date of initial
public investment) to November 30, 1995, were 11.96% and 3.91%,
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, 1995 was
5.16%.
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

ovarious other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and the maximum offering price (i.e., net asset value plus any sales
charge) per share fluctuate daily. Both net earnings and offering price per
share are factors in the computation of yield and total return.
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:
oLEHMAN 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.
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in net asset value over a specific period of
time. From time to time, the Fund will quote its Lipper ranking in the
"fixed income funds" category in advertising and sales literature.

oLEHMAN 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.
oMERRILL 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).
oMERRILL 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).
oSALOMON 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.
oLEHMAN 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.
oMORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
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.

FINANCIAL STATEMENTS

The financial statements for the fiscal period ended November 30, 1995, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1995 (File Nos. 33-44590 and 811-6504). A copy of the Annual Report may be
obtained without charge by contacting The Biltmore Service Center at the
address located on the back cover of the prospectus or by calling The Biltmore
Service Center at 1-800-994-4414.

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.

Cusip 090297854
3012917B (1/96)

Prospectus
January 31, 1996

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.

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, 1996 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.

[LOGO OF WACHOVIA INVESTMENTS]

===============================================================================

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
Equity Investments 6
Debt Investments 7
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
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
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 12

Plan Right of Accumulation 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 14
By Mail 14
Signatures 14
Systematic Withdrawal Program 14
Accounts with Low Balances 15
- ---------------------------------------------------
SHAREHOLDER INFORMATION 15
Voting Rights 15
- ---------------------------------------------------
EFFECT OF BANKING LAWS 15
- ---------------------------------------------------
TAX INFORMATION 16
- ---------------------------------------------------
PERFORMANCE INFORMATION 16
- ---------------------------------------------------
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 waiver) (2) 0.79%
Shareholder Servicing Agent Fee (3) 0.00%
Total Fund Operating Expenses (after waivers) (4) 1.29%
</TABLE>

(2) Other expenses would have been 1.07% absent the voluntary waiver by the
administrator. The administrator can terminate this voluntary waiver at any
time at its sole discretion.

(3) As of the date of this prospectus, the Fund is not paying or accruing
shareholder servicing agent fees. The Fund will not pay or accrue
shareholder servicing agent fees until a separate class of shares has been
created for certain trust and institutional investors. 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 1.87% absent the voluntary
waivers described above in Notes 1 and 2.

<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)

The following table has been audited by Ernst & Young, LLP, the Fund's
independent auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the year ended November 30, 1995, and on the following
table for the periods presented, is included in the Fund's Annual Report to
shareholders dated November 30, 1995, which is incorporated herein by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
Year Ended November 30, 1995 1994 1993(a)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.75 $ 10.24 $ 10.00
Income from investment operations
Net investment income 0.09 0.06 (0.002)
Net realized and unrealized gain (loss) on investments 2.42 (0.22) 0.242
--------- --------- ---------
Total from investment operations 2.51 (0.16) 0.24
Less distributions
Distributions from net investment income (0.02) (0.05) --
Distributions from net realized gain on investments (0.06) (0.28) --
--------- --------- ---------
Total distributions (0.08) (0.33) --
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 12.18 $ 9.75 $ 10.24
--------- --------- ---------
Total Return (b) 25.91% (1.61%) 2.40%
Ratios to Average Net Assets
Expenses 1.29% 1.13% 1.25%*
Net investment income 0.80% 0.63% (0.03%)*
Expense waiver/reimbursement (c) 0.58% 1.09% 1.79%*
Supplemental Data
Net assets, end of period (000 omitted) $24,093 $17,431 $12,072
Portfolio turnover 57% 62% 68%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from May 10, 1993 (date of initial
public investment) to November 30, 1993.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended November 30, 1995, which can be obtained
free of charge.

==============================================================================

GENERAL INFORMATION

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.

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; and

. master limited partnerships.

engage in put and call options, futures, and options on futures for hedging
purposes.

Corporate Obligations. The Fund may invest in preferred stocks, bonds, notes,
and debentures of corporate issuers. Domestic issues of corporate debt
obligations will 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.

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.

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.

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.

inability to close options also could have an adverse impact on the Fund's
ability to effectively hedge its portfolio.

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. For temporary defensive purposes (up to 100% of total
assets) and to maintain liquidity (up to 35% of total assets), the Fund may
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; and
. 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.

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

EQUITY INVESTMENTS. 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.

DEBT INVESTMENTS. 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. 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.
Although debt obligations with longer maturities offer potentially greater
returns, they will generally experience the greatest market price changes.
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. 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; however, the adviser could be incorrect in its
expectations about the direction and the extent of these market factors.

INVESTMENT LIMITATIONS

The Fund will not:

. 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.

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.

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. (collectively, the
"Wachovia Banks") have been managing trust assets for over 100 years, with over
$19 billion in managed assets as of September 30, 1995. Wachovia Asset
Management 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 and
municipalities. Thus it may be possible, from time to time, for the Fund to hold
or acquire the securities of issuers which are also lending clients of the
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 Senior 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

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

<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds and
Administrative Fee The Biltmore Municipal Funds
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

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

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.

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.

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.

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:

Finally, purchases made by participants in 401(k) Defined Contribution Plans
(each a "Delaware/Wachovia 401(k) Plan" or "Plan") which have in excess of an
aggregate investment of $1 million in certain Delaware Group Funds ("Eligible
Delaware Funds") and certain portfolios of the Trust, including the Fund
("Eligible Biltmore Funds" together, the "Eligible Funds") by offering
investment options that include the Eligible Funds, will be made at net asset
value, without the imposition of the sales charge otherwise provided in the
table above. "Eligible Biltmore Funds" refers to the Fund, the Biltmore Balanced
Fund, the Biltmore Emerging Markets Fund, the Biltmore Equity Fund, the Biltmore
Fixed Income Fund, and the Investment Shares class of the Biltmore Money Market
Fund (the "Money Fund").

REDUCING THE SALES CHARGE. The sales charge can be reduced on the purchase of
shares of the Fund through:

. quantity discounts and accumulated purchases;

. signing a 13-month letter of intent;

. using the reinvestment privilege; or

. concurrent purchases.

eliminate a sales charge. If the shareholder redeems his shares in the Fund,

there may be tax consequences.

SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on

a regular basis in a minimum amount of $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.

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.

DIVIDENDS

Dividends are declared and paid annually 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

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.

given by telephone may be electronically recorded.

==============================================================================

REDEEMING SHARES

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.

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.

Shareholders should call the Wachovia Banks for assistance in redeeming by mail.

. 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.

SYSTEMATIC WITHDRAWAL PROGRAM

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

==============================================================================

SHAREHOLDER INFORMATION

VOTING RIGHTS

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.

==============================================================================

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 Asset Management, and its affiliate banks, are

subject to such banking laws and regulations.

shareholders would suffer any adverse financial consequences (if another service
provider with equivalent abilities to the Wachovia Banks is found) as a result
of any of these occurrences.

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings 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.

==============================================================================

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.

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, advertisements for the Fund may refer to ratings, rankings,

and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

==============================================================================

Addresses

- ------------------------------------------------------------------------------

Biltmore Special Values Fund

Federated Investors Tower

Pittsburgh, Pennsylvania 15222-3779

- ------------------------------------------------------------------------------

Distributor

Federated Securities Corp.

Federated Investors Tower

Pittsburgh, Pennsylvania 15222-3779

- ------------------------------------------------------------------------------

Investment Adviser

Wachovia Asset Management

301 North Main Street

Winston-Salem, North Carolina 27150

- ------------------------------------------------------------------------------

Custodian

Wachovia Bank of North Carolina, N.A.

Wachovia Trust Operations

301 North Main Street

Winston-Salem, North Carolina 27150

- ------------------------------------------------------------------------------

Transfer Agent, Dividend Disbursing Agent, Federated Services Company

and Portfolio Recordkeeper

Federated Investors Tower

Pittsburgh, Pennsylvania 15222-3779

- ------------------------------------------------------------------------------

Counsel to The Biltmore Funds

Kirkpatrick & Lockhart LLP

1800 Massachusetts Avenue, N.W.

Washington, D.C. 20036-1800

- ------------------------------------------------------------------------------

Counsel to the Independent Truste es

Piper & Marbury L.L.P.

1200 Nineteenth Street, N.W.

Washington, D.C. 20036-2430

- ------------------------------------------------------------------------------

Independent Auditors

Ernst & Young LLP

One Oxford Centre

Pittsburgh, Pennsylvania 15219

- ------------------------------------------------------------------------------

The Biltmore Service Center

101 Greystone Boulevard

SC-9215

Columbia, South Carolina 29226

- ------------------------------------------------------------------------------

Biltmore Special Values Fund Prospectus
A Diversified Portfolio Of The Biltmore Funds
An Open-End, Management Investment Company

Cusip 090297870
January 31, 1996

3012918A (1/96)

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, 1996. This Statement is not
a prospectus itself. To receive a copy of the prospectus, write the Fund or
call The Biltmore Service Center toll-free at 1-800-994-4414.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1996

FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE FUND
1

INVESTMENT OBJECTIVE AND POLICIES1

Types of Investments 1
Investment Limitations 5
THE BILTMORE FUNDS MANAGEMENT 8

Officers and Trustees 8
Fund Ownership 9
Trustees Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10

Adviser to the Fund 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 11

OTHER SERVICES 11

Administration 11
Custodian 11
Transfer Agent 12
Legal Services 12
Independent Auditors 12
Portfolio Turnover 12
PURCHASING FUND SHARES 12

Conversion to Federal Funds 12

Exchanging Securities for Fund Shares
12
DETERMINING NET ASSET VALUE 13

DETERMINING MARKET VALUE OF SECURITIES
13

REDEEMING FUND SHARES 13

Redemption in Kind 13
MASSACHUSETTS BUSINESS TRUSTS 13

TAX STATUS 14

The Fund's Tax Status 14
Shareholders' Tax Status 14
Capital Gains 14
TOTAL RETURN 14

YIELD 14

PERFORMANCE COMPARISONS 15

FINANCIAL STATEMENTS 15

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 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.

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:
othe full faith and credit of the U.S. Treasury;
othe 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 and
Banks for Cooperatives;
oFederal Home Loan Banks;
oFederal Home Loan Mortgage Corporation;
oFederal National Mortgage Association;
oGovernment National Mortgage Association; and
oStudent 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.
No more than 2% of the Fund's net assets, to be included within the
overall 5% limit on investments in warrants, may be warrants which are
not listed on the New York Stock Exchange or the American Stock
Exchange.
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, birthdates, 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
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931

Trustee

Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).

Samuel E. Hudgins
3100 Cumberland Circle
Suite 1525
Atlanta, GA
March 4, 1929

Trustee
President, Percival Hudgins & Company, LLC (investment bankers/financial
consultants); Director, Atlantic American Corporation (insurance holding
company); Director, Bankers Fidelity Life Insurance Company; Director and Vice
Chairman, Leath Furniture, Inc. (retail furniture); President, Atlantic
American Corporation (until 1988); Director, Vice Chairman and Chief Executive
Officer, Rhodes, Inc. (retail furniture) (until 1988); Chairman and Director,
Atlantic American Life Insurance Co., Georgia Casualty & Surety Company, and
Bankers Fidelity Life Insurance (until 1988).

J. Berkley Ingram, Jr.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924

Trustee
Real estate investor and partner; formerly, Vice Chairman, Massachusetts
Mutual Life Insurance Company.

D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930

Trustee
Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).

Charles S. Way, Jr.
200 Meeting Street
Suite 401
Charleston, S.C.
December 18, 1937

Trustee
President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chairman of the Executive Committee, Kiawah Resort Associates,
L.P.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
October 26, 1938

Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
February 27, 1960

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959

Secretary
Senior Corporate Counsel, Federated Investors.

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, $21,857 $22,725 for the Trust and one other
Trustee investment company in the Fund
Complex

Samuel E. Hudgins, $22,937 $23,850 for the Trust and one other
Trustee investment company in the Fund
Complex

J. Berkley Ingram, Jr., $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

D. Dean Kaylor, $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

Charles S. Way, Jr., $ 0 $ 0 for the Trust and one other
Trustee investment company in the Fund
Complex

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, 1995 and 1994, and for the period
from May 10, 1993 (date of initial public investment) to November 30, 1993,
the Adviser earned $160,840, $117,003, and $54,274, respectively, of which
$59,075, $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.
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 guidelines established by the Trustees. The adviser may
select brokers and dealers who offer brokerage and research services. These
services may be furnished directly to the Fund or to the adviser and may
include: advice as to the advisability of investing in securities; security
analysis and economic reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the adviser or its affiliates
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 their expenses. The adviser and
its affiliates exercise reasonable business judgment in selecting brokers who
offfer brokerage and research transactions. They determine in good faith that
commissions charged by such persons are reasonable in relationship to the
value of the brokerage and research services provided. For the fiscal years
ended November 30, 1995 and1994, and for the period from May 10, 1993 (date of
initial public investment) to November 30, 1993, the Fund paid $57,052,
$56,762, and $26,369, respectively, in commissions on brokerage
transactions.

Although investment decisions for the Fund are made independently frm those of
the other accounts managed by the adviser, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the adviser are prepared to invest in, or
desire to dispose of, the same security, available to investments or
opportunities for sales will be allocated in a manner believed by the adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.
OTHER SERVICES

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
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 LLP,
Washington, D.C. Piper & Marbury L.L.P., Washington, D.C., serves as counsel
to the independent Trustees.
INDEPENDENT AUDITORS
The independent auditors are Ernst & Young LLP, Pittsburgh, Pennsylvania.
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 years ended November 30, 1995 and1994, ^the Fund's portfolio
turnover rates were 57% and 62%, 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. ^
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

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

asset value during any 90-day period. Any redemption beyond this amount will
also be in cash unless the Trustees determine that payments should be in kind.
MASSACHUSETTS BUSINESS 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.
TAX STATUS

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 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, 1995, was
0.30%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the
Fund over a thirty-day period by the maximum offering price per share of the
Fund on the last day of the period. This value is then annualized using semi-
annual compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month period
and is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments required by
the Securities and Exchange Commission and, therefore, may not correlate to
the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, the performance will be reduced for those shareholders paying those
fees.
PERFORMANCE COMPARISONS

The Fund's performance depends upon such variables as:
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.
FINANCIAL STATEMENTS

The financial statements for the fiscal period ended November 30, 1995, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1995 (File Nos. 33-44590 and 811-6504). A copy of the Annual Report may be
obtained without charge by contacting The Biltmore Service Center at the
address located on the back cover of the prospectus or by calling The Biltmore
Service Center at 1-800-994-4414.

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+."
Cusip 090297870
3012918B (1/96)

Prospectus

January 31, 1996

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.

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, 1996 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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS

Risk 4

U.S. Government Obligations 4
Corporate Debt Obligations 4

Fixed Rate Corporate Debt Obligations 4
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

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
Brokerage Transactions 10
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. 11
By Mail 11

Through Authorized Broker/Dealers 11

Minimum Investment Required 12
What Shares Cost 12
Purchases at Net Asset Value 12
Sales Charge Reallowance 12
Reducing the Sales Charge 12
Quantity Discounts and Accumulated
Purchases 12
Letter of Intent 13

Reinvestment Privilege 13
Concurrent Purchases 13
Systematic Investment Program 13
Certificates and Confirmations 13
Subaccounting Services 13
Dividends 14
Capital Gains 14
Exchange Privilege 14
Exchange by Telephone 14
- ---------------------------------------------------
REDEEMING SHARES 15
By Telephone 15
By Mail 15
Signatures 15
Systematic Withdrawal Program 16
Accounts with Low Balances 16
- ---------------------------------------------------
SHAREHOLDER INFORMATION 16
Voting Rights 16
- ---------------------------------------------------
EFFECT OF BANKING LAWS 16
- ---------------------------------------------------
TAX INFORMATION 17
- ---------------------------------------------------
PERFORMANCE INFORMATION 17
- ---------------------------------------------------
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) 0.37%
12b-1 Fees None
Other Expenses 0.26%
Shareholder Servicing Agent Fee (2) 0.00%
Total Fund Operating Expenses (after waiver) (3) 0.63%
</TABLE>

(3) Total Fund Operating Expenses would have been 0.81% absent the voluntary
waiver described above in Note 1

<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 $45 $59 $102
</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)

<TABLE>
<CAPTION>
Year Ended November 30, 1995 1994 1993(a)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.58 $ 9.91 $ 10.00
Income from investment operations
Net investment income 0.59 0.45 0.27
Net realized and unrealized gain (loss) on investments 0.24 (0.33) (0.10)
--------- --------- -----------
Total from investment operations 0.83 0.12 0.17
Less distributions
Distributions from net investment income (0.52) (0.45) (0.26)
--------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.89 $ 9.58 $ 9.91
--------- --------- -----------
Total Return (b) 8.82% 1.27% 1.69%
Ratios to Average Net Assets
Expenses 0.63% 0.60% 0.58%*
Net investment income 5.83% 4.62% 4.78%*
Expense waiver/reimbursement (c) 0.18% 0.18% 0.22%*
Supplemental Data
Net assets, end of period (000 omitted) $124,720 $148,326 $154,459
Portfolio turnover 147% 151% 73%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from May 10, 1993 (date of initial
public investment) to November 30, 1993.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended November 30, 1995, which can be obtained
free of charge.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GENERAL INFORMATION

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 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);

.convertible securities;
.mortgage- and 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; and

.time and savings deposits (including certificates of deposit) in commercial or
savings banks.

In addition to the acceptable investments discussed above, the Fund may borrow
money, enter into repurchase agreements, lend portfolio securities, invest in
money market instruments, restricted and

illiquid securities, securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, securities of other investment companies,
warrants, demand master notes 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.

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.
Although debt obligations with longer maturities offer potentially greater
returns, they will generally experience the greatest market price changes.
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. 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; however, the adviser could be incorrect in its
expectations about the direction and the extent of these market factors.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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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.

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.

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. (collectively the
"Wachovia Banks"), have been managing trust assets for over 100 years, with over
$19 billion in managed assets as of September 30, 1995. Wachovia Asset
Management 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 and
municipalities. Thus, it may be possible, from time to time, for the Fund to
hold or acquire the securities of issuers which are also lending clients of the
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 Asset Management.
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.

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

<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds
Administrative Fee and The Biltmore Municipal Funds

<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

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

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.

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NET ASSET VALUE

The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.

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INVESTING IN THE FUND

SHARE PURCHASES

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.

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.

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>

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.

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%.

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.

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.

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.

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.

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

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.

Participating Funds at net asset value.

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REDEEMING SHARES

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.

SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an

address other than that on record with the Fund, or a redemption payable other
than to the shareholder of record, must have signatures on written redemption
requests guaranteed by:

.a trust company or commercial bank whose deposits are insured by the 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.

SYSTEMATIC WITHDRAWAL PROGRAM

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

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SHAREHOLDER INFORMATION

VOTING RIGHTS

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EFFECT OF BANKING LAWS

upon the order of their customers. The Fund's investment adviser, Wachovia Asset
Management, and its affiliate banks, are subject to such banking laws and
regulations.

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 Wachovia Banks from continuing to
perform all or a part of the above services for their customers and/or the Fund.
If the Wachovia Banks were prohibited from engaging in these customer-related
activities, the Trustees would consider alternative 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 Wachovia Banks. It is not expected that existing Fund
shareholders would suffer any adverse financial consequences (if another service
provider with equivalent abilities to the Wachovia Banks is found) as a result
of any of these occurrences.

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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.

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.

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PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield.

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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

Addresses
Biltmore 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 Asset Management

301 North Main Street

Winston-Salem, North Carolina 27150

Custodian

Wachovia Bank of North Carolina, N.A.

Wachovia Trust Operations

301 North Main Street

Winston-Salem, North Carolina 27150
Transfer Agent, Dividend Disbursing Agent,

Federated Services Company
and Portfolio Recordkeeper

Federated Investors Tower

Pittsburgh, Pennsylvania 15222-3779

Counsel to The Biltmore Funds

Kirkpatrick & Lockhart LLP

1800 Massachusetts Avenue, N.W.

Washington, D.C. 20036-1800

Counsel to the Independent Trustees

Piper & Marbury L.L.P.

1200 Nineteenth Street, N.W.

Washington, D.C. 20036-2430
Independent Auditors

Ernst & Young LLP

One Oxford Centre

Pittsburgh, Pennsylvania 15219
The Biltmore Service Center

101 Greystone Boulevard

SC-9215

Columbia, South Carolina 29226
Biltmore Short-Term Fixed Income Fund
A Diversified Portfolio Of The Biltmore Funds
An Open-End, Management Investment Company

Cusip 090297862
January 31, 1996

3012916A (1/96)
822-14 (1/96)

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, 1996.
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, 1996

FEDERATED SECURITIES CORP.

DISTRIBUTOR
A SUBSIDIARY OF FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE FUND
1

INVESTMENT OBJECTIVE AND POLICIES1

Types of Investments 1
Investment Limitations 6
THE BILTMORE FUNDS MANAGEMENT 9

Officers and Trustees 9
Fund Ownership 11
Trustees Compensation 11
Trustee Liability 11
INVESTMENT ADVISORY SERVICES 11

Adviser to the Fund 11
Advisory Fees 12
BROKERAGE TRANSACTIONS 12

OTHER SERVICES 12

Administration 12
Custodian 13
Transfer Agent 13
Legal Services 13
Independent Auditors 13
Portfolio Turnover 13
PURCHASING FUND SHARES 13

Conversion to Federal Funds 13

Exchanging Securities for Fund Shares
13
TXDETERMINING NET ASSET VALUE 14

DETERMINING MARKET VALUE OF SECURITIES
14

REDEEMING FUND SHARES 14

Redemption in Kind 14
MASSACHUSETTS BUSINESS TRUSTS 14

TAX STATUS 15

The Fund's Tax Status 15
Shareholders' Tax Status 15
Capital Gains 15
TOTAL RETURN 15

YIELD 15

PERFORMANCE COMPARISONS 16

FINANCIAL STATEMENTS 17

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. 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 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 net assets in warrants.
No more than 2% of the Fund's net assets, to be included within the
overall 5% limit on investments in warrants, may be warrants which are
not listed on the New York or American Stock Exchange.
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, birthdates, 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
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931

Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).

Samuel E. Hudgins
3100 Cumberland Circle
Suite 1525
Atlanta, GA
March 4, 1929

Trustee
President, Percival Hudgins & Company, LLC (investment bankers/financial
consultants); Director, Atlantic American Corporation (insurance holding
company); Director, Bankers Fidelity Life Insurance Company; Director and
Vice Chairman, Leath Furniture, Inc. (retail furniture); President, Atlantic
American Corporation (until 1988); Director, Vice Chairman and Chief
Executive Officer, Rhodes, Inc. (retail furniture) (until 1988); Chairman and
Director, Atlantic American Life Insurance Co., Georgia Casualty & Surety
Company, and Bankers Fidelity Life Insurance (until 1988).

J. Berkley Ingram, Jr.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924

Trustee
Real estate investor and partner; formerly, Vice Chairman, Massachusetts
Mutual Life Insurance Company.

D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930

Trustee
Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).

Charles S. Way, Jr.
200 Meeting Street
Suite 401
Charleston, S.C.

December 18, 1937

Trustee

President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chairman of the Executive Committee, Kiawah Resort Associates,
L.P.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
October 26, 1938

President and ^Treasurer
President and Chief Executive Officer, Federated Investors Management
Company; Executive Vice President, Secretary, General Counsel, and Trustee,
Federated Investors; Trustee, Federated Advisers, Federated Management,
Federated Research, and Federated Services Company;^ and Director, Federated
Securities Corp.

Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
February 27, 1960

Vice President and Assistant Treasurer

Senior Vice President, Federated Services Company; Director of Proprietary
Client Services and member of the Office of the President, Federated
Administrative Services; formerly Associate Corporate Counsel, Federated
Investors; Vice President and Assistant Treasurer for certain investment
companies for which Federated Securities Corp. is the principal distributor.

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959

Secretary
Senior Corporate Counsel, Federated Investors.

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, $21,857 $22,725 for the Trust and one
other
Trustee investment company in the Fund
Complex

Samuel E. Hudgins, $22,937 $23,850 for the Trust and one
other
Trustee investment company in the Fund
Complex

J. Berkley Ingram, Jr., $19,483 $20,250 for the Trust and one
other
Trustee investment company in the Fund
Complex

D. Dean Kaylor, $19,483 $20,250 for the Trust and one
other
Trustee investment company in the Fund
Complex

Charles S. Way, Jr., $ 0 $ 0 for the Trust and one other
Trustee investment company in the Fund
Complex

*Information is furnished for the fiscal year ended November 30, 1995.
+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

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, 1995 and1994, and for the period
from May 10, 1993 (date of initial public investment) to November 30, 1993,
the Adviser earned $768,294, $816,857,and $485,212 respectively, of which
$220,989, $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.

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 guidelines established by the Trustees. The adviser may
select brokers and dealers who offer brokerage and research services. These
services may be furnished directly to the Fund or to the adviser and may
include: advice as to the advisability of investing in securities; security
analysis and economic reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the adviser or its affiliates
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 their expenses. The adviser and
its affiliates exercise reasonable business judgment in selecting brokers who
offfer brokerage and research 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. As of November 30,
1995, the Fund owned $2,481,000 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.
Although investment decisions for the Fund are made independently frm those
of the other accounts managed by the adviser, investments of the type the
Fund may make may also be made by those other accounts. When the Fund and one

or more other accounts managed by the adviser are prepared to invest in, or
desire to dispose of, the same security, available to investments or
opportunities for sales will be allocated in a manner believed by the adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained
or disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.
OTHER SERVICES

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
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 LLP,
Washington, D.C. Piper & Marbury L.L.P., Washington, D.C., serves as counsel
to the independent Trustees.
INDEPENDENT AUDITORS
The independent auditors are Ernst & Young LLP, Pittsburgh, Pennsylvania.
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 years ended November 30, 1995 and 1994, the
Fund's portfolio turnover rates were 147% and 151%,^respectively.
PURCHASING FUND 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 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.
MASSACHUSETTS BUSINESS TRUSTS

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.
TAX STATUS

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 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, 1995, was
5.07%.
The yield for the Fund is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per share 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.
FINANCIAL STATEMENTS

The financial statements for the fiscal period ended November 30, 1995, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1995 (File Nos. 33-44590 and 811-6504). A copy of the Annual Report may
be obtained without charge by contacting The Biltmore Service Center at the
address located on the back cover of the prospectus or by calling The
Biltmore Service Center at 1-800-994-4414.

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+."
Cusip 090297862

Combined Prospectus

January 31, 1996

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 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 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, 1996, 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.

WACHOVIA INVESTMENTS
MAKE YOURSELF COMFORTABLE

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
Investment Risks 8
Tax-Free Fund 9
Investment Objective 9
Investment Policies 9
Acceptable Investments 9
Municipal Securities 9
Variable Rate Demand Notes 9
Participation Interests 10
Municipal Leases 10
Temporary Investments 10
Investment Risks 10
U.S. Treasury Fund 10
Investment Objective 10
Investment Policies 10
Acceptable Investments 11
All Funds 11
Investing in Securities of Other
Investment Companies 11
Repurchase Agreements 11
When-Issued and Delayed Delivery
Transactions 11
Money Market and Tax-Free Funds 11
Restricted and Illiquid Securities 11
Concentration of Investments 12
Demand Features 12
Credit Enhancement 12
Money Market and U.S. Treasury Funds 12
Lending of Portfolio Securities 12
Money Market Fund 13
Investment Limitations 13
Tax-Free Fund 13
Investment Limitations 13
U.S. Treasury Fund 13

Investment Limitation 13

- ---------------------------------------------------
THE BILTMORE FUNDS INFORMATION 13
Management of the Trust 13
Board of Trustees 13
Investment Adviser 13
Advisory Fees 13
Adviser's Background 14
Distribution of Investment Shares 14
Distribution Plan 14
Administrative Arrangements 15
Administration of the Funds 15
Administrative Services 15
- ---------------------------------------------------
NET ASSET VALUE 15
- ---------------------------------------------------
INVESTING IN INVESTMENT SHARES 15
Share Purchases 15
Through Wachovia Investments, Inc. 16
By Mail 16
Through the Wachovia Banks or
Other Service Organizations 16
Minimum Investment Required 16
What Shares Cost 17
Certificates and Confirmations 17
Dividends 17
Capital Gains 17
- ---------------------------------------------------
EXCHANGES 17
- ---------------------------------------------------
REDEEMING INVESTMENT SHARES 18
Through Wachovia Investments, Inc. 18
By Telephone 18
By Mail 19
Through the Wachovia Banks 19
By Telephone 19
Via Sweep Agreement 19
Through Service Organizations 19
By Telephone 19
Accounts with Low Balances 20
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS (CONT'D)

- ---------------------------------------------------
SHAREHOLDER INFORMATION 20
Voting Rights 20
- ---------------------------------------------------
EFFECT OF BANKING LAWS 20
- ---------------------------------------------------
TAX INFORMATION 21
Money Market and U.S. Treasury Funds 21
Tax-Free Fund 21
State and Local Taxes 21

- ---------------------------------------------------
PERFORMANCE INFORMATION 22
- ---------------------------------------------------
OTHER CLASSES OF SHARES 22
- ---------------------------------------------------
ADDRESSES BACK COVER

INVESTMENT 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 INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver) (1) 0.15%
12b-1 Fees 0.40%
Other Expenses 0.20%
Total Investment Shares Operating Expenses (after waiver) (2) 0.75%
</TABLE>

(1) The management fee has been reduced to reflect the anticipated voluntary
waiver by the investment adviser. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.

(2) The Annual Investment Shares Operating Expenses were 0.72% for the fiscal
year ended November 30, 1995. The Annual Investment Shares Operating
Expenses are expected to be 1.10%, absent the voluntary waiver described
in Note 1.

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. As noted in the table above, the Fund charges
no redemption fees for Investment Shares. $8 $24 $42 $93
</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.

ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver) (1) 0.05%
12b-1 Fees 0.40%
Other Expenses 0.25%
Total Investment Shares Operating Expenses (after waiver) (2) 0.70%
</TABLE>

(2) The Annual Investment Shares Operating Expenses were 0.66% for the fiscal
year ended November 30, 1995. The Annual Investment Shares Operating
Expenses are expected to be 1.15%, 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 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."

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver) (1) 0.05%
12b-1 Fees 0.40%
Other Expenses 0.20%
Total Investment Shares Operating Expenses (after waiver) (2) 0.65%
</TABLE>

(2) The Annual Investment Shares Operating Expenses were 0.66% for the fiscal
year ended November 30, 1995. The Annual Investment Shares Operating
Expenses are expected to be 1.10%, 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 Investment Shares of the U.S. Treasury
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."

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the year ended November 30, 1995, and on the following
table for the periods presented, is included in the combined Annual Report to
Shareholders dated November 30, 1995, which is incorporated herein by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
Year Ended November 30, 1995 1994 1993 1992(a)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.05 0.03 0.03 0.01
Less distributions
Dividends from net investment income (0.05) (0.03) (0.03) (0.01)
---------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- --------- --------- -----------
Total Return (b) 5.40% 3.46% 2.74% 1.48%
Ratios to Average Net Assets
Expenses 0.72% 0.68% 0.55% 0.48%*
Net investment income 5.27% 3.44% 2.70% 3.44%*
Expense waiver/reimbursement (c) 0.40% 0.50% 0.66% 0.75%*
Supplemental Data
Net assets, end of period (000 omitted) $ 165,636 $ 56,105 $ 9,842 $ 3,106
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from June 2, 1992 (date of initial
public investment) to November 30, 1992.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the year ended November 30, 1995, and on the following
table for the periods presented, is included in the combined Annual Report to
Shareholders dated November 30, 1995, which is incorporated herein by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
Year Ended November 30, 1995 1994 1993 1992(a)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.03 0.02 0.02 0.01
]Less distributions
Dividends to shareholders from net investment income (0.03) (0.02) (0.02) (0.01)
--------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- -----------
Total Return (b) 3.25% 2.11% 1.99% 1.29%
Ratios to Average Net Assets
Expenses 0.66% 0.68% 0.59% 0.50%*
Net investment income 3.19% 2.11% 1.98% 2.37%*
Expense waiver/reimbursement (c) 0.52% 0.55% 0.70% 0.88%*
Supplemental Data
Net assets, end of period (000 omitted) $55,733 $42,820 $23,976 $5,338
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from May 20, 1992 (date of initial public
investment) to November 30, 1992.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the year ended November 30, 1995, and on the following
table for the periods presented, is included in the combined Annual Report to
Shareholders dated November 30, 1995, which is incorporated herein by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained free of charge from the Trust.

* Computed on an annualized basis.

(a) Reflects operations for the period from May 12, 1993 (date of initial
public investment) to November 30, 1993.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL INFORMATION

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.

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.

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. 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 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.

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.

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

While there is no assurance that the Funds will achieve their investment
objectives, they endeavor to do so by complying with the various requirements of
Rule 2a-7 under the Investment Company Act of 1940 which regulates money market
mutual funds and by following the investment policies described in this
prospectus.

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

RESTRICTED AND ILLIQUID SECURITIES. The Money Market and Tax-Free Funds may
invest in restricted securities. Restricted securities are any securities in
which the Funds may otherwise invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. However, the Funds 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.

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 be credit-enhanced by a guaranty, letter of credit or insurance.
Any bankruptcy, receivership or default of the party providing the credit
enhancement will adversely affect the quality and marketability of the
underlying security.

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.

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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 Asset Management (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.

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 Asset Management 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 over
$19 billion in managed assets as of September 30, 1995. Wachovia Asset
Management 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.

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>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year 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.

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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 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 orders 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.

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 is determined at 12:00 noon and as of the close of trading
(normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday
through Friday, except on: (i) days on which there are not sufficient changes in
the value of 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.

In addition to the exchange privilege described above, effective July 31, 1995,
participants in 401(k) Defined Contribution Plans (each a "Delaware/Wachovia
401(k) Plan" or "Plan") are, with respect to the Plan, permitted to: (1)
exchange all or part of their Class A shares of certain other Delaware Group
Funds ("Eligible Delaware Funds"), as well as Eligible Biltmore Funds, at net
asset value; and (2) exchange all or part of their Eligible Biltmore Fund shares
into Class A shares of the Eligible Delaware Funds, at net asset value, without
payment of a front-end sales charge. However, a participant in a Plan that has
an aggregate investment of $1 million or less in Eligible Delaware Funds and/or
Eligible Biltmore Funds who exchanges into the Eligible Delaware Funds or
Eligible Biltmore Funds from the Money Market Fund must pay the applicable
front-end sales charge at the time of the exchange (unless the Money Market Fund
shares were acquired in exchange from an Eligible Delaware Fund or Eligible
Biltmore Fund subject to a front-end sales charge or by reinvestment of
dividends). "Eligible Biltmore Funds" refer to the Investment Shares class of
the Money Market Fund, the Biltmore Balanced Fund, the Biltmore Emerging Markets
Fund, the Biltmore Equity Fund, the Biltmore Fixed Income Fund, and the Biltmore
Special Values Fund.

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 10, 1996, 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 each 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 by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.

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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 Asset Management, and its affiliate banks, are
subject to such banking laws and regulations.

The Wachovia Banks believe, based on the advice of their counsel, that they may
perform the services for the Fund contemplated by their advisory 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 Wachovia Banks from continuing to perform all or a part of the
above services for their customers and/or the Fund. If the Wachovia Banks were
prohibited from engaging in these customer-related activities, the Trustees
would consider alternative 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 Wachovia Banks. It
is not expected that existing Fund shareholders would suffer any adverse
financial consequences (if another service provider with equivalent abilities to
the Wachovia Banks is found) as a result of any of these occurrences.

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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.

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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.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

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OTHER CLASSES OF SHARES

The Fund also offers another class of shares called Institutional 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.

To obtain more information and a prospectus for Institutional Shares, investors
may call their Wachovia trust account officer.

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 Asset Management
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 LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800

Counsel to the Independent Trustees Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430

Independent Auditors Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219

Biltmore Money Market Fund
Biltmore Tax-Free Money Market Fund
Biltmore U.S. Treasury Money Market Fund
Diversified Portfolios of The Biltmore Funds
Investment Shares
An Open-End Management Investment Company

Cusip 090297201
Cusip 090297409
Cusip 090297888
January 31, 1996 3042106A (1/96)
822-21 (1/96)

Prospectus
January 31, 1996

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).

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, 1996 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.

WACHOVIA INVESTMENTS
MAKE YOURSELF COMFORTABLE
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TABLE OF CONTENTS

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 Institutional Shares 7
Administration of the Fund 7
Administrative Services 7
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NET ASSET VALUE 8
- ---------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 8
Share Purchases 8
Through the Wachovia Banks 8
Via a Sweep Account 8
Minimum Investment Required 8
What Shares Cost 8
Certificates and Confirmations 9
Dividends 9
Capital Gains 9
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EXCHANGES 9
- ---------------------------------------------------

REDEEMING INSTITUTIONAL SHARES 10

By Telephone 10
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SHAREHOLDER INFORMATION 10
Voting Rights 10
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EFFECT OF BANKING LAWS 10
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TAX INFORMATION 11
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PERFORMANCE INFORMATION 11
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OTHER CLASSES OF SHARES 12
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ADDRESSES BACK COVER
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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 0.22%
Total Institutional Shares Operating Expenses (after waiver)(2) 0.38%
</TABLE>

(2) The Annual Institutional Shares Operating Expenses would have been 0.72%
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 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>
<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. $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.

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BILTMORE MONEY MARKET FUND FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the year ended November 30, 1995, and on the following
table for the periods presented, is included in the Annual Report to
Shareholders dated November 30, 1995, which is incorporated herein by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
Year Ended November 30, 1995 1994 1993 1992(a)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.06 0.04 0.03 0.02
Less distributions
Distributions from net investment income (0.06) (0.04) (0.03) (0.02)
--------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- -----------
Total Return (b) 5.75% 3.77% 3.05% 1.71%
Ratios to Average Net Assets
Expenses 0.38% 0.38% 0.25% 0.14%*
Net investment income 5.61% 3.74% 3.00% 3.38%*
Expense waiver/reimbursement (c) 0.34% 0.40% 0.56% 0.65%*
Supplemental Data
Net assets, end of period (000 omitted) $126,042 $129,233 $177,090 $84,698
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from June 2, 1992 (date of initial
public investment) to November 30, 1992.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

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GENERAL INFORMATION

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).

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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 complying
with the various requirements of Rule 2a-7 under the Investment Company Act of
1940 which regulates money market mutual funds and 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 ("TDs"). 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.

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 be
credit-enhanced by a guaranty, letter of credit or insurance. Any bankruptcy,
receivership or default of the party providing the credit enhancement will
adversely affect the quality and marketability of the underlying security.

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.

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.

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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 Asset Management (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 Asset Management 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 over
$19 billion in managed assets as of September 30, 1995. Wachovia Asset
Management 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>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year 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.

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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.

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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. 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 as of the close of trading
(normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday
through Friday, except on: (i) days on which there are not sufficient changes in
the value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the following
holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas Day.

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.

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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.

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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.

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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 10, 1996, 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.

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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 Asset Management, and its affiliate banks, are
subject to such banking laws and regulations.

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 Wachovia Banks from continuing to
perform all or a part of the above services for their customers and/or the Fund.
If the Wachovia Banks were prohibited from engaging in these customer-related
activities, the Trustees would consider alternative 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 Wachovia Banks. It is not expected that existing Fund
shareholders would suffer any adverse financial consequences (if another service
provider with equivalent abilities to the Wachovia Banks is found) as a result
of any of these occurrences.

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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.

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.

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PERFORMANCE INFORMATION

From time to time, the Fund advertises its yield and effective yield for
Institutional Shares.

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.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

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OTHER CLASSES OF SHARES

The Fund also offers another class of shares called Investment 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.

To obtain more information and a prospectus for Investments Shares, investors
may call 1-800-994-4414.

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 Asset Management
301 North Main Street
Winston-Salem, North Carolina 27150

Custodian Wachovia Bank of North Carolina, N.A.
Wachovia Trust Operations
301 North Main Street
Winston-Salem, North Carolina 27150

Transfer Agent, Dividend Disbursing Agent, Federated Services Company
and Portfolio Recordkeeper Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Counsel to The Biltmore Funds Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800

Counsel to the Independent Trustees Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430

Independent Auditors Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219

Biltmore Money Market Fund Prospectus
Institutional Shares
A Diversified Portfolio of The Biltmore Funds
An Open-End, Management Investment Company

Cusip 090297102
January 31, 1996 2020203A-IS (1/96)
822-16 (1/96)

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 prospectuses for Institutional Shares and Investment Shares of
Biltmore Money Market Fund (the "Fund"), a portfolio in The Biltmore Funds
(the "Trust"), dated January 31, 1996. 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, 1996

FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE FUND3

INVESTMENT OBJECTIVE AND POLICIES3

TYPES OF INVESTMENTS 3
RATINGS 5
WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS 5
REVERSE REPURCHASE AGREEMENTS 6
CREDIT ENHANCEMENT 6
INVESTMENT LIMITATIONS 7
REGULATORY COMPLIANCE 11
THE BILTMORE FUNDS MANAGEMENT 11

OFFICERS AND TRUSTEES 11
FUND OWNERSHIP 7
TRUSTEES COMPENSATION 16
TRUSTEE LIABILITY 17
INVESTMENT ADVISORY SERVICES 8

ADVISER TO THE FUND 18
ADVISORY FEES 19
BROKERAGE TRANSACTIONS 20

OTHER SERVICES 21

FUND ADMINISTRATION 21
CUSTODIAN AND PORTFOLIO
RECORDKEEPER 22

TRANSFER AGENT 22
LEGAL SERVICES 22
INDEPENDENT AUDITORS 23
PURCHASING SHARES 23

DISTRIBUTION PLAN (INVESTMENT
SHARES ONLY) 23
CONVERSION TO FEDERAL FUNDS 24
EXCHANGING SECURITIES FOR FUND
SHARES 24

DETERMINING NET ASSET VALUE 25

USE OF THE AMORTIZED COST METHOD25
REDEEMING SHARES 28

REDEMPTION IN KIND 28
MASSACHUSETTS BUSINESS TRUSTS 29

TAX STATUS 29

THE FUND'S TAX STATUS 29
SHAREHOLDERS' TAX STATUS 30
YIELD 30

EFFECTIVE YIELD 31

PERFORMANCE COMPARISONS 32

FINANCIAL STATEMENTS 33

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:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
othe 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;
oFarmers Home Administration;
oFederal Home Loan Banks;
oFederal Home Loan Mortgage Corporation;
oFederal National Mortgage Association;
oGovernment National Mortgage Association; and
oStudent 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:
oEurodollar Certificates of Deposit issued by foreign branches of U.S.
or foreign banks;

oEurodollar Time Deposits, which are U.S. dollar-denominated deposits in
foreign branches of U.S. or foreign banks; and
oYankee 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.

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."

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.

CREDIT ENHANCEMENT
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. However, credit-enhanced securities will not be treated as having been
issued by the credit enhancer for diversification purposes, unless the Fund
has invested more than 10% of its assets in securities issued, guaranteed or
otherwise credit enhanced by the credit enhancer, in which case the securities
will be treated as having been issued by both the issuer and the credit
enhancer.

The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.

INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including the amount
borrowed. The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing or holding money market instruments, including
repurchase agreements and variable amount demand master notes, permitted
by its investment objective, policies, and limitations or Declaration of
Trust.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in securities of issuers
whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.

INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities of any one issuer (other
than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by U.S. government securities) if as
a result more than 5% of the value of its total assets would be invested
in the securities of that issuer.
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."

REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this 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. In particular, the Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to Rule 2a-7. The Fund
may change these operational policies to reflect changes in the laws and
regulations without the approval of its shareholders.

THE BILTMORE FUNDS MANAGEMENT

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
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931

Trustee

Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).

Samuel E. Hudgins
3100 Cumberland Circle
Suite 1525
Atlanta, GA
March 4, 1929

Trustee

President, Percival Hudgins & Company, LLC (investment bankers/financial
consultants); Director, Atlantic American Corporation (insurance holding
company); Director, Bankers Fidelity Life Insurance Company; Director and Vice
Chairman, Leath Furniture, Inc. (retail furniture); President, Atlantic
American Corporation (until 1988); Director, Vice Chairman and Chief Executive
Officer, Rhodes, Inc. (retail furniture) (until 1988); Chairman and Director,
Atlantic American Life Insurance Co., Georgia Casualty & Surety Company, and
Bankers Fidelity Life Insurance (until 1988).

J. Berkley Ingram, Jr.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924

Trustee
Real estate investor and partner; Director, VF Corporation (apparel company);
formerly, Vice Chairman, Massachusetts Mutual Life Insurance Company.

D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930

Trustee

Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).

Charles S. Way, Jr.
200 Meeting Street
Suite 401
Charleston, S.C.
December 18, 1937

Trustee

President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chairman of the Executive Committee, Kiawah Resort Associates,
L.P.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
October 26, 1938

President and Treasurer
President and Chief Executive Officer, Federated Investors Management Company;
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, Federated
Research, and Federated Services Company; and Director, Federated Securities
Corp.

Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
February 27, 1960

Vice President and Assistant Treasurer
Senior Vice President, Federated Services Company; Director of Proprietary
Client Services and member of the Office of the President, Federated
Administrative Services; formerly, Associate Corporate Counsel, Federated
Investors; Vice President and Assistant Treasurer for certain investment
companies for which Federated Securities Corp. is the principal distributor.

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959

Secretary

Senior Corporate Counsel, Federated Investors.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding Shares.

As of January 10, 1996, the following shareholder of record owned 5% or more
of the outstanding Institutional Shares of the Fund: Wachovia Bank of North
Carolina, Winston-Salem, North Carolina, on behalf of certain underlying
accounts, owned approximately 135,205,436 Shares (100%).

As of January 10. 1996, the following shareholders of record owned 5% or more
of the outstanding Investment Shares of the Fund: Wachovia Brokerage Services,
Winston-Salem, North Carolina, owned approximately 75,978,734 Shares (42.82%);
Wachovia Bank of North Carolina, Winston-Salem, North Carolina, on behalf of
certain underlying accounts, owned approximately 74,131,385 Shares (41.77%);
and Wachovia Bank of Georgia, Winston-Salem, North Carolina, on behalf of
certain underlying accounts, owned approximately 17,493,541 Shares (9.86%).

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, $21,857 $22,725 for the Trust and one other
Trustee investment company in the Fund
Complex

Samuel E. Hudgins, $22,937 $23,850 for the Trust and one other
Trustee investment company in the Fund
Complex

J. Berkley Ingram, Jr., $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

D. Dean Kaylor, $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

Charles S. Way, Jr., $ 0 $ 0 for the Trust and one other
Trustee investment company in the Fund
Complex

ADVISER TO THE FUND

The Fund's investment adviser is Wachovia Asset Management (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, 1995, 1994 and 1993, the Adviser
earned $1,299,430, $859,936, and $703,812, respectively, of which $894,267,
$587,479, and $549,230, respectively, were voluntarily waived.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the Adviser will generally use
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. The
Adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to review by the Trustees. The Adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the Adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the Adviser or its affiliates 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 its expenses. 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. During the
fiscal years ended November 30, 1995, 1994, and 1993, the Fund paid no
brokerage commissions.

Although investment decisions for the Fund are made independently from those
of the other accounts managed by the Adviser, investments of the type the Fund

may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the Adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the Adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.

OTHER SERVICES

FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectuses.

For the fiscal years ended November 30, 1995, 1994 and 1993, the Fund incurred
administrative service costs of
$233,146, $170,963, and $183,805, respectively, of which $0, $46,534, and
$142,842, respectively, were voluntarily waived. In addition, for the fiscal
years ended November 30, 1995, 1994 and 1993, Federated Administrative
Services reimbursed $0, $52,852, and $67,462, respectively, in other Fund
operating expenses.

CUSTODIAN AND PORTFOLIO RECORDKEEPER
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
Federated Services Company, Pittsburgh, Pennsylvania, 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 LLP,
Washington, D.C. Piper & Marbury L.L.P., Washington, D.C. serves as counsel to
the independent Trustees.

INDEPENDENT AUDITORS
The independent auditors are Ernst & Young LLP, Pittsburgh, Pennsylvania.

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 "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, 1995, 1994 and 1993, brokers and
administrators (financial institutions) received fees in the amount of
$475,563, $127,921, and $20,582, respectively, pursuant to the Plan, of which
$66,795, $31,980, and $5,145, respectively, were voluntarily waived.

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

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 1940 Act, which
obligates the Fund to redeem shares for any one shareholder in cash only up to
the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day

period. Any redemption beyond this amount will also be in cash unless the
Trustees determine that payments should be in kind.

MASSACHUSETTS BUSINESS TRUSTS

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.

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:
oderive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
oderive less than 30% of its gross income from the sale of securities held
less than three months;
oinvest in securities within certain statutory limits; and
odistribute 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, 1995, was 5.44%
for Institutional Shares. The yield for Investment Shares was 5.04% 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:
odetermining 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;
odividing 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
omultiplying 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, 1995,
was 5.59% for Institutional Shares. The effective yield for Investment Shares
was 5.17% for the same period.

The Fund's effective yield for both classes of Shares is computed by
compounding the unannualized base period return by:
oadding 1 to the base period return;
oraising the sum to the 365/7th power; and
osubtracting 1 from the result.

PERFORMANCE COMPARISONS

The performance of both classes of Shares depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested; .
ochanges in interest rates on money market instruments;
ochanges in the expenses of the Fund or of either class of Shares; and
othe 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:
oLIPPER 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.
oBANK 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.
oIBC/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.
oMONEY, 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.

FINANCIAL STATEMENTS

The financial statements for Biltmore Money Market Fund for the fiscal year
ended November 30, 1995, are incorporated herein by reference to the Annual
Report to Shareholders of Biltmore Money Market Fund dated November 30, 1995
(File Nos. 33-37525 and 811-6201). A copy of the Annual Report may be obtained
without charge by contacting the Fund at the address located on the back cover
of the prospectus.

Cusip 090297-10-2
Cusip 090297-20-1
2020203B (1/96)

Prospectus

January 31, 1996

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).

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.

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, 1996, 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.

- ---------------------------------------------------
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
Investing in Securities of
Other Investment Companies 4
Credit Enhancement 4
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed Delivery
Transactions 5
Temporary Investments 5
Investment Risks 5
Investment Limitations 6
- ---------------------------------------------------
THE BILTMORE FUNDS INFORMATION 6
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 6
Adviser's Background 6
Distribution of Institutional Shares 7
Administration of the Fund 7
Administrative Services 7
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NET ASSET VALUE 7
- ---------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 7
Share Purchases 7
Through the Wachovia Banks 7
Via a Sweep Account 8
Minimum Investment Required 8
What Shares Cost 8
Certificates and Confirmations 8
Dividends 8
Capital Gains 8
- ---------------------------------------------------
EXCHANGES 8
- ---------------------------------------------------
REDEEMING INSTITUTIONAL SHARES 9
By Telephone 9
- ---------------------------------------------------
SHAREHOLDER INFORMATION 9
Voting Rights 9
- ---------------------------------------------------
EFFECT OF BANKING LAWS 10
- ---------------------------------------------------
TAX INFORMATION 10
State and Local Taxes 11
- ---------------------------------------------------
PERFORMANCE INFORMATION 11
- ---------------------------------------------------
OTHER CLASSES OF SHARES 12
- ---------------------------------------------------
ADDRESSES BACK COVER

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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) 0.04%
12b-1 Fees None
Other Expenses 0.28%
Total Institutional Shares Operating Expenses (after waiver) (2) 0.32%
</TABLE>

(2) The Annual Institutional Shares Operating Expenses were 0.78% absent the
voluntary waiver described above in Note 1.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Tax-Free
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>
<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.

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the period ended November 30, 1995, and on the
following table for the periods presented, is included in the Annual Report to
shareholders dated November 30, 1995, which is incorporated herein by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
Year Ended November 30, 1995 1994 1993 1992(a)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.04 0.02 0.02 0.01
Less distributions
Distributions from net investment income (0.04) (0.02) (0.02) (0.01)
--------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- -----------
Total Return (b) 3.59% 2.42% 2.30% 1.49%
Ratios to Average Net Assets
Expenses 0.32% 0.38% 0.29% 0.16%*
Net investment income 3.55% 2.41% 2.28% 2.71%*
Expense waiver/reimbursement (c) 0.46% 0.45% 0.60% 0.78%*
Supplemental Data
Net assets, end of period (000 omitted) $80,274 $93,867 $59,269 $61,632
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from May 20, 1992 (date of initial
public investment) to November 30, 1992.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

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GENERAL INFORMATION

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).

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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. 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 complying with the various requirements of Rule 2a-7 under
the Investment Company Act of 1940 which regulates money market mutual funds and
by following the investment policies described in this prospectus.

INVESTMENT POLICIES

The 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 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.

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" in this prospectus. 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.

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.

adversely affect the quality and marketability of the underlying security.

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.

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:

.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 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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.

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.

Wachovia Asset Management 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 over
$19 billion in managed assets as of September 30, 1995. Wachovia Asset
Management 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>
Maximum Average Aggregate Daily Net
Administrative Assets of The Biltmore Funds
Fee and The Biltmore Municpal Funds
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

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NET ASSET VALUE

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.

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.

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 as of the close of trading
(normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday
through Friday, except on: (i) days on which there are not sufficient changes in
the value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the following
holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas Day.

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.

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

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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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

Trustees may be removed by the Trustees or by 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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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 Asset Management, and its affiliate banks, are
subject to such banking laws and regulations.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

TAX INFORMATION

Shareholders will not 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

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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.

Yield, effective yield and tax-equivalent yield will be calculated separately
for Institutional Shares and Investment Shares.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

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OTHER CLASSES OF SHARES

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.

To obtain more information and a prospectus for Investments Shares, investors
may call 1-800-994-4414.

ADDRESSES

Biltmore Tax-Free 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 Asset Management
301 North Main Street
Winston-Salem, North Carolina 27150

Custodian Wachovia Bank of North Carolina, N.A.
Wachovia Trust Operations
301 North Main Street
Winston-Salem, North Carolina 27150

Transfer Agent, Dividend Disbursing Agent, Federated Services Company
and Portfolio Recordkeeper Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Counsel to The Biltmore Funds Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800

Counsel to the Independent Trustees Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430

Independent Auditors Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
Biltmore Tax-Free Money Market Fund Prospectus
Institutional Shares
A Diversified Portfolio of The Biltmore Funds
An Open-End, Management Investment Company

Cusip 090297300
January 31, 1996 2020206A-I&R (1/96)
822-18 (1/96)

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, 1996. 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, 1996

FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE FUND2

INVESTMENT OBJECTIVE AND POLICIES2

ACCEPTABLE INVESTMENTS 2
RATINGS 4
WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS 2
REVERSE REPURCHASE AGREEMENTS 4
CREDIT ENHANCEMENT 5
TEMPORARY INVESTMENTS 5
INVESTMENT RISKS 7
INVESTMENT LIMITATIONS 7
REGULATORY COMPLIANCE 11
THE BILTMORE FUNDS MANAGEMENT 12

OFFICERS AND TRUSTEES 12
FUND OWNERSHIP 7
TRUSTEES COMPENSATION 7
TRUSTEE LIABILITY 17
INVESTMENT ADVISORY SERVICES 8

ADVISER TO THE FUND 18
ADVISORY FEES 19
BROKERAGE TRANSACTIONS 20

OTHER SERVICES 21

FUND ADMINISTRATION 21

CUSTODIAN AND PORTFOLIO
RECORDKEEPER 22

TRANSFER AGENT 22
LEGAL SERVICES 23
INDEPENDENT AUDITORS 23
PURCHASING SHARES 23

DISTRIBUTION PLAN (INVESTMENT
SHARES ONLY) 23
CONVERSION TO FEDERAL FUNDS 24
EXCHANGING SECURITIES FOR FUND
SHARES 25

DETERMINING NET ASSET VALUE 26

USE OF THE AMORTIZED COST METHOD26
REDEEMING SHARES 28

REDEMPTION IN KIND 28
MASSACHUSETTS BUSINESS TRUSTS 29

TAX STATUS 30

THE FUND'S TAX STATUS 30
YIELD 30

TAX-EQUIVALENT YIELD 31

TAX-EQUIVALENCY TABLE 32

EFFECTIVE YIELD 33

PERFORMANCE COMPARISONS 33

FINANCIAL STATEMENTS 35

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.

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 of the Trust are listed with their addresses,
birthdates, principal occupations and present positions. Each of the Trustees
and officers listed below holds an identical position with The Biltmore
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
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931

Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).

Samuel E. Hudgins

3100 Cumberland Circle
Suite 1525
Atlanta, GA
March 4, 1929

Trustee
President, Percival Hudgins & Company, LLC (investment bankers/financial
consultants); Director, Atlantic American Corporation (insurance holding
company); Director, Bankers Fidelity Life Insurance Company; Director and Vice
Chairman, Leath Furniture, Inc. (retail furniture); President, Atlantic
American Corporation (until 1988); Director, Vice Chairman and Chief Executive
Officer, Rhodes, Inc. (retail furniture) (until 1988); Chairman and Director,
Atlantic American Life Insurance Co., Georgia Casualty & Surety Company, and
Bankers Fidelity Life Insurance (until 1988).

J. Berkley Ingram, Jr.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924

Trustee
Real estate investor and partner; Director, VF Corporation (apparel company);
formerly, Vice Chairman, Massachusetts Mutual Life Insurance Company.

D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930

Trustee

Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).

Charles S. Way, Jr.
200 Meeting Street
Suite 401
Charleston, S.C.
December 18, 1937

Trustee

President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chairman of the Executive Committee, Kiawah Resort Associates,
L.P.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
October 26, 1938

Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
February 27, 1960

Vice President and Assistant Treasurer
Director of Proprietary Client Services and member of the Office of the
President, Federated Administrative Services; formerly, Associate Corporate
Counsel, Federated Investors; Vice President and Assistant Treasurer for
certain investment companies for which Federated Securities Corp. is the
principal distributor.

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959

Secretary

Senior Corporate Counsel, Federated Investors.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.

As of January 10, 1996, the following shareholders of record owned 5% or more
of the outstanding Investment Shares of the Fund: Wachovia Bank of South
Carolina, Winston-Salem, North Carolina, on behalf of certain underlying
accounts, owned approximately 21,232,880 Shares (31.35%); Wachovia Brokerage
Services, Winston-Salem, North Carolina, on behalf of certain underlying
accounts, owned approximately 18,294,651 Shares (27.01%); Wachovia Bank of

Georgia, Winston-Salem, North Carolina, on behalf of certain underlying
accounts, owned approximately 16,302,782 Shares (24.07%) and Wachovia Bank of
North Carolina, Winston-Salem, North Carolina, on behalf of certain underlying
accounts, owned approximately 11,891,705 Shares (17.56%).

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, $21,857 $22,725 for the Trust and one other
Trustee investment company in the Fund
Complex

Samuel E. Hudgins, $22,937 $23,850 for the Trust and one other
Trustee investment company in the Fund
Complex

J. Berkley Ingram, Jr., $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

D. Dean Kaylor, $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

Charles S. Way, Jr., $ 0 $ 0 for the Trust and one other
Trustee investment company in the Fund
Complex

ADVISER TO THE FUND

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, 1995, 1994 and 1993, the Adviser
earned $713,058, $620,752, and $380,443, respectively, of which $658,480,
$463,428, and $297,388, respectively, were voluntarily waived.

limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.

BROKERAGE TRANSACTIONS

Although investment decisions for the Fund are made independently from those
of the other accounts managed by the Adviser, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the Adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the Adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.

OTHER SERVICES

FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectuses.

For the fiscal years ended November 30, 1995, 1994 and 1993, the Fund incurred
administrative service costs of
$128,145, $124,799, and $100,161, respectively, of which $0, $31,039, and

$79,813, respectively, were voluntarily waived. In addition, for the fiscal
years ended November 30, 1995, 1994 and 1993, Federated Administrative
Services reimbursed $0, $57,028, and $61,079, respectively, in other Fund
operating expenses.

LEGAL SERVICES
Legal services for the Fund are provided by Kirkpatrick & Lockhart LLP,
Washington, D.C. Piper & Marbury L.L.P., Washington, D.C. serves as counsel to
the independent Trustees.

INDEPENDENT AUDITORS
The independent auditors are Ernst & Young LLP, Pittsburgh, Pennsylvania.

PURCHASING SHARES

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, 1995, 1994 and 1993, brokers and
administrators (financial institutions) received fees in the amount of
$217,651, $139,886, and $59,172, respectively, pursuant to the Plan, of which
$35,392 $34,972, and $14,792, respectively were voluntarily waived.

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 this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value. The
Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the 1940 Act.
Under the Rule, the Trustees must establish procedures reasonably designed to
stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are
subject to demand features or standby commitments. As defined by the Rule, a
demand feature entitles the Fund to receive the principal amount of the
instrument from the issuer or a third party on (1) no more than 30 days'
notice or (2) at specified intervals not exceeding 397 days on no more than 30
days' notice. A standby commitment entitles the Fund to achieve same day
settlement and to receive an exercise price equal to the amortized cost of the
underlying instrument plus accrued interest at the time of exercise.
The Fund acquires instruments subject to demand features and standby
commitments to enhance the instrument's liquidity. The Fund treats demand
features and standby commitments as a part of the underlying instruments,

because the Fund does not acquire them for speculative purposes and cannot
transfer them separately from the underlying instruments. Therefore, although
the Rule defines demand features and standby commitments as "puts," the Fund
does not consider them to be separate investments for the purposes of its
investment policies.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit 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

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 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.

MASSACHUSETTS BUSINESS TRUSTS

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.

TAX STATUS

The Fund's yield for the seven-day period ended November 30, 1995, was 3.42%
for Institutional Shares. The yield for Investment Shares was 3.02% 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 effective yield for the seven-day period ended November 30, 1995,
was 5.04% for Institutional Shares. The effective yield for Investment Shares
was 4.45% 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 seven-day period ended November 30, 1995,
was 3.48% for Institutional Shares. The effective yield for Investment Shares
was 3.07% 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

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.

FINANCIAL STATEMENTS

The financial statements for Biltmore Tax-Free Money Market Fund for the
fiscal year ended November 30, 1995, are incorporated herein by reference to
the Annual Report to Shareholders of Biltmore Tax-Free Money Market Fund dated
November 30, 1995 (File Nos. 33-37525 and 811-6201). A copy of the Annual
Report may be obtained without charge by contacting the Fund at the address
located on the back cover of the prospectus.

Cusip 090297-30-0
Cusip 090297-40-9
2020206B (1/96)

Prospectus
January 31, 1996

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).

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 (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
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, 1996, 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.

WACHOVIA INVESTMENTS
MAKE YOURSELF COMFORTABLE

- --------------------------------------------------------------------------------

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

- ---------------------------------------------------

THE BILTMORE FUNDS INFORMATION 4

Management of the Trust 4

Board of Trustees 4

Investment Adviser 4

Advisory Fees 5

Adviser's Background 5

Distribution of Institutional Shares 5

Administration of the Fund 5

Administrative Services 5

- ---------------------------------------------------

NET ASSET VALUE 6

- ---------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 6
Share Purchases 6
Through the Wachovia Banks 6
Via a Sweep Account 6
Minimum Investment Required 6
What Shares Cost 6
Certificates and Confirmations 6
Dividends 7
Capital Gains 7
- ---------------------------------------------------
EXCHANGES 7
- ---------------------------------------------------

REDEEMING INSTITUTIONAL SHARES 7

By Telephone 8
- ---------------------------------------------------
SHAREHOLDER INFORMATION 8
Voting Rights 8
- ---------------------------------------------------
EFFECT OF BANKING LAWS 8
- ---------------------------------------------------
TAX INFORMATION 9
- ---------------------------------------------------
PERFORMANCE INFORMATION 9

- ---------------------------------------------------
OTHER CLASSES OF SHARES 9
- ---------------------------------------------------

ADDRESSES BACK COVER

- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES

INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES

ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)

<TABLE>
<S> <C>
Management Fee (after waiver) (1) 0.10%
12b-1 Fees None
Other Expenses 0.22%
Total Institutional Shares Operating Expenses (after waiver) (2) 0.32%
</TABLE>

(2) The Annual Institutional Shares Operating Expenses would have been 0.72%
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 U.S.
Treasury 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."

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 U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent Auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the year ended November 30, 1995, and on the following
table for the periods presented, is included in the Annual Report to

shareholders dated November 30, 1995, which is incorporated herein by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
Year Ended November 30, 1995 1994 1993 1992(a)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.06 0.04 0.03 0.02
Less distributions
Distributions from net investment income (0.06) (0.04) (0.03) (0.02)
--------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- -----------
Total Return (b) 5.66% 3.70% 2.91% 1.90%
Ratios to Average Net Assets
Expenses 0.32% 0.36% 0.28% 0.17%*
Net investment income 5.54% 3.72% 2.87% 3.24%*
Expense waiver/reimbursement (c) 0.40% 0.51% 0.63% 0.71%*
Supplemental Data
Net assets, end of period (000 omitted) $214,356 $87,531 $65,353 $55,408
</TABLE>

*Computed on an annualized basis.

(a) Reflects operations for the period from May 7, 1992 (date of initial public
investment) to November 30, 1992.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GENERAL INFORMATION

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, 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 complying
with the various requirements of Rule 2a-7 under the Investment Company Act of
1940 which regulates money market mutual funds and 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 of the 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 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.

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.

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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 Asset Management (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

Wachovia Asset Management 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 over
$19 billion in managed assets as of September 30, 1995. Wachovia Asset
Management 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

ADMINISTRATION OF THE FUND

<TABLE>
<CAPTION>
Average Aggregate Daily Net
Maximum Assets of The Biltmore Funds
Administrative Fee and The Biltmore Municipal Funds
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.

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 as of the close of trading
(normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday
through Friday, except on: (i) days on which there are not sufficient changes in
the value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the following
holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas Day.

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

CAPITAL GAINS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

EXCHANGES

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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

EFFECT OF BANKING LAWS

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 Asset Management, and its affiliate banks, are
subject to such banking laws and regulations.

would suffer any adverse financial consequences (if another service provider
with equivalent abilities to the Wachovia Banks is found) as a result of any of
these occurrences.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

TAX INFORMATION

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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

OTHER CLASSES OF SHARES

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.

To obtain more information and a prospectus for Investments Shares, investors
may call 1-800-994-4414.

[THIS PAGE INTENTIONALLY LEFT BLANK]

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 Asset Management
301 North Main Street
Winston-Salem, North Carolina 27150

Custodian Wachovia Bank of North Carolina, N.A.
Wachovia Trust Operations
301 North Main Street
Winston-Salem, North Carolina 27150

Transfer Agent, Dividend Disbursing Agent, Federated Services Company
and Portfolio Recordkeeper Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Counsel to The Biltmore Funds Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800

Counsel to the Independent Trustees Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430

Independent Auditors Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219

Biltmore U.S. Treasury Money Market Fund Prospectus
Institutional Shares
A Diversified Portfolio of The Biltmore Funds
An Open-End, Management Investment Company

Cusip 090297706
January 31, 1996 2020205A-IS (1/96)
822-17 (1/96)

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, 1996. 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, 1996

FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE FUND3

INVESTMENT OBJECTIVE AND POLICIES3

TYPES OF INVESTMENTS 3
WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS 3
REPURCHASE AGREEMENTS 4
REVERSE REPURCHASE AGREEMENTS 4
INVESTMENT LIMITATIONS 5
REGULATORY COMPLIANCE 8
THE BILTMORE FUNDS MANAGEMENT 9

OFFICERS AND TRUSTEES 9
FUND OWNERSHIP 13
TRUSTEES COMPENSATION 6
TRUSTEE LIABILITY 14
INVESTMENT ADVISORY SERVICES 15

ADVISER TO THE FUND 15
ADVISORY FEES 7
BROKERAGE TRANSACTIONS 17

OTHER SERVICES 18

FUND ADMINISTRATION 18
CUSTODIAN AND PORTFOLIO
RECORDKEEPER 8
TRANSFER AGENT 19

LEGAL SERVICES 19
INDEPENDENT AUDITORS 20
PURCHASING SHARES 20

DISTRIBUTION PLAN (INVESTMENT
SHARES ONLY) 20
CONVERSION TO FEDERAL FUNDS 21
EXCHANGING SECURITIES FOR FUND
SHARES 22

DETERMINING NET ASSET VALUE 22

USE OF THE AMORTIZED COST METHOD23
REDEEMING SHARES 25

REDEMPTION IN KIND 25
MASSACHUSETTS BUSINESS TRUSTS 26

TAX STATUS 27

THE FUND'S TAX STATUS 27
SHAREHOLDERS' TAX STATUS 27
YIELD 27

EFFECTIVE YIELD 28

PERFORMANCE COMPARISONS 29

FINANCIAL STATEMENTS 31

GENERAL INFORMATION ABOUT THE FUND

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

James A. Hanley
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931

Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).

Samuel E. Hudgins
3100 Cumberland Circle

Suite 1525
Atlanta, GA
March 4, 1929

Trustee
President, Percival Hudgins & Company, LLC (investment bankers/financial
consultants); Director, Atlantic American Corporation (insurance holding
company); Director, Bankers Fidelity Life Insurance Company; Director and Vice
Chairman, Leath Furniture, Inc. (retail furniture); President, Atlantic
American Corporation (until 1988); Director, Vice Chairman and Chief Executive
Officer, Rhodes, Inc. (retail furniture) (until 1988); Chairman and Director,
Atlantic American Life Insurance Co., Georgia Casualty & Surety Company, and
Bankers Fidelity Life Insurance (until 1988).

J. Berkley Ingram, Jr.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924

Trustee
Real estate investor and partner; Director, VF Corporation (apparel company);
formerly, Vice Chairman, Massachusetts Mutual Life Insurance Company.

D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930

Trustee

Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).

Charles S. Way, Jr.
200 Meeting Street
Suite 401
Charleston, S.C.
December 18, 1937

Trustee

President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chairman of the Executive Committee, Kiawah Resort Associates,
L.P.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
October 26, 1938

Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
February 27, 1960

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959

Secretary

Senior Corporate Counsel, Federated Investors.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.

As of January 10, 1996, the following shareholders of record owned 5% or more
of the outstanding Investment Shares of the Fund: Wachovia Brokerage Services,
Winston-Salem, North Carolina, on behalf of certain underlying accounts, owned
approximately 38,640,379 Shares (46.24%); Wachovia Bank of North Carolina,
Winston-Salem, North Carolina, on behalf of certain underlying accounts, owned
approximately 24,177,588 Shares (28.93%); and Wachovia Bank of Winston-Salem,

North Carolina, on behalf of certain underlying accounts, owned approximately
17,745,124 Shares (21.24%).

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, $21,857 $22,725 for the Trust and one other
Trustee investment company in the Fund
Complex

Samuel E. Hudgins, $22,937 $23,850 for the Trust and one other
Trustee investment company in the Fund
Complex

J. Berkley Ingram, Jr., $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

D. Dean Kaylor, $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

Charles S. Way, Jr., $ 0 $ 0 for the Trust and one other

Trustee investment company in the Fund
Complex

ADVISER TO THE FUND

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, 1995, 1994 and 1993, the Adviser
earned $1,060,343, $501,363, and $333,904, respectively, of which $845,641,
$432,458, and $276,657, respectively, were voluntarily waived.

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.

BROKERAGE TRANSACTIONS

OTHER SERVICES

FUND ADMINISTRATION

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, 1995, 1994 and 1993, the Fund incurred
administrative service costs of
$190,189, $98,959, and $88,313, respectively, of which $0, $25,319, and
$71,133, respectively, were voluntarily waived. In addition, for the fiscal

years ended November 30, 1995, 1994 and 1993, Federated Administrative
Services reimbursed $0, $57,893, and $55,602, respectively, of other Fund
operating expenses.

LEGAL SERVICES
Legal services for the Fund are provided by Kirkpatrick & Lockhart LLP,
Washington, D.C. Piper & Marbury L.L.P., Washington, D.C. serves as counsel to
the independent Trustees.

INDEPENDENT AUDITORS
The independent auditors are Ernst & Young LLP, Pittsburgh, Pennsylvania.

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 (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, 1995, 1994 and 1993, brokers and
administrators (financial institutions) received fees in the amount of
$295,596, $104,760 and $11,831, respectively, of which $45,636, $26,139 and
$2,966, respectively, were voluntarily waived pursuant to the Plan.

EXCHANGING SECURITIES FOR FUND SHARES

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 this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value. The
Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the 1940 Act.
Under the Rule, the Trustees must establish procedures reasonably designed to
stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are
subject to demand features or standby commitments. As defined by the Rule, a
demand feature entitles the Fund to receive the principal amount of the
instrument from the issuer or a third party on (1) no more than 30 days'
notice or (2) at specified intervals not exceeding 397 days on no more than 30
days' notice. A standby commitment entitles the Fund to achieve same day
settlement and to receive an exercise price equal to the amortized cost of the
underlying instrument plus accrued interest at the time of exercise.
The Fund acquires instruments subject to demand features and standby
commitments to enhance the instrument's liquidity. The Fund treats demand
features and standby commitments as a part of the underlying instruments,
because the Fund does not acquire them for speculative purposes and cannot
transfer them separately from the underlying instruments. Therefore, although
the Rule defines demand features and standby commitments as "puts," the Fund
does not consider them to be separate investments for the purposes of its
investment policies.

MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit 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.

MASSACHUSETTS BUSINESS TRUSTS

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, 1995, was 3.42%
for Institutional Shares. The yield for Investment Shares was 3.02% for the
same period.

The Fund's effective yield for the seven-day period ended November 30, 1995,
was 3.48% for Institutional Shares. The effective yield for Investment Shares
was 3.07% 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.

FINANCIAL STATEMENTS

The financial statements for Biltmore U.S. Treasury Money Market Fund for the
fiscal year ended November 30, 1995, are incorporated herein by reference to
the Annual Report to Shareholders of Biltmore U.S. Treasury Money Market Fund
dated November 30, 1995 (File Nos. 33-37525 and 811-6201). A copy of the
Annual Report may be obtained without charge by contacting the Fund at the
address located on the back cover of the prospectus.

Cusip 090297-70-6
Cusip 090297-40-9
2020205B (1/96)

Prospectus

January 31, 1996

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).

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 (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
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, 1996, with the Securities and Exchange Commission.
The information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of the
Statement of Additional Information free of charge, 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.

- ---------------------------------------------------
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
Repurchase Agreements 4
Credit Enhancement 4
Demand Features 4
Restricted and Illiquid Securities 4
When-Issued and Delayed Delivery
Transactions 5
Investing in Securities of
Other Investment Companies 5
Concentration of Investments 5
Lending of Portfolio Securities 5
Investment Risks 6
Investment Limitations 6
- ---------------------------------------------------
THE BILTMORE FUNDS INFORMATION 6
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 6
Adviser's Background 6
Distribution of Institutional Shares 7
Administration of the Fund 7
Administrative Services 7
- ---------------------------------------------------
NET ASSET VALUE 7
- ---------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 7
Share Purchases 7
Through the Wachovia Banks 7
Via a Sweep Account 8
Minimum Investment Required 8
What Shares Cost 8
Certificates and Confirmations 8
Dividends 8
Capital Gains 8
- ---------------------------------------------------
EXCHANGES 8
- ---------------------------------------------------
REDEEMING INSTITUTIONAL SHARES 9
By Telephone 9
- ---------------------------------------------------
SHAREHOLDER INFORMATION 9
Voting Rights 9
- ---------------------------------------------------
EFFECT OF BANKING LAWS 10
- ---------------------------------------------------
TAX INFORMATION 10
- ---------------------------------------------------
PERFORMANCE INFORMATION 11
- ---------------------------------------------------
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 FUND OPERATING EXPENSES
(As a percentage of average net assets)

<TABLE>
<S> <C>
Management Fee (after waiver) (1) 0.07%
12b-1 Fees None
Other Expenses (after waiver) (2) 0.11%
Total Fund Operating Expenses (after waivers) (3) 0.18%
</TABLE>

(2) Other expenses would have been 0.15% absent the voluntary waiver by the
administrator. The administrator can terminate this voluntary waiver at any
time at its sole discretion.

(3) Total Fund Operating Expenses would have been 0.45% absent the voluntary
waivers described above in Note 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.

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
Independent auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the year ended November 30, 1995, and on the following
table for the periods presented, is included in the Annual Report to
shareholders dated November 30, 1995, which is incorported herein by reference.
This table should be read in conjunction with the Fund's financial statements
and notes thereto, which may be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
Year Ended November 30, 1995 1994(a)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.06 0.04
Less distributions
Distributions from net investment income (0.06) (0.04)
--------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
--------- -----------
Total Return (b) 5.95% 4.02%
Ratios to Average Net Assets
Expenses 0.18% 0.18%*
Net investment income 5.80% 4.31%*
Expense waiver/reimbursement (c) 0.27% 0.28%*
Supplemental Data
Net assets, end of period (000 omitted) $879,603 $816,008
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from December 2, 1993 (date of initial
public investment) to November 30, 1994.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL INFORMATION

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

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.

.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.

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.

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.

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.

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:

The above investment limitations cannot be changed without shareholder approval.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.

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.

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.

1995. Wachovia Asset Management 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

ADMINISTRATION OF THE FUND

<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET ASSET VALUE

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.

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.

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 as of the close of trading
(normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday
through Friday, except on: (i) days on which there are not sufficient changes in
the value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the following
holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas Day.

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.

Investors purchasing through the Wachovia Banks will receive account statements
from those institutions periodically as required by the relevant account
agreement.

DIVIDENDS

CAPITAL GAINS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXCHANGES

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.

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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

REDEEMING INSTITUTIONAL SHARES

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

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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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 Asset Management, and its affiliate banks, are
subject to such banking laws and regulations.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

TAX INFORMATION

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.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

[THIS PAGE INTENTIONALLY LEFT BLANK]

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 Asset Management
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 Recordkeeper Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Counsel to The Biltmore Funds Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800

Counsel to the Independent Trustees Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430

Independent Auditors Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219

Biltmore Prime Cash Management Fund Prospectus
Institutional Shares
A Diversified Portfolio of The Biltmore Funds
An Open-End, Management Investment Company

Cusip 090297805
January 31, 1996 2051406A-IS (1/96)
822-22 (1/96)

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,
1996. This Statement is not a prospectus itself. To receive a copy of the
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, 1996

FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE FUND3

INVESTMENT OBJECTIVE AND POLICIES3

Types of Investments 3
Ratings 5
When-Issued and Delayed
Delivery Transactions 5
Reverse Repurchase Agreements 5
Credit Enhancement 6
Investment Limitations 7
Regulatory Compliance 11
THE BILTMORE FUNDS MANAGEMENT 11

Officers and Trustees 11
Fund Ownership 16
Trustees Compensation 7
Trustee Liability 17
INVESTMENT ADVISORY SERVICES 18

Adviser to the Fund 18
Advisory Fees 18
BROKERAGE TRANSACTIONS 19

OTHER SERVICES 21

Fund Administration 21
Custodian and Portfolio Recordkeeper 21

Transfer Agent 22
Legal Services 22
Independent Auditors 22
PURCHASING INSTITUTIONAL SHARES 22

Conversion to Federal Funds 23
EXCHANGING SECURITIES FOR FUND SHARES 23

DETERMINING NET ASSET VALUE 24

Use of the Amortized Cost Method24
REDEEMING INSTITUTIONAL SHARES 26

Redemption in Kind 27
MASSACHUSETTS BUSINESS TRUSTS 27

TAX STATUS 28

The Fund's Tax Status 28
Shareholders' Tax Status 29
YIELD 29

EFFECTIVE YIELD 30

PERFORMANCE COMPARISONS 30

FINANCIAL STATEMENTS 32

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio in the Trust. The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated 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:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
othe 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;
oFarmers Home Administration;
oFederal Home Loan Banks;
oFederal Home Loan Mortgage Corporation;
oFederal National Mortgage Association;
oGovernment National Mortgage Association; and
oStudent 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:
oEurodollar Certificates of Deposit issued by foreign branches of U.S.
or foreign banks;
oEurodollar Time Deposits, which are U.S. dollar-denominated deposits in
foreign branches of U.S. or foreign banks; and
oYankee 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.

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")

THE BILTMORE FUNDS MANAGEMENT

James A. Hanley
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931

Trustee

Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).

Samuel E. Hudgins
3100 Cumberland Circle
Suite 1525
Atlanta, GA
March 4, 1929

Trustee

J. Berkley Ingram, Jr.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924

Trustee
Real estate investor and partner; Director, VF Corporation (apparel company);
formerly, Vice Chairman, Massachusetts Mutual Life Insurance Company.

D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930

Trustee

Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).

Charles S. Way, Jr.
200 Meeting Street
Suite 401
Charleston, S.C.
December 18, 1937

Trustee

President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chairman of the Executive Committee, Kiawah Resort Associates,
L.P.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
October 26, 1938

Ronald M. Petnuch
Federated Investors Tower
Pittsburgh, PA
February 27, 1960

Vice President and Assistant Treasurer
Senior Vice President, Federated Services Company; Director of Proprietary
Client Services and member of the Office of the President, Federated
Administrative Services; formerly, Associate Corporate Counsel, Federated
Investors; Vice President and Assistant Treasurer for certain investment
companies for which Federated Securities Corp. is the principal distributor.

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959

Secretary

Senior Corporate Counsel, Federated Investors.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.

TRUSTEES COMPENSATION

NAME AND AGGREGATE TOTAL COMPENSATION PAID
POSITION WITH THE COMPENSATION FROM TO THE TRUSTEES FROM THE TRUST
TRUST THE TRUST*+ AND FUND COMPLEX #

James A. Hanley, $21,857 $22,725 for the Trust and one other
Trustee investment company in the Fund
Complex

Samuel E. Hudgins, $22,937 $23,850 for the Trust and one other
Trustee investment company in the Fund
Complex

J. Berkley Ingram, Jr., $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

D. Dean Kaylor, $19,483 $20,250 for the Trust and one other
Trustee investment company in the Fund
Complex

Charles S. Way, Jr., $ 0 $ 0 for the Trust and one other
Trustee investment company in the Fund
Complex

INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND

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.

For the fiscal year ended November 30, 1995, and for the period from December
2, 1993 (date of initial public investment) through November 30, 1994, the
Adviser earned $2,614,827 and $1,748,930, respectively, of which
$2,008,188 and $1,288,670, respectively, were voluntarily waived.

dealers subject to review by the Trustees. The Adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the Adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the Adviser or its affiliates 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 its expenses. 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. During the
fiscal years ended November 30, 1995, 1994, and 1993, the Fund paid no
brokerage commissions.

coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.

OTHER SERVICES

FUND ADMINISTRATION

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.

For the fiscal year ended November 30, 1995, and for the period from December
2, 1993 (date of initial public investment) through November 30, 1994, the
Fund incurred administrative service costs of $782,722 and $556,490,
respectively, of which $346,917 and $264,629, respectively, were voluntarily
waived. In addition, for the fiscal year ended November 30, 1995, and for the
period from December 2, 1993 (date of initial public investment) through
November 30, 1994, Federated Administrative Services reimbursed $0 and
$45,911, respectively, in other Fund operating expenses.

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.

LEGAL SERVICES
Legal services for the Fund are provided by Kirkpatrick & Lockhart LLP,
Washington, D.C. Piper & Marbury L.L.P., Washington, D.C. serves as counsel to
the independent Trustees.

INDEPENDENT AUDITORS
The independent auditors are Ernst & Young LLP, Pittsburgh, Pennsylvania.

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 (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 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.

MASSACHUSETTS BUSINESS TRUSTS

TAX STATUS

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, 1995, was 5.65%.

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, 1995,
was 5.81%.

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.

FINANCIAL STATEMENTS

The financial statements for Biltmore Prime Cash Management Fund for the
fiscal year ended November 30, 1995, are incorporated herein by reference to
the Annual Report to Shareholders of Biltmore Prime Cash Management Fund dated
November 30, 1995 (File Nos. 33-37525 and 811-6201). A copy of the Annual
Report may be obtained without charge by contacting the Fund at the address
located on the back cover of the prospectus.

Prospectus

January 31, 1996

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

Cusip 090297-80-5
2051406B (1/96)

income. The Fund pursues this objective by investing in a
professionally-managed and diversified portfolio consisting primarily of large
capitalization common stocks.

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, 1996 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

Portfolio Turnover 6
Investment Considerations 6
Equity Investments 6
Securities of Foreign Issuers 6
Debt Investments 7
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 9
Administrative Services 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 10

Through Wachovia Investments, Inc. 10
By Mail 10
Through Authorized Broker/Dealers 10
Minimum Investment Required 10
What Shares Cost 10
Purchases at Net Asset Value 11
Sales Charge Reallowance 11
Reducing the Sales Charge 11
Quantity Discounts and Accumulated
Purchases 11
Letter of Intent 11
Reinvestment Privilege 11
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
- ---------------------------------------------------
EFFECT OF BANKING LAWS 15
- ---------------------------------------------------
TAX INFORMATION 16
- ---------------------------------------------------
PERFORMANCE INFORMATION 16
- ---------------------------------------------------
ADDRESSES BACK COVER

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES

SHAREHOLDER TRANSACTION EXPENSES

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 0.27%
Shareholder Servicing Agent Fee (2) 0.00%
Total Fund Operating Expenses (after waiver) (3) 0.87%
</TABLE>

(3) Total Fund Operating Expenses would have been 0.97% absent the voluntary
waiver described above in Note 1.

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 EACH PERIOD)

<TABLE>
<CAPTION>
Year Ended November 30, 1995 1994(a)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.60 $ 10.00
Income from investment operations
Net investment income 0.22 0.12
Net realized and unrealized gain (loss) on investments and future contracts 3.51 (0.43)
--------- -----------
Total from investment operations 3.73 (0.31)
Less distributions
Distributions from net investment income (0.22) (0.09)
--------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.11 $ 9.60
--------- -----------
Total Return (b) 39.33% (3.08)%
Ratios to Average Net Assets
Expenses 0.87% 0.90%*
Net investment income 1.93% 1.83%*
Expense waiver/reimbursement (c) 0.10% 0.10%*
Supplemental Data
Net assets, end of period (000 omitted) $121,895 $91,979
Portfolio turnover 63% 64 %
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from March 28, 1994 (date of initial
public investment) to November 30, 1994.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended November 30, 1995, which can be obtained
free of charge.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GENERAL INFORMATION

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."); and

.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.)

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.

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.

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.

thereby protect against price movements in particular securities in the Fund's
portfolio.

Temporary Investments. For temporary defensive purposes (up to 100% of total
assets) and to maintain liquidity (up to 35% of total assets), the Fund may
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; and

.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.

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.

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 CONSIDERATIONS

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.

Although debt obligations with longer maturities offer potentially greater
returns, they will generally experience the greatest market price changes.
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. 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; however, the adviser could be incorrect in its
expectations about the direction and the extent of these market factors.

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.

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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
Asset Management (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.

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. (collectively, the
"Wachovia Banks") have been managing trust assets for over 100 years, with over
$19 billion in managed assets as of September 30, 1995. Wachovia 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 and municipalities. Thus, it may be possible, from time to time, for
the Fund to hold or acquire the securities of issuers which are also lending
clients of the 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, 1995, 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. The
Sub-Adviser is controlled by Geoffrey Gerber, its President.

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.

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>
.15 of 1% of the first $250 million
.125 of 1% of the next $250 million
.10 of 1% of the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

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NET ASSET VALUE

The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.

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INVESTING IN THE FUND

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.

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.

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:

Christmas Day.

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.

day by the investor, the investor's spouse, and the investor's children under
age 21 when it calculates the sales charge.

eliminate a sales charge. If the shareholder redeems his shares in the Fund,
there may be tax consequences.

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.

CAPITAL GAINS
Capital gains, when realized by the Fund, will be distributed at least once
every 12 months.

EXCHANGE PRIVILEGE

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.

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REDEEMING SHARES

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.

SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an

address other than that on record with the Fund, or a redemption payable other
than to the shareholder of record, must have signatures on written redemption
requests guaranteed by:

.a trust company or commercial bank whose deposits are insured by the 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.

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

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SHAREHOLDER INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each 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.

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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 Asset Management, and its affiliate banks, are
subject to such banking laws and regulations.

judicial or administrative decisions or interpretations of present or future
statutes and regulations, could prevent the Wachovia Banks from continuing to
perform all or a part of the above services for their customers and/or the Fund.
If the Wachovia Banks were prohibited from engaging in these customer-related
activities, the Trustees would consider alternative 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 Wachovia Banks. It is not expected that existing Fund
shareholders would suffer any adverse financial consequences (if another service
provider with equivalent abilities to the Wachovia Banks is found) as a result
of any of these occurrences.

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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.

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.

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PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield.

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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

Addresses
Biltmore Quantitative Equity Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Investment Adviser Wachovia Asset Management
301 North Main Street
Winston-Salem, North Carolina 27150

Counsel to The Biltmore Funds Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800

Biltmore Quantitative Equity Fund
A Diversified Portfolio of The Biltmore Funds
An Open-End, Management Investment Company

January 31, 1996 Cusip 090297813

822-23 (1/96) 3101206A (1/96)

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, 1996. This Statement
is not a prospectus itself. To receive a copy of the prospectus, write the
Fund or call The Biltmore Service Center toll-free at 1-800-994-4414.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1996
FEDERATED SECURITIES CORP.
DISTRIBUTOR
A SUBSIDIARY OF FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES1

Types of Investments 1
Investment Limitations 5
THE BILTMORE FUNDS MANAGEMENT 8

Officers and Trustees 8
Fund Ownership 9
Trustees Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10

Adviser to the Fund and Sub-Adviser 10
Advisory and Sub-Advisory Fees 11
BROKERAGE TRANSACTIONS 11

OTHER SERVICES 11

Administration 11
Custodian 12
Transfer Agent 12
Legal Services 12
Independent Auditors 12
Portfolio Turnover 12
PURCHASING FUND SHARES 12

Conversion to Federal Funds 12
Exchanging Securities for Fund Shares 12
DETERMINING NET ASSET VALUE 13

DETERMINING MARKET VALUE OF SECURITIES 13

REDEEMING FUND SHARES 13

Redemption in Kind 13
MASSACHUSETTS BUSINESS TRUSTS 14

TAX STATUS 14

The Fund's Tax Status 14
Shareholders' Tax Status 14
Capital Gains 14
TOTAL RETURN 14

YIELD 14

PERFORMANCE COMPARISONS 15

STANDARD & POOR'S CORPORATION 16

FINANCIAL STATEMENTS 16

APPENDIX 17

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio in the Trust. The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated November 19,
1991.
INVESTMENT 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:

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.

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:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;

othe discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
othe 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:
oFarm Credit System, including the National Bank for Cooperatives and
Banks for Cooperatives;
oFederal Home Loan Banks;
oFederal Home Loan Mortgage Corporation;
oFederal National Mortgage Association;
oGovernment National Mortgage Association; and
oStudent Loan Marketing Association.
MONEY MARKET INSTRUMENTS
The Fund may invest in the following money market instruments:
oinstruments 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
ocommercial 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.
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.
No more than 2% of the Fund's net assets, to be included within the
overall 5% limit on investments in warrants, may be warrants which are
not listed on the New York Stock Exchange or the American Stock
Exchange.
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, birthdates, 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
4272 Sanctuary Way
Bonita Springs, FL
August 13, 1931

Trustee
Retired; Vice President and Treasurer, Abbott Laboratories (health care
products) (until 1992).

Samuel E. Hudgins
3100 Cumberland Circle
Suite 1525
Atlanta, GA
March 4, 1929

Trustee

J. Berkley Ingram, Jr.
114-L Reynolda Village
Winston-Salem, NC
April 17, 1924

Trustee
Real estate investor and partner; formerly, Vice Chairman, Massachusetts
Mutual Life Insurance Company.

D. Dean Kaylor
7301 Parkwood Drive
Fenton, MI
June 29, 1930

Trustee
Retired; Executive Vice President and Chief Financial Officer, NBD Bank, N.A.
and NBD Bancorp, Inc. (bank and bank holding company) (until 1990).

- --------------------------
Charles S. Way, Jr.
200 Meeting Street
Suite 401
Charleston, S.C.
December 18, 1937

Trustee
President and CEO, The Beach Company and its various affiliated companies and
partnerships; Chairman of the Executive Committee, Kiawah Resort Associates,
L.P.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
October 26, 1938

Ronald M. Petnuch
Federated Investors Tower

Pittsburgh, PA
February 27, 1960

Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959

Secretary
Senior Corporate Counsel, Federated Investors.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of January 10, 1996, the following 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 5,117,136 shares ^(53.78%), and Wachovia Bank of South Carolina,
Winston-Salem, North Carolina, on behalf of certain underlying accounts, owned
approximately ^1,201,826 shares (12.63%).

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, $21,857 $22,725 for the Trust and
one other
Trustee investment company in the
Fund Complex
Samuel E. Hudgins, $22,937 $23,850 for the Trust and one other
Trustee investment company in the Fund
Complex

J. Berkley Ingram, Jr., $19,483 $20,250 for the Trust and one other
Trustee investment company in the
Fund Complex
D. Dean Kaylor, $19,483 $20,250 for the Trust and one other
Trustee investment company in the
Fund Complex
Charles S. Way, Jr., $ 0 $ 0 for the Trust and one other
Trustee investment company in the Fund
Complex

ADVISER TO THE FUND AND SUB-ADVISER
The Fund's investment adviser is Wachovia Asset Management (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 fiscal year ended November 30, 1995 ,and for the period from March
28, 1994 (date of initial public investment) to November 30, 1994, the Adviser
earned $728,298 and $439,878, respectively, of which $89,503 and $62,841,
respectively, was voluntarily waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the Adviser will waive its fee
or reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will

be limited, in any single fiscal year, by the amount of the investment
advisory fee.
BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the adviser will generally use
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. The
adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Trustees. The adviser may
select brokers and dealers who offer brokerage and research services. These
services may be furnished directly to the Fund or to the adviser and may
include: advice as to the advisability of investing in securities; security
analysis and economic reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the adviser or its affiliates
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 their expenses. The adviser and
its affiliates exercise reasonable business judgment in selecting brokers who
offfer brokerage and research transactions. They determine in good faith that
commissions charged by such persons are reasonable in relationship to the
value of the brokerage and research services provided. For the fiscal year
ended November 30, 1995, and for the period from March 28, 1994 (date of
initial public investment) to November 30, 1994, the Fund paid $98,771and
$163,527, respectively, in commissions on brokerage transactions.

ADMINISTRATION
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 fiscal year ended November 30, 1995, and
for the period from March 28, 1994 (date of initial public investment) to
November 30, 1994, FAS earned $93,391and $59,254, respectively.
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
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 LLP,
Washington, D.C. Piper & Marbury L.L.P., Washington, D.C., serves as counsel
to the independent Trustees.
INDEPENDENT AUDITORS
The independent auditors are Ernst & Young LLP, Pittsburgh, Pennsylvania.
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, 1995, and for the period from March
28, 1994 (date of initial public investment) to November 30, 1994, the Fund's
portfolio turnover rates were 63% and 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.
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

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.
TAX STATUS

The Fund's average annual total return for the one year period ended
November 30, 1995, and for the period from March 25, 1994 (start of
performance) to November 30, 1995, were 33.09% and 16.33%, 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, 1995, was
1.32%.
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

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.
FINANCIAL STATEMENTS

The financial statements for the fiscal period ended November 30, 1995, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1995 (File Nos. 33-44590 and 811-6504). A copy of the Annual Report may be
obtained without charge by contacting The Biltmore Service Center at the
address located on the back cover of the prospectus or by calling The Biltmore
Service Center at 1-800-994-4414.

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+."

Cusip 090297813

3101206B (1/96)

Prospectus
January 31, 1996

The shares of Biltmore Emerging Markets 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 long-term capital
appreciation. The Fund pursues this objective by investing primarily in a
professionally managed and diversified portfolio of securities of issuers and
companies located in countries having emerging markets.

Investing in emerging markets can involve significant risks and the Fund is
designed for aggressive investors. 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
Emerging Markets Fund
(A Portfolio of The Biltmore Funds)
The Fund has also filed a Statement of Additional Information dated
January 31, 1996 with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. 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.

[WACHOVIA INVESTMENTS LOGO]

===============================================================================

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 4
Risk Considerations 4
Emerging Markets 5
Debt Obligations 5
Portfolio Investments 6
Acceptable Investments 6
Corporate Obligations 6
Investing in Securities of Other
Investment Companies 6
U.S. Government Obligations 7
Forward Foreign Currency Exchange
Contracts 7
Put and Call Options 7
Futures Contracts, Stock Index Futures and
Options on Futures 7
Risks 8
Restricted and Illiquid Securities 8
Temporary Investments 8
Repurchase Agreements 8
When-Issued and Delayed
Delivery Transactions 8
Lending of Portfolio Securities 9
Investment Limitation 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 11
Administrative Services 11
Brokerage Transactions 11
Expenses of the Fund 11
- ---------------------------------------------------
NET ASSET VALUE 11
- ---------------------------------------------------
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
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 14
Reinvestment Privilege 14
Concurrent Purchases 14
Plan Right of Accumulation 14
Systematic Investment Program 14
Certificates and Confirmations 14
Subaccounting Services 15
Dividends 15
Capital Gains 15
Exchange Privilege 15
Exchange by Telephone 16
- ---------------------------------------------------
REDEEMING SHARES 16
By Telephone 16
By Mail 16
Signatures 17
Systematic Withdrawal Program 17
Accounts with Low Balances 17
- ---------------------------------------------------
SHAREHOLDER INFORMATION 17
Voting Rights 17
- ---------------------------------------------------
EFFECT OF BANKING LAWS 18
- ---------------------------------------------------
TAX INFORMATION 18
- ---------------------------------------------------
PERFORMANCE INFORMATION 19
- ---------------------------------------------------
ADDRESSES BACK COVER

===============================================================================

SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price) None
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 1.00%
12b-1 Fees None
Other Expenses 0.90%
Shareholder Servicing Agent Fee (1) 0.00%
Total Fund Operating Expenses (2) 1.90%
</TABLE>

(1) As of the date of this prospectus, the Fund is not paying or accruing
shareholder servicing agent fees. The Fund will not pay or accrue
shareholder servicing agent fees until a separate class of shares has been
created for certain trust and institutional investors. At that time, the
Fund will be able to pay up to 0.25 of 1% of the Fund's average daily net
assets for shareholder servicing agent fees. See "The Biltmore Funds
Information."

(2)
Total Fund Operating Expenses were 1.80% for the fiscal year ended
- -----
November 30, 1995.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear either directly or indirectly.
For more complete descriptions of the various costs and expenses, see "The
Biltmore Funds Information" and "Investing in the Fund."
<TABLE>
<S> <C> <C> <C> <C>
Example 1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; (2) redemption
at the end of each time period; and (3) payment of the
maximum sales load. As noted in the table above, the Fund
charges no redemption fees. $63 $102 $143 $257
</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.

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 15, 1996, on the Fund's
financial statements for the period ended November 30, 1995, and on the
following table for the periods presented, is included in the Fund's Annual
Report to shareholders dated November 30, 1995, which is incorporated herein by
reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained free of charge from the
Trust.

<TABLE>
<CAPTION>
Period Ended November 30, 1995(a)
<S> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Income from investment operations
Net investment income 0.05
Net realized and unrealized gain on investments and foreign currency 0.36
-------
Total from investment operations 0.41
-------
NET ASSET VALUE, END OF PERIOD $ 10.41
-------
Total Return (b) 4.10%
Ratios to Average Net Assets
Expenses 1.80%*
Net investment income 0.85%*
Expense waiver/reimbursement (c) 0.28%*
Supplemental Data
Net assets, end of period (000 omitted) $71,276
Portfolio turnover 17 %
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from December 26, 1994 (date of initial
public investment) to November 30, 1995.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated
November 30, 1995, which can be obtained free of charge.

===============================================================================

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 Emerging Markets 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 securities of issuers and companies located in
countries having emerging markets. 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 Equity
Fund, Biltmore Equity Index Fund, Biltmore Fixed Income Fund, Biltmore Money
Market Fund, Biltmore Prime Cash Management Fund, Biltmore Quantitative Equity
Fund, Biltmore Short-Term Fixed Income Fund, Biltmore Special Values Fund,
Biltmore Tax-Free Money Market Fund, and Biltmore U.S. Treasury Money Market
Fund (collectively, hereinafter referred to as the "Funds").

===============================================================================

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to produce long-term capital
appreciation. 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 securities of issuers and
companies located in countries having emerging markets. Under normal market
conditions, the Fund intends to invest at least 65% of its total assets in
securities of issuers and companies located in countries having emerging
markets. Although the Fund will focus its investment on the common stocks of
emerging market companies, the Fund may also invest in other securities,
including debt securities.

Many investments in emerging markets can be considered speculative, and
therefore may offer higher potential for gains and losses than investments in
the developed markets of the world. Investing in emerging markets can involve
significant risks and the Fund is designed for aggressive investors.

In managing the Fund's portfolio, the Fund's adviser, Wachovia Investment
Management Group (the "Adviser") considers countries having emerging markets to
be all countries that are generally considered to be developing or emerging
countries by the International Bank for Reconstruction and Development (more
commonly known as the World Bank) and the International Finance Corporation, as
well as countries that are classified by the United Nations or otherwise
regarded by their authorities as developing. The Adviser will consider the
following securities as permissible investments for the Fund:

(i) securities of companies the principal securities trading market for which
is an emerging market country, as described above;

(ii) securities, traded in any market, of companies or issuers that derive 50%
or more of their total revenue from either goods or services produced in
such emerging market countries or sales made in such emerging market
countries; or
(iii) securities of companies organized under the laws of, and with a principal
office in, an emerging market country.

INVESTMENT PROCESS. In selecting equity securities for the Fund, the Adviser
focuses on a broad diversification of emerging market countries. Initially, the
Adviser identifies those emerging market countries that, in the Adviser's
judgment, have made, or are currently making, progress toward improving their
economies and market environments through financial and/or political reform, and
which are likely to produce premium returns. Second, the Adviser then uses a
disciplined allocation process to classify the emerging market countries that it
has identified into one of two categories (or "Tiers"). The first, Tier 1, is
comprised of the most established and liquid of emerging market countries. The
second, Tier 2, represents those emerging market countries which are less
established, smaller, and less liquid than those in Tier 1. Examples of
countries classified in Tier 1 are Argentina, Brazil, Mexico and Thailand;
examples of countries which are classified in Tier 2 include Columbia,
Indonesia, Greece, Peru and Portugal.

In constructing the Fund's investment portfolio, the Adviser normally gives the
Tier 1 emerging market countries a greater weighting than is afforded to the
Tier 2 emerging market countries. Within each Tier, each emerging market country
is equally weighted and then its weight is adjusted to reflect the Adviser's
investment judgments regarding the particular country. The Adviser will consider
economic factors, political conditions and currency and market valuation levels,
in deciding upon which emerging market countries to include in the portfolio and
how those countries should be classified and weighted.

The number of emerging market countries represented in the Fund's portfolio will
vary over time. It is the Adviser's intention that the Fund remain broadly
diversified across many emerging market countries, companies, and geographic
regions. Under normal market conditions, the Adviser expects to invest in the
securities of issuers located in a minimum of six different emerging market
countries, with up to 25% of the Fund's total assets invested in any one
country.

In selecting securities in each emerging market country for purchase by the
Fund, the Adviser will focus on the most prominent and largest capitalized
companies. The Adviser will seek to construct the Fund's investment portfolio in
a manner that maintains adequate liquidity for trading purposes, and will
attempt to utilize the low historical correlation of returns among emerging
market countries to moderate the portfolio's volatility, wherever feasible.

RISK CONSIDERATIONS. Investing in the Fund entails a substantial degree of risk.
Because of the special risks associated with investing in emerging markets, an
investment in the Fund should be considered speculative. Investors are strongly
advised to carefully consider the special risks involved in emerging markets,
which are in addition to the usual risks of investing in domestic and in
developed markets around the world. By itself, an investment in the Fund does
not constitute a balanced investment plan. Investors should be willing to assume
a higher degree of risk and accept a higher level of volatility than is
generally associated with investment in more developed markets.

These risks include a possibility of expropriation, nationalization or
confiscatory taxation, taxation of income earned in foreign nations (including,
for example, withholding taxes on interest and dividends) or other taxes imposed
with respect to investments in foreign nations, foreign exchange controls (which
may include suspension of the ability to transfer currency from a given country
and repatriation of investments), default in foreign government securities,
political or social instability or diplomatic developments which could adversely
affect investment in securities of issuers in foreign nations. (Please refer to
the Fund's Statement of Additional Information for an expanded discussion of
sovereign debt obligations.) In addition, there is often less publicly available
information about foreign issuers than those in the United States. Emerging
market companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. Further, the Fund may
encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts.

Because the Fund's securities will generally be denominated in foreign
currencies, the value of such securities to the Fund will be affected by changes
in currency exchange rates and in exchange control regulations, and costs will
be incurred in connection with conversion between currencies. A change in the
value of a foreign currency against the U.S. dollar will result in corresponding
change in the U.S. dollar value of the Fund's securities denominated in the
currency. Such changes will also affect the Fund's income and distributions to
shareholders. The Fund may be affected, either favorably or unfavorably, by

the fluctuations in the relative rates of exchange between the currencies of
different nations, and the Fund therefore may engage in certain hedging
strategies. Such strategies involve certain investment risks and transaction
costs to which the Fund might not otherwise be subject. These risks include
dependence on the Adviser's ability to predict movements in exchange rates, and
imperfect movements between exchange rates and currency hedges.

Emerging Markets. Brokerage commissions, fees for custodial services, and other
costs relating to investments in emerging market countries are generally greater
than in the United States. Such markets have different clearance and settlement
procedures, and in certain markets, there have been occasions when settlements
have been unable to keep pace with the volume of securities transactions, making
it difficult to effect certain transactions. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to sell a portfolio security
due to settlement problems could result in either losses to the Fund, if the
value of the portfolio security subsequently declines, or, if the Fund has
entered into a contract to sell the security, could result in possible claims
against the Fund.

In certain emerging market countries, there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers, and
listed companies than in the United States. The economies of emerging market
countries may be predominantly based on a few industries and may be highly
vulnerable to change in local or global trade conditions. The securities markets
of many of the countries in which the Fund may invest also may be smaller, less
liquid, and subject to greater price volatility than those in the United States.
Some emerging market countries also may have fixed or managed currencies which
are not free-floating against the U.S. dollar. Further, certain emerging market
country currencies may not be internationally traded. Certain of these
currencies have experienced a steady devaluation relative to the U.S. dollar.
Any devaluations in the currencies in which the Fund's portfolio securities are
denominated may have an adverse impact on the Fund. Finally, many emerging
market countries have experienced substantial, and in some periods, extremely
high, rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had, and may continue to have, negative effects on the
economies for individual emerging market countries. Moreover, the economies of
individual emerging market countries may differ favorably or unfavorably from
the U.S. economy in such respects as the rate of growth of domestic product,
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.

Debt Obligations. From time to time, a portion of the Fund's portfolio may
consist of lower-rated i.e., rated below BBB by Standard & Poor's Ratings Group
("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's") debt obligations
which are commonly referred to as "junk bonds." The Fund will not invest more
than 35% of its total assets in such securities. A description of the rating
categories is contained in the Appendix to this prospectus. Lower-rated
securities will usually offer higher yields than higher-rated securities.
However, there is more risk associated with these investments. These lower-rated
bonds may be more susceptible to real or perceived adverse economic conditions
than investment grade bonds. These lower-rated bonds are regarded as
predominantly speculative with regard to each issuer's continuing ability to
make principal and interest payments. In addition, the secondary trading market
for lower-rated bonds may be less liquid than the market for investment grade
bonds. Finally, the prices of fixed-income securities, including bonds,
fluctuate inversely to the direction of interest rates. As a result of these
factors, lower-rated securities tend to have more price volatility and carry
more risk to principal than higher-rated securities. The Adviser will endeavor
to limit these risks through diversifying the portfolio and through careful
credit analysis of individual issuers. Purchasers should carefully assess the
risks associated with an investment in the Fund.

Many corporate debt obligations, including many lower-rated bonds, permit the
issuers to call the security and thereby redeem their obligations earlier than
the stated maturity dates. Issuers are more likely to call bonds during periods
of declining interest rates. In these cases, if the Fund owns a bond which is
called, the Fund will receive its return of principal earlier than expected and
would likely be required to reinvest the proceeds at lower interest rates, thus
reducing income to the Fund.

PORTFOLIO INVESTMENTS

Acceptable Investments. The Fund's investments will emphasize common stocks of
foreign companies located in emerging market countries. The Fund's permissible
investments may also include, but will not be limited to:

. preferred stocks of foreign companies;

. convertible securities and warrants of foreign companies;

. investments in American Depositary Receipts ("ADRs") of foreign countries
traded on the New York Stock Exchange or in over-the-counter markets, and
investments in European Depositary Receipts ("EDRs," sometimes also referred
to as Continental Depositary Receipts), which are receipts issued in Europe,
typically by foreign banks and trust companies, that evidence ownership of
either foreign or domestic underlying securities;

. fixed-income obligations of foreign governments, supranational entities and
corporate debt obligations denominated in currencies other than U.S. dollars,
rated B or better at the time of purchase by Moody's or S&P. (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.);
and

. U.S. equity and debt securities rated, at the time of purchase, B or better by
Moody's or S&P.

Corporate Obligations. The Fund may invest in preferred stocks, bonds, notes,
and debentures of corporate issuers located in countries with emerging markets.
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
corporate obligations purchased by the Fund will be rated, at the time of
purchase, B or better by Moody's or S&P, or, if unrated, will be of comparable
quality as determined by the 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 may consider doing so.)

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 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.

Investing in Securities of Other Investment Companies. Due to restrictions on
direct investment by foreign entities in certain emerging market countries,
investment in other investment companies may be the most practical or only
manner in which the Fund can invest in securities markets of certain emerging
countries. 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. Such investments may involve the payment of substantial
premiums above the net asset value of such issuers' portfolio securities, and
may be constrained by market availability. There can be no assurance that
investment companies for investing in certain emerging market countries will be
available for investment. The Fund will invest in such funds when, in the
Adviser's judgment, the potential benefits of such investment justify the
payment of any applicable premium or sales charge. 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. The Fund would, however, continue to pay its own
investment advisory fees and other expenses with respect to its investments in
shares of closed-end companies.

U.S. Government Obligations. 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.

Some of these obligations, such as Government National Mortgage Association
mortgage-backed securities, 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 do so. 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;
. the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
. the credit of the agency or instrumentality.

Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract ("forward contract") is an obligation to purchase or sell an amount of
a particular currency at a specific price and on a future date agreed upon by
the parties. Generally, no commission charges or deposits are involved. At the
time the Fund enters into a forward contract, Fund assets with a value equal to
the Fund's obligation under the forward contract are segregated on the Fund's
records and are maintained until the forward contract has been settled. The Fund
will not enter into a forward contract with a term of more than one year. The
Fund will generally enter into a forward contract to provide the proper currency
to settle a securities transaction at the time the transaction occurs ("trade
date"). The period between the trade date and settlement date will vary between
24 hours and 30 days, depending upon local custom.

The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the Adviser
will consider the likelihood of changes in currency values when making
investment decisions, the Adviser believes that it is important to be able to
enter into forward contracts when it believes the interest of the Fund will be
served. The Fund will only enter into forward contracts for hedging purposes and
will not enter into forward contracts in a particular currency in an amount in
excess of the Fund's assets denominated in that currency. No more than 30% of
the Fund's assets will be committed to forward contracts at any time. (This
restriction does not include forward contracts entered into to settle securities
transactions.)

Futures Contracts, Stock Index Futures and Options on Futures. The Fund may
purchase and sell financial futures contracts to hedge all or a portion of its
portfolio against changes in the price of its portfolio securities, but will not
engage in futures transactions for speculative purposes. The Fund may also write

call options and purchase put options on financial futures as a hedge to attempt
to protect securities in its portfolio against decreases in value. 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. The Fund may also utilize stock index
futures contracts, and options on futures contracts, subject to the limitation
that the value of these stock index 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. These instruments may not be available with regard to the
securities of certain emerging markets in which the Fund may invest.

Risks. When the Fund writes a call option, the Fund risks not participating in
any rise in the value of the underlying security. In addition, 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, in the event the Adviser is
incorrect in its expectations about the 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 options will exist at all times. Although the
Adviser will consider liquidity before entering into option transactions, there
is no assurance that a liquid secondary market 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 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 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 or 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.

Restricted and Illiquid Securities. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies, but which
are subject to restrictions on resale under federal securities laws. To the
extent that these securities are not determined to be liquid, the Fund will
limit its purchase of these securities, together with other securities
considered to be illiquid, to 15% of its net assets.

Temporary Investments. For temporary defensive purposes (up to 100% of total
assets) and to maintain liquidity (up to 35% of total assets), the Fund may
invest in:

. commercial paper (including Canadian Commercial Paper and Europaper) rated A-1
or better by S&P, or Prime-1 by Moody's, or, if unrated, of comparable quality
to the Fund's acceptable investments as determined by the Adviser.

The Fund may invest in certain temporary investments denominated in currencies
other than U.S. dollars.

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 not be able to
engage in these types of transactions with regard to the securities of certain
emerging markets in which the Fund may invest.

The Fund may dispose of a commitment prior to settlement if the 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, as a
matter of fundamental policy 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 Adviser
has determined are creditworthy under guidelines established by the Trustees and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100% of the value of the securities loaned. The Fund may not be able
to engage in these types of transactions with regard to the securities of
certain emerging markets in which the Fund may invest. 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 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 assets to secure such
borrowings.

The above investment limitation 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.

Advisory Fees. The Adviser receives an annual investment advisory fee equal to
1.00% of the Fund's average daily net assets. The fee paid by the Fund, while
higher than the advisory fee paid by other mutual funds in general, is
comparable to fees paid by other mutual funds with similar objectives and
policies. The investment advisory contract 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.

The Fund's portfolio managers are Michael J. Tierney, B. Scott Sadler, Timothy
L. Swanson and Paige C. Henderson. Mr. Tierney, Mr. Sadler and Mr. Swanson have
managed the Fund since its inception in December, 1994. Ms. Henderson assumed
co-management responsibility in 1995.

Mr. Tierney, who joined Wachovia Bank of North Carolina, N.A. in 1981, is Senior
Vice President/Group Executive with Wachovia Asset Management and Chief
Investment Officer of Wachovia Corporation. Mr. Tierney is a graduate of the
University of Connecticut, and has more than 25 years of experience managing
equity and fixed income investments.

Mr. Sadler is a Vice President of Wachovia Asset Management. He joined Wachovia
Bank of North Carolina, N.A. in 1987 and is responsible for managing personal
trust investment portfolios. Mr. Sadler is a graduate of the University of
Virginia's McIntire School of Commerce with a bachelor's degree in economics.
Mr. Sadler is a Chartered Financial Analyst.

Mr. Swanson is an Assistant Vice President of Wachovia Asset Management. He
joined Wachovia Bank of North Carolina, N.A. in 1991 and is also responsible for
managing personal trust portfolios. Mr. Swanson is a graduate of Wake Forest
University with a bachelor's degree in mathematical economics, and of the
University of Rochester with a master's degree in economics. Mr. Swanson is a
Chartered Financial Analyst.

Paige C. Henderson is an Assistant Vice President of Wachovia Asset Management
in Winston-Salem, North Carolina. Ms. Henderson is an equity analyst in the
Investment Asset Group. Ms. Henderson joined Wachovia in 1991 as an equity
analyst. Ms. Henderson received a Bachelor of Science in Business Administration
in 1986 and an MBA from the University of North Carolina at Chapel Hill in 1991.
Ms. Henderson is a chartered financial analyst and a certified public
accountant.

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.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES. Federated Administrative Services provides the Fund
with certain administrative personnel and services necessary to operate the
Fund. Such services include the preparation of filings with the Securities and
Exchange Commission and other regulatory authorities, assistance with respect to
meetings of the Trustees, shareholder servicing and accounting services, and
other administrative services. Federated Administrative Services provides these
at an annual rate, computed and payable daily, as specified below:
<TABLE>
<CAPTION>
Average Aggregate Daily
Maximum Net Assets of the Trust
Administrative Fee and The Biltmore Municipal Funds

<S> <C>
.15 of 1% of the first $250 million
.125 of 1% of the next $250 million
.10 of 1% of the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

===============================================================================

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. Trading in foreign securities
may be completed at times which vary from the closing of the New York Stock
Exchange. As a result, in computing the Fund's net asset value, the Fund values
foreign securities at the latest closing price on the exchange on which they are
traded immediately prior to the closing of the New York Stock Exchange. Certain
foreign currency exchange rates may also be determined at the latest rate prior
to the closing of the New York Stock Exchange. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchange rates may occur
between the times at which they are determined and the closing of the New York
Stock Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Trustees, although the actual calculation may be done by
others.

===============================================================================

INVESTING IN THE FUND

SHARE PURCHASES

BY MAIL. To purchase shares of the Fund through Wachovia Investments, Inc. by
mail, send a check made payable to Biltmore Emerging Markets 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.

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

PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset
value, without a sales charge, by investment advisers registered under the
Investment Advisers Act of 1940 purchasing on behalf of their clients, and by
the Wachovia Banks for funds which are held in a fiduciary, agency, custodial,
or similar capacity. Trustees, officers, directors and 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.
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. Purchases made by participants in 401(k) Defined Contribution Plans (each
a "Delaware/Wachovia 401(k) Plan" or "Plan") which have in excess of an
aggregate investment of $1 million in certain Delaware Group Funds ("Eligible
Delaware Funds") and certain portfolios of the Trust, including the Fund
("Eligible Biltmore Funds" together, the "Eligible Funds") by offering
investment options that include the Eligible Funds, will be made at net asset
value, without the imposition of the sales charge otherwise provided in the
table above. "Eligible Biltmore Funds" refers to the Fund, the Biltmore Balanced
Fund, the Biltmore Equity Fund, the Biltmore Fixed Income Fund, the Biltmore
Special Values Fund, and the Investment Shares class of the Biltmore Money
Market Fund (the "Money Fund").

REDUCING THE SALES CHARGE. The sales charge can be reduced on the purchase of
shares of the Fund through:

. quantity discounts and accumulated purchases;
. signing a 13-month letter of intent;
. using the reinvestment privilege; or
. concurrent purchases.

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%.

LETTER OF INTENT. If a shareholder intends to purchase shares of the Fund equal
in value to at least $100,000 over the next 13 months, the sales charge may be
reduced by signing a letter of intent to that effect. This letter of intent
includes a provision for a sales charge adjustment depending on the amount
actually purchased within the 13-month period and a provision for the Custodian
to hold 4.50% of the total amount intended to be purchased in escrow (in shares
of the Fund) until such purchase is completed.

The 4.50% held in escrow will be applied to the shareholder's account at the end
of the 13-month period, unless the amount specified in the letter of intent is
not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.

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.

SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account 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.

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.

DIVIDENDS
Dividends are declared and paid annually 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

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 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.

Delaware Funds, as well as Eligible Biltmore Funds, at net asset value; and (2)
exchange all or part of their Eligible Biltmore Fund shares into Class A shares
of the Eligible Delaware Fund, at net asset value, without payment of a
front-end sales charge. However, a participant in any Plan that has an aggregate
investment of $1 million or less in the Eligible Funds who exchanges into an
Eligible Fund from the Money Fund must pay the applicable front-end sales charge
at the time of the exchange (unless the Money Fund shares were acquired in an
exchange from an Eligible Fund subject to a front-end sales charge or by
reinvestment of dividends).

===============================================================================

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.

check for the proceeds is mailed within three business days, but in no event
more than seven days, after receipt of a proper written redemption request.

. a trust company or commercial bank whose deposits are insured by the BIF;

. a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;

. a savings bank or savings and loan association whose deposits are insured by
the SAIF; or

. any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Fund does not accept signatures guaranteed by a notary public.

SYSTEMATIC WITHDRAWAL PROGRAM

ACCOUNTS WITH LOW BALANCES

===============================================================================

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.

===============================================================================

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 Asset Management, and its affiliate banks, are
subject to such banking laws and regulations.

===============================================================================

TAX INFORMATION

Investment income received by the Fund from sources within emerging market
countries may be subject to foreign taxes withheld at the source. The United
States has entered into tax treaties with many foreign countries that entitle
the Fund to reduced tax rates or exemptions on this income. The effective rate
of foreign tax cannot be predicted since the amount of Fund assets to be
invested within various emerging market countries is unknown. However, the Fund
intends to operate so as to qualify for treaty-reduced tax rates where
applicable.

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.

If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Internal Revenue Code stipulations that would allow
shareholders to claim a foreign tax credit or deduction on their U.S. income tax
returns. The Internal Revenue Code, as amended, may limit a shareholder's
ability to claim a foreign tax credit. Furthermore, shareholders who elect to
deduct their portion of the Fund's foreign taxes rather than take the foreign
tax credit must itemize deductions on their income tax returns.

===============================================================================

PERFORMANCE INFORMATION

From time to time the Fund advertises its total return and yield.

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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

===============================================================================

Addresses

- -------------------------------------------------------------------------------

Biltmore Emerging Markets Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

- -------------------------------------------------------------------------------
Distributor Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779