BILTMORE FUNDS, 497, 1997-01-31

BILTMORE FUNDS
497, 1997-01-31

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The Biltmore Funds
The Biltmore Municipal Funds
Class A Shares
All Portfolios
Class B Shares
Biltmore Equity Fund
Biltmore Quantitative Equity Fund
Biltmore Balanced Fund
Biltmore Fixed Income Fund

Prospectus
January 31, 1997

[LOGO]

The Biltmore Funds and The Biltmore Municipal Funds (individually referred to as
the "Trust" or collectively as the "Trusts") are open-end management investment
companies which offer separate investment portfolios, each having its own
investment objective and policies for different investor needs. The shares
offered by this prospectus represent interests in the following portfolios
(individually referred to as the "Fund" or collectively as the "Funds"):

BILTMORE EQUITY FUND BILTMORE GEORGIA MUNICIPAL BOND FUND

BILTMORE QUANTITATIVE EQUITY FUND BILTMORE NORTH CAROLINA MUNICIPAL BOND FUND

BILTMORE EQUITY INDEX FUND BILTMORE SOUTH CAROLINA MUNICIPAL BOND FUND

BILTMORE SPECIAL VALUES FUND

BILTMORE EMERGING MARKETS FUND

BILTMORE BALANCED FUND

BILTMORE FIXED INCOME FUND

BILTMORE SHORT-TERM FIXED INCOME FUND

</TABLE>

In addition, The Biltmore Funds offers through separate prospectuses the
following money market portfolios, each having a distinct investment objective
and policies: Biltmore Money Market Fund, Biltmore Prime Cash Management Fund,
Biltmore Tax-Free Money Market Fund, and Biltmore U.S. Treasury Money Market
Fund.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY, WACHOVIA BANK OF GEORGIA, N.A., WACHOVIA BANK OF
NORTH CAROLINA, N.A., OR WACHOVIA BANK OF SOUTH CAROLINA, N.A. OR ANY OF THEIR
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 AMOUNT INVESTED.

This prospectus provides you with information specfic to the Class A Shares and
Class B Shares of the Funds. It contains the information you should read and
know before you invest in the Class A Shares or Class B Shares of the Funds. The
Funds also offer Class Y Shares to certain institutional investors. Keep this
prospectus for future reference.

The Funds have also filed a Statement of Additional Information dated January
31, 1997 with the Securities and Exchange Commission ("SEC"). 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 Funds, call 1-800-994-4414 or write The Biltmore Service Center, 101
Greystone Boulevard, SC-9215, Columbia, South Carolina 29226. The Statement of
Additional Information, material incorporated by reference into this document,
and other information regarding the Funds is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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

- ----------------------------------------------------------
SUMMARY OF INVESTMENT INFORMATION 1
- ----------------------------------------------------------
SUMMARY OF FUND EXPENSES--CLASS A SHARES 2
- ----------------------------------------------------------
SUMMARY OF FUND EXPENSES--CLASS B SHARES 4
- ----------------------------------------------------------
FINANCIAL HIGHLIGHTS 6
- ----------------------------------------------------------
GENERAL INFORMATION 10
- ----------------------------------------------------------
THE BILTMORE FUNDS 10
Biltmore Equity Fund 10
Biltmore Quantitative Equity Fund 10
Biltmore Equity Index Fund 10
Biltmore Special Values Fund 11
Biltmore Emerging Markets Fund 11
Biltmore Balanced Fund 12
Biltmore Fixed Income Fund 12
Biltmore Short-Term Fixed Income Fund 12
Additional Acceptable Investments 12
- ----------------------------------------------------------
THE BILTMORE MUNICIPAL FUNDS 13
Biltmore Georgia Municipal Bond Fund 13
Biltmore North Carolina Municipal Bond Fund 13
Biltmore South Carolina Municipal Bond Fund 13
Acceptable Investments 13
State Municipal Securities 13
- ----------------------------------------------------------
PORTFOLIO INVESTMENTS AND STRATEGIES 14
Investment Considerations 14
Equity Investments 14
Securities of Foreign Issuers 14
Securities in Emerging Markets 14
Investments in Debt Obligations 15
Investments in Lower-Rated Debt Obligations 15
Municipal Security Investments 15
Investment Processes 16
Quantitative Equity Fund 16
Equity Index Fund 16
S&P 500 Index 17
Emerging Markets Fund 17
Fixed Income Funds 17
Portfolio Investments 18
Corporate Debt Obligations 18
Fixed Rate Corporate Debt Obligations 18
Floating Rate Corporate Debt Obligations 18
Convertible Securities 18
Put and Call Options 19
Stock Index Futures and Options 19
Forward Foreign Currency Exchange
Contracts 19
Index Participation Contracts 20
Mortgage-Backed Securities 20
Adjustable Rate Mortgage Securities 20
Collateralized Mortgage Obligations 20
Real Estate Mortgage Investment Conduits 20
Stripped Mortgage-Backed Securities 21
Asset-Backed Securities 21
U.S. Government Obligations 22
Demand Master Notes 22
Temporary Investments 22
Restricted and Illiquid Securities 22
Repurchase Agreements 23
Demand Features 23
When-Issued and Delayed Delivery
Transactions 23
Lending of Portfolio Securities 23
Investing in Securities of Other Investment
Companies 23
Ratings 23
Municipal Leases 23
Participation Interests 23
Variable Rate Municipal Securities 24
Municipal Bond Insurance 24
Non-Diversification 24
Duration 24
- ----------------------------------------------------------
INVESTMENT LIMITATIONS 25
Borrowing Money 25
Diversification 25
- ----------------------------------------------------------
TRUST INFORMATION 25
Management of the Trusts 25
Board of Trustees 25
Investment Advisers 25
Sub-Adviser 25
Advisory Fees 25
Advisers' Background 26
Distribution of Shares 27
Distribution Plan 27
Administrative Arrangements 28
Shareholder Servicing Arrangements 28
Administration of the Funds 28
Expenses of the Funds and Class A Shares and
Class B Shares 28
Brokerage Transactions 29
- ----------------------------------------------------------
NET ASSET VALUE 29
- ----------------------------------------------------------
INVESTING IN THE FUNDS 29
Share Purchases 29
Through the Trust Divisions of the Wachovia
Banks 29
Through Wachovia Investments, Inc. 29
By Mail 29
Minimum Investment Required 29
What Shares Cost 30
Class A Shares 30
Purchases at Net Asset Value 30
Reducing the Initial Sales Charge 30
Quantity Discounts and Accumulated
Purchases 30
Letter of Intent 30
Reinvestment Privilege 31
Concurrent Purchases 31
Plan Right of Accumulation 31
Class B Shares 31
Conversion Feature 31
Sales Charge Reallowance 31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS (CONT'D)

Systematic Investment Program 32
Certificates and Confirmations 32
Subaccounting Services 32
Dividends and Capital Gains 32
- ----------------------------------------------------------
EXCHANGE PRIVILEGE 32
Exchange by Telephone 33
- ----------------------------------------------------------
REDEEMING SHARES 33
By Telephone 33
By Mail 33
Signatures 34
Systematic Withdrawal Program 34
Accounts with Low Balances 34
- ----------------------------------------------------------
SHAREHOLDER INFORMATION 34
Voting Rights 34
- ----------------------------------------------------------
EFFECT OF BANKING LAWS 34
- ----------------------------------------------------------
TAX INFORMATION 35
- ----------------------------------------------------------
THE BILTMORE MUNICIPAL FUNDS TAX INFORMATION 35
Federal Income Taxes 35
Georgia and North Carolina Taxes 36
South Carolina Taxes 36
Other State and Local Taxes 36
- ----------------------------------------------------------
OTHER CLASSES OF SHARES 36
- ----------------------------------------------------------
PERFORMANCE INFORMATION 36
- ----------------------------------------------------------
ADDRESSES BACK COVER

- ---------------------------------------------------------
- ---------------------------------------------------------
SUMMARY OF INVESTMENT
INFORMATION

WHO MAY WANT TO INVEST IN THE BILTMORE FUNDS AND THE BILTMORE MUNICIPAL FUNDS?

THE BILTMORE FUNDS and THE BILTMORE MUNICIPAL FUNDS offer investment
opportunities to a wide range of investors, from those who may be investing for
the short-term to those with long-term goals. In addition to certain money
market portfolios offered pursuant to separate prospectuses, the Trusts
currently offer the following eight professionally managed diversified
portfolios and three non-diversified portfolios:

BILTMORE EQUITY FUND ("EQUITY FUND")--seeks to produce growth of principal and
income;

BILTMORE QUANTITATIVE EQUITY FUND ("QUANTITATIVE EQUITY FUND")--seeks to
provide growth of principal and income;

BILTMORE EQUITY INDEX FUND ("EQUITY INDEX FUND")--seeks 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" or "Index");

BILTMORE SPECIAL VALUES FUND ("SPECIAL VALUES FUND")--seeks to produce growth
of principal;

BILTMORE EMERGING MARKETS FUND ("EMERGING MARKETS FUND")--seeks to produce
long-term capital appreciation;

BILTMORE BALANCED FUND ("BALANCED FUND")--seeks to provide long-term growth of
principal and current income;

BILTMORE FIXED INCOME FUND ("FIXED INCOME FUND")--seeks a high level of total
return;

BILTMORE SHORT-TERM FIXED INCOME FUND ("SHORT-TERM FIXED INCOME FUND")--seeks
to produce a high level of current income;

BILTMORE GEORGIA MUNICIPAL BOND FUND ("GEORGIA MUNICIPAL BOND FUND")--seeks to
provide current income which is exempt from federal regular income tax and the
personal income taxes imposed by the State of Georgia;

BILTMORE NORTH CAROLINA MUNICIPAL BOND FUND ("NORTH CAROLINA MUNICIPAL BOND
FUND")--seeks to provide current income which is exempt from federal regular
income tax and the income tax imposed by the State of North Carolina; and

BILTMORE SOUTH CAROLINA MUNICIPAL BOND FUND ("SOUTH CAROLINA MUNICIPAL BOND
FUND")--seeks to provide current income which is exempt from federal regular
income tax and the South Carolina state income taxes.

WHO MANAGES THE FUNDS?
Wachovia Asset Management, a business unit of Wachovia Bank of North Carolina,
N.A., serves as investment adviser to THE BILTMORE FUNDS and the NORTH CAROLINA
MUNICIPAL BOND FUND. Wachovia Bank of Georgia, N.A. serves as investment adviser
to GEORGIA MUNICIPAL BOND FUND and Wachovia Bank of South Carolina, N.A. serves
as investment adviser to SOUTH CAROLINA MUNICIPAL BOND FUND. Twin Capital
Management, Inc. serves as sub-adviser to the QUANTITATIVE EQUITY FUND.

HOW TO BUY AND SELL SHARES
You may buy and sell shares of any of the Funds by telephone, by mail, or in
person. Except as indicated below, all shares are sold with sales charges. Fund
shares are redeemed at net asset value. The Trusts also offer you the privilege
of exchanging shares of one Fund for another. For more information, please see
"Investing in the Funds," "Exchange Privilege," and "Redeeming Shares."

RISK FACTORS
Investors should be aware of general risks associated with investment in mutual
funds. Market values of fixed income securities, which constitute a major part
of the investments of several Funds, may vary inversely in response to change in
prevailing interest rates. Foreign securities in which some of the Funds
(particularly the EMERGING MARKETS FUND) may invest may be subject to certain
risks in addition to those inherent in U.S. investments. One or more of the
Funds may make certain investments and employ certain investment techniques that
involve other risks, including entering into repurchase agreements, lending
portfolio securities, entering into futures contracts and related options,
entering into foreign currency transactions and forward foreign currency
exchange contracts, and borrowing money for investment purposes. These risks and
those associated with investing in mortgage-backed securities, foreign
securities, when-issued securities, variable rate securities, and equity
securities are described under "Portfolio Investments and Strategies."

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

SUMMARY OF FUND EXPENSES
THE BILTMORE FUNDS AND
THE BILTMORE MUNICIPAL FUNDS
CLASS A SHARES

SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
QUANTITATIVE EQUITY SPECIAL
EQUITY EQUITY INDEX VALUES
FUND FUND FUND FUND
----- ----- ----- -----
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) 4.50% 4.50% 4.50% 4.50%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None None None None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None None None None
Redemption Fees (as a percentage of amount redeemed, if applicable) None None None None
Exchange Fee None None None None

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

ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C>
Management Fee (after waiver, if applicable) (1) 0.60% 0.59% 0.25% 0.72%
12b-1 Fees None None None None
Other Expenses (after waiver and reimbursement, if applicable) (2) 0.55% 0.53% 0.48% 0.68%
Shareholder Servicing Agent Fee 0.25%
Total Class A Shares Operating Expenses (after waivers
and reimbursement, if applicable) (3) 1.15% 1.12% 0.73% 1.40%

<CAPTION>
<S> <C> <C>
Management Fee (after waiver, if applicable) (1) 1.00% 0.53%
12b-1 Fees None None
Other Expenses (after waiver and reimbursement, if applicable (2) 0.85% 0.48%
Shareholder Servicing Agent Fee
Total Class A Shares Operating Expenses (after waivers
and reimbursement, if applicable) (3) 1.85% 1.01%
</TABLE>

SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
FIXED SHORT-TERM GEORGIA NORTH CAROLINA
INCOME FIXED-INCOME MUNI BOND MUNI BOND
FUND FUND FUND FUND
----- ----- ----- -----
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) 4.50% 2.50% 4.50% 4.50%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None None None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None None None None
Redemption Fees (as a percentage of amount redeemed, if
applicable) None None None None
Exchange Fee None None None None

<CAPTION>
SOUTH CAROLINA
MUNI BOND
FUND
-----
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage
offering price) 4.50%
Maximum Sales Charge 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 CLASS A SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C>
Management Fee (after waiver, if applicable) (1) 0.48% 0.32% 0.00% 0.31%
12b-1 Fees None None None None
Other Expenses (after waiver and reimbursement, if applicable) (2) 0.51% 0.56% 1.17% 0.79%
Shareholder Servicing Agent Fee 0.25%
Total Class A Shares Operating Expenses (after
waivers and reimbursement, if applicable) (3) 0.99% 0.88% 1.17% 1.10%

<CAPTION>
<S> <C>
Management Fee (after waiver, if applicable) (1) 0.26%
12b-1 Fees None
Other Expenses (after waiver and reimbursement, if applicable (2) 0.57%
Shareholder Servicing Agent Fee
Total Class A Shares Operating Expenses (after
waivers and reimbursement, if applicable) (3) 0.83%
</TABLE>

(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 0.30% for the
EQUITY INDEX FUND, 0.55% for the SHORT-TERM FIXED INCOME FUND, 0.60% for
the FIXED INCOME FUND, 0.70% for the EQUITY FUND, QUANTITATIVE EQUITY FUND
and BALANCED FUND, 0.75% for the GEORGIA MUNICIPAL BOND FUND, NORTH
CAROLINA MUNICIPAL BOND FUND, and SOUTH CAROLINA MUNICIPAL BOND FUND, 0.80%
for the SPECIAL VALUES FUND, and 1.00% for the EMERGING MARKETS FUND.

(2) Other expenses are expected to be 1.74% for the GEORGIA MUNICIPAL BOND
FUND, absent an anticipated reimbursement of other operating expenses.

(3) The Annual Class A Shares Operating Expenses and the Operating Expenses
absent the voluntary waivers/reimbursements were 0.90% and 1.05% for the
EQUITY FUND, 0.87% and 1.02% for the QUANTITATIVE EQUITY FUND, 0.48% and
0.61% for the EQUITY INDEX FUND, 1.21% and 1.50% for the SPECIAL VALUES
FUND, 1.69% and 1.78% for the EMERGING MARKETS FUND, 0.76% and 1.00% for
the BALANCED FUND, 0.74% and 0.92% for the FIXED INCOME FUND, 0.63% and
0.90% for the SHORT-TERM FIXED INCOME FUND, 0.89% and 2.50% for the
GEORGIA MUNICIPAL BOND FUND, 0.84% and 1.61% for the NORTH CAROLINA
MUNICIPAL BOND FUND, and 0.57% and 1.16% for the SOUTH CAROLINA MUNICIPAL
BOND FUND for the fiscal year ended November 30, 1996. The Annual Class A
Shares Operating Expenses are expected to be 1.25% for the EQUITY FUND,
1.23% for the QUANTITATIVE EQUITY FUND, 0.78% for the EQUITY INDEX FUND,
1.48% for the SPECIAL VALUES FUND, 1.18% for the BALANCED FUND, 1.11% for
the FIXED INCOME FUND and the SHORT-TERM FIXED INCOME FUND, 2.49% for the
GEORGIA MUNICIPAL BOND FUND, 1.54% for the NORTH CAROLINA MUNICIPAL BOND
FUND, and 1.32% for the SOUTH CAROLINA MUNICIPAL BOND FUND, absent the
voluntary waivers reimbursements described above in Note 1 and 2.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Funds will bear either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "TRUST INFORMATION" and "INVESTING IN THE FUNDS."

EXAMPLE

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 charge. As noted in the table above, the Funds Class A Shares
charge no redemption fees.
<TABLE>
<CAPTION>
QUANTITATIVE EQUITY SPECIAL EMERGING
EQUITY EQUITY INDEX VALUES MARKETS BALANCED
FUND FUND FUND FUND FUND FUND
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 56 $ 56 $ 52 $ 59 $ 63 $ 55
3 Years $ 80 $ 79 $ 67 $ 87 $ 101 $ 76
5 Years $ 105 $ 104 $ 84 $ 118 $ 141 $ 98
10 Years $ 178 $ 175 $ 132 $ 205 $ 252 $ 163
</TABLE>

<TABLE>
<CAPTION>
SHORT-TERM GEORGIA NORTH CAROLINA SOUTH CAROLINA
FIXED INCOME FIXED-INCOME MUNI BOND MUNI BOND MUNI BOND
FUND FUND FUND FUND FUND
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
1 Year $ 55 $ 34 $ 56 $ 56 $ 53
3 Years $ 75 $ 52 $ 80 $ 78 $ 70
5 Years $ 97 $ 73 $ 106 $ 103 $ 89
10 Years $ 161 $ 131 $ 181 $ 173 $ 143
</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.

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

SUMMARY OF FUND EXPENSES

THE BILTMORE FUNDS

THE BILTMORE FUNDS
CLASS B SHARES

SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
QUANTITATIVE
EQUITY EQUITY
FUND FUND
------------------------- -------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1) 5% during the first year, 5% during the first year,
4% during the second year, 4% during the second year
3% during the third year, 3% during the third year,
3% during the fourth year, 3% during the fourth year,
2% during the fifth year, 2% during the fifth year,
1% during the sixth year, 1% during the sixth year,
and 0% after the seventh year. and 0% after the seventh year.

Redemption Fees (as a percentage of amount redeemed, if applicable) None None
Exchange Fee None None
</TABLE>

ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fee (after waiver, if applicable) (2) 0.60% 0.59%
12b-1 Fees 0.75% 0.75%
Other Expenses (after reimbursement, if applicable) 0.55% 0.53%
Shareholder Servicing Agent Fee 0.25%
Total Class B Shares Operating Expenses (after waiver,
if applicable) 1.90% 1.87%
</TABLE>

SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
BALANCED FIXED INCOME
FUND FUND
------------------------- -------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None None
Contingent Deferred Sales Charge (as a percentage of original
purchase
price or redemption proceeds, as applicable) (1) 5% during the first year, 5% during the first year,
4% during the second year, 4% during the second year,
3% during the third year, 3% during the third year,
3% during the fourth year, 3% during the fourth year,
2% during the fifth year, 2% during the fifth year,
1% during the sixth year, 1% during the sixth year,
and 0% after the seventh year. and 0% after the seventh year.

Redemption Fees (as a percentage of amount redeemed, if applicable) None None
Exchange Fee None None
</TABLE>

ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fee (after waiver, if applicable) (2) 0.53% 0.48%
12b-1 Fees 0.75% 0.75%
Other Expenses (after reimbursement, if applicable) 0.48% 0.51%
Shareholder Servicing Agent Fee 0.25%
Total Class B Shares Operating Expenses (after waiver, if
applicable) 1.76% 1.74%
</TABLE>

(1) No contingent deferred sales charge will be imposed on: (a) the portion of
redemption proceeds attributable to increases in the value of the account
due to increases in the net asset value per Share, (b) Shares acquired
through reinvestment of dividends and capital gains, (c) Shares held for
more than seven years after the end of the calendar month of acquisition,
(d) accounts following the death or disability of any shareholder in the
account, or (e) minimum required distributions to a shareholder over the
age of 70-1/2 from an IRA or other retirement plan.

(2) 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% for the
EQUITY FUND, QUANTITATIVE EQUITY FUND and the BALANCED FUND, and 0.60% for
the FIXED INCOME FUND.

(3) The Annual Class B Shares Operating Expenses and the Operating Expenses
absent the voluntary waiver were 1.90% and 2.10% for the EQUITY FUND, 1.87%
and 1.98% for the QUANTITATIVE EQUITY FUND, 1.76% and 1.92% for the
BALANCED FUND, and 1.74% and 1.87% for the FIXED INCOME FUND for the fiscal
year ended November 30, 1996. The Annual Class B Shares are expected to be
2.00% for the EQUITY FUND, 1.98% for the QUANTITATIVE EQUITY FUND, 1.93%
for the BALANCED FUND, and 1.86% for the FIXED INCOME FUND, absent the
voluntary waiver described above in Note 2.

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.

EXAMPLE

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:
<TABLE>
<CAPTION>
QUANTITATIVE
EQUITY EQUITY BALANCED FIXED INCOME
FUND FUND FUND FUND
---- ---- ---- ----
<S> <C> <C> <C> <C>
1 Year $ 71 $ 71 $ 70 $ 69
3 Years $ 93 $ 92 $ 88 $ 88
</TABLE>

You would pay the following expenses on the same investment, assuming no
redemptions:
<TABLE>
<CAPTION>
QUANTITATIVE
EQUITY EQUITY BALANCED FIXED INCOME
FUND FUND FUND FUND
---- ---- ---- ----
<S> <C> <C> <C> <C>
1 Year $ 19 $ 19 $ 18 $ 18
3 Years $ 60 $ 59 $ 55 $ 55
</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 Class 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 17, 1997, on the Funds'
financial statements for the year ended November 30, 1996, and on the following
table for the periods presented, is included in the Fund's Annual Report to
shareholders dated November 30, 1996, 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>
DISTRIBUTIONS FROM
NET REALIZED AND NET REALIZED GAIN
NET UNREALIZED ON INVESTMENTS,
NET ASSET INVESTMENT GAIN/(LOSS) ON DISTRIBUTIONS FUTURES CONTRACTS
VALUE, INCOME/ INVESTMENTS, FUTURES TOTAL FROM FROM NET AND FOREIGN
PERIOD ENDED BEGINNING (OPERATING CONTRACTS, AND INVESTMENT INVESTMENT CURRENCY TOTAL
NOVEMBER 30, OF PERIOD LOSS) FOREIGN CURRENCY OPERATIONS INCOME TRANSACTIONS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BILTMORE EQUITY FUND
1993(a) $ 10.00 0.12 0.25 0.37 (0.09) -- (0.09)
1994 $ 10.28 0.20 0.12 0.32 (0.20) (0.08) (0.28)
1995 $ 10.32 0.23 2.64 2.87 (0.25) (0.23) (0.48)
1996 $ 12.71 0.22(i) 2.83 3.05 (0.22) (0.73) (0.95)
BILTMORE QUANTITATIVE EQUITY FUND
1994(b) $ 10.00 0.12 (0.43) (0.31) (0.09) -- (0.09)
1995 $ 9.60 0.22 3.51 3.73 (0.22) -- (0.22)
1996 $ 13.11 0.24(i) 2.77 3.01 (0.21) (0.24) (0.45)
BILTMORE EQUITY INDEX FUND
1993(a) $ 10.00 0.15 0.43 0.58 (0.11) -- (0.11)
1994 $ 10.47 0.25 (0.19) 0.06 (0.24) (0.02) (0.26)
1995 $ 10.27 0.28 3.37 3.65 (0.27) (0.03) (0.30)
1996 $ 13.62 0.32(i) 3.13 3.45 (0.31) (0.78) (1.09)
BILTMORE SPECIAL VALUES FUND
1993(a) $ 10.00 (0.002) 0.242 0.24 -- -- --
1994 $ 10.24 0.06 (0.22) (0.16) (0.05) (0.28) (0.33)
1995 $ 9.75 0.09 2.42 2.51 (0.02) (0.06) (0.08)
1996 $ 12.18 0.35 4.13 4.48 (0.08) (0.91) (0.99)
BILTMORE EMERGING MARKETS FUND
1995(c) $ 10.00 0.05 0.36 0.41 -- -- --
1996 $ 10.41 0.09(i) 1.20 1.29 (0.03) -- (0.03)
BILTMORE BALANCED FUND
1993(a) $ 10.00 0.19 0.29 0.48 (0.15) -- (0.15)
1994 $ 10.33 0.35 (0.38) (0.03) (0.33) (0.04) (0.37)
1995 $ 9.93 0.40 2.13 2.53 (0.38) (0.16) (0.54)
1996 $ 11.92 0.38(i) 1.72 2.10 (0.38) (0.34) (0.72)
BILTMORE FIXED INCOME FUND
1993(a) $ 10.00 0.31 (0.01) 0.30 (0.30) -- (0.30)
1994 $ 10.00 0.56 (0.98) (0.42) (0.55) (0.06) (0.61)
1995 $ 8.97 0.58 0.92 1.50 (0.57) -- (0.57)
1996 $ 9.90 0.61(i) (0.09) 0.52 (0.59) -- (0.59)
BILTMORE SHORT-TERM FIXED INCOME FUND
1993(a) $ 10.00 0.27 (0.10) 0.17 (0.26) -- (0.26)
1994 $ 9.91 0.45 (0.33) 0.12 (0.45) -- (0.45)
1995 $ 9.58 0.59 0.24 0.83 (0.52) -- (0.52)
1996 $ 9.89 0.56(i) (0.06) 0.50 (0.60) -- (0.60)
BILTMORE GEORGIA MUNICIPAL BOND FUND
1995(c) $ 10.00 0.41 0.96 1.37 (0.41) -- (0.41)
1996 $ 10.96 0.47 0.05 0.52 (0.47) (0.01) (0.48)
BILTMORE NORTH CAROLINA MUNICIPAL BOND FUND
1995(c) $ 10.00 0.43 0.99 1.42 (0.43) -- (0.43)
1996 $ 10.99 0.45 0.09 0.54 (0.45) (0.05) (0.50)
BILTMORE SOUTH CAROLINA MUNICIPAL BOND FUND (D)
9/30/91(e) $ 10.00 0.43 0.17 0.60 (0.43) -- (0.43)
9/30/92 $ 10.17 0.60 0.36 0.96 (0.60) -- (0.60)
9/30/93 $ 10.53 0.59 0.74 1.33 (0.59) -- (0.59)
11/30/93(f) $ 11.27 0.10 (0.15) (0.05) (0.10) -- (0.10)
11/30/94 $ 11.12 0.56 (1.04) (0.48) (0.56) (0.03) (0.59)
11/30/95 $ 10.05 0.56 1.10 1.66 (0.56) (0.10) (0.66)
11/30/96 $ 11.05 0.55 0.03 0.58 (0.55) (0.03) (0.58)
</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) Reflects operations for the period from March 28, 1994 (date of initial
public investment) to November 30, 1994.
(c) Reflects operations for the period from December 26, 1994 (date of initial
public investment) to November 30, 1995.
(d) Prior to November 30, 1993 the Fund's year end was September 30.
(e) Reflects operations for the period from January 11, 1991 (date of initial
public investment) to September 30, 1991.
(f) Reflects operations for the two months ended November 30, 1993.
(g) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(h) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(i) Per share information is based on average shares outstanding.

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended November 30, 1996, which can be obtained
free of charge.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS NET ASSETS,
NET ASSET NET END OF AVERAGE PORTFOLIO
VALUE, END TOTAL INVESTMENT EXPENSE WAIVER/ PERIOD (000 COMMISSION TURNOVER
OF PERIOD RETURN(G) EXPENSES INCOME REIMBURSEMENT(H) OMITTED) RATE PAID RATE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10.28 3.68% 0.81%* 2.18%* 0.32%* $ 61,997 -- 50%
$ 10.32 3.10% 0.87% 1.98% 0.16% $ 87,022 -- 35%
$ 12.71 28.74% 0.90% 1.99% 0.07% $ 130,150 -- 65%
$ 14.81 25.56% 0.90% 1.62% 0.15% $ 20,774 $ 0.0652 64%
$ 9.60 (3.08%) 0.90%* 1.83%* 0.10%* $ 91,979 -- 64%
$ 13.11 39.33% 0.87% 1.93% 0.10% $ 121,895 -- 63%
$ 15.67 23.74% 0.87% 1.70% 0.15% $ 15,742 $ 0.0532 44%
$ 10.47 5.80% 0.43%* 2.54%* 0.12%* $ 149,266 -- 9%
$ 10.27 0.56% 0.46% 2.44% 0.08% $ 183,852 -- 9%
$ 13.62 36.15% 0.48% 2.39% 0.05% $ 186,841 -- 60%
$ 15.98 27.19% 0.48% 2.23% 0.13% $ 18,154 $ 0.0137 12%
$ 10.24 2.40% 1.25%* (0.03%)* 1.79%* $ 12,072 -- 68%
$ 9.75 (1.61%) 1.13% 0.63% 1.09% $ 17,431 -- 62%
$ 12.18 25.91% 1.29% 0.80% 0.58% $ 24,093 -- 57%
$ 15.67 39.78% 1.21% 0.47% 0.29% $ 6,642 $ 0.0650 38%
$ 10.41 4.10% 1.80%* 0.85%* 0.28%* $ 71,276 -- 17%
$ 11.67 12.45% 1.69% 0.73% 0.09% $ 5,488 $ 0.0009 30%
$ 10.33 4.89% 0.75%* 3.30%* 0.19%* $ 166,271 -- 60%
$ 9.93 (0.39%) 0.75% 3.46% 0.17% $ 194,430 -- 74%
$ 11.92 26.32% 0.76% 3.58% 0.16% $ 207,421 -- 102%
$ 13.30 18.55% 0.76% 3.05% 0.24% $ 18,619 $ 0.0545 99%
$ 10.00 3.02% 0.68%* 5.44%* 0.19%* $ 140,325 -- 149%
$ 8.97 (4.30%) 0.71% 5.90% 0.13% $ 148,751 -- 148%
$ 9.90 17.20% 0.74% 6.07% 0.10% $ 169,846 -- 155%
$ 9.83 5.51% 0.74% 6.05% 0.18% $ 4,853 -- 181%
$ 9.91 1.69% 0.58%* 4.78%* 0.22%* $ 154,459 -- 73%
$ 9.58 1.27% 0.60% 4.62% 0.18% $ 148,326 -- 151%
$ 9.89 8.82% 0.63% 5.83% 0.16% $ 124,720 -- 147%
$ 9.79 5.29% 0.63% 5.50% 0.27% $ 1,675 -- 145%
$ 10.96 13.93% 0.92%* 4.30%* 1.88%* $ 10,220 -- 14%
$ 11.00 4.97% 0.89% 4.40% 1.61% $ 7,531 -- 14%
$ 10.99 14.40% 0.85% 4.40% 1.19% $ 18,679 -- 19%
$ 11.03 5.17% 0.84% 4.24% 0.77% $ 13,752 -- 7%
$ 10.17 6.32% 0.82%* 5.73%* 0.86%* $ 21,438 -- 0%
$ 10.53 9.73% 0.61% 5.83% 0.73% $ 63,139 -- 0%
$ 11.27 13.03% 0.55% 5.46% 0.62% $ 82,674 -- 4%
$ 11.12 (0.48%) 0.55%* 5.11%* 0.60%* $ 83,371 -- 2%
$ 10.05 (4.52%) 0.60% 5.22% 0.59% $ 75,995 -- 23%
$ 11.05 16.97% 0.58% 5.23% 0.55% $ 93,725 -- 15%
$ 11.05 5.54% 0.57% 5.10% 0.59% $ 65,981 -- 20%
</TABLE>

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

THE BILTMORE FUNDS AND THE BILTMORE MUNICIPAL FUNDS
FINANCIAL HIGHLIGHTS--CLASS B SHARES

(For a Class B Share outstanding throughout each period)

The following table has been audited by Ernst & Young LLP, the Funds'
independent auditors. Their report dated January 17, 1997, on the Funds'
financial statements for the year ended November 30, 1996, and on the following
table for the periods presented, is included in the Fund's Annual Report to
shareholders dated November 30, 1996, 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>
NET REALIZED AND
UNREALIZED GAIN/
PERIOD NET ASSET (LOSS) ON DISTRIBUTIONS
ENDED VALUE, NET INVESTMENTS TOTAL FROM FROM NET NET ASSET
NOVEMBER BEGINNING INVESTMENT AND FUTURES INVESTMENT INVESTMENT VALUE, END OF
30, OF PERIOD INCOME CONTRACTS OPERATIONS INCOME PERIOD
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BILTMORE EQUITY FUND
1996(a) $ 12.43 0.02 2.37 2.39 (0.03) $ 14.79
BILTMORE QUANTITATIVE EQUITY FUND
1996(a) $ 13.09 0.04 2.56 2.60 (0.04) $ 15.65
BILTMORE BALANCED FUND
1996(a) $ 11.68 0.09 1.59 1.68 (0.07) $ 13.29
BILTMORE FIXED INCOME FUND
1996(a) $ 9.45 0.15 0.40 0.55 (0.17) $ 9.83
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from July 22, 1996 (date of initial
public investment) to November 30, 1996.

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

Further information about the Funds' performance is contained in the Funds'
Annual Report for the fiscal year ended November 30, 1996, 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. (For purposes of this prospectus,
"THE BILTMORE FUNDS" refers only to those portfolios of the Trust that are
included in this combined prospectus.) THE BILTMORE MUNICIPAL FUNDS was
established as a Massachusetts business trust under a Declaration of Trust dated
August 15, 1990. Each Declaration of Trust permits the respective Trust to offer
separate series of shares of beneficial interest representing interests in
separate portfolios of securities. As of the date of this prospectus, the Trusts
offer three classes of shares: Class A Shares, Class Y Shares, and for the
Equity Fund, the Quantitative Equity Fund, the Balanced Fund and the Fixed
Income Fund, Class B Shares. Class Y Shares are offered to certain accounts held
by Wachovia Bank of Georgia, N.A., Wachovia Bank of North Carolina, N.A., and
Wachovia Bank of South Carolina, N.A. (collectively, "Wachovia Banks") and their
affiliates in a fiduciary, advisory, agency, custodial, or similar capacity.
Class A Shares and Class B Shares are sold to those customers as well as other
individuals and customers of the Wachovia Banks. This prospectus relates only to
Class A Shares and Class B Shares ("Shares") of the Funds.

The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without shareholder approval. While a Fund
cannot assure that it will achieve its investment objective, it attempts to do
so by following the investment policies described below.

For additional information about investment limitations, strategies, and certain
investment policies, please refer to the "Portfolio Investments and Strategies"
section of this prospectus.

- ---------------------------------------------------------
- ---------------------------------------------------------
THE BILTMORE FUNDS

BILTMORE EQUITY FUND

The investment objective of the EQUITY FUND is to produce growth of principal
and income. 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. The Fund's
investment adviser 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") or Standard & Poor's Ratings Group
("S&P").

BILTMORE QUANTITATIVE EQUITY FUND
The investment objective of the QUANTITATIVE EQUITY FUND is to provide growth of
principal and income. 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. Stocks are selected by
the Fund's sub-adviser using a quantitative computer valuation model described
below under "Investment Processes." 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 S&P 500 Index.
However, the Fund will not limit its investments solely to stocks represented in
the Index. There can be no assurance that the Fund's investment performance will
match or exceed that of the Index. Under normal market conditions, the Fund
intends to invest at least 65% of its total assets in equity securities.

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 the acceptable investments listed under "BILTMORE EQUITY
FUND" above.

BILTMORE EQUITY INDEX FUND
The investment objective of the EQUITY INDEX FUND is to provide a total return
that approximates that of the stock market as measured by the S&P 500 Index. The
Fund pursues its investment objective by investing in a broadly diversified
portfolio of common stocks that make up the Index. The Fund will normally seek
to be invested in all the stocks that comprise the Index and achieve a
correlation between the performance of its portfolio and that of the Index of at
least 0.95 of 1%; a figure of 1.00 would represent perfect correlation. 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. Under
normal circumstances, at least 95% of the value of the Fund's total assets will
be invested in stocks represented in the Index and S&P 500 Index futures
contracts. However, the Fund is not required to sell securities if the 95%
investment level changes due to increases or decreases in the market value of
portfolio securities.

In addition, the Fund may hold cash reserves which may be invested in, but not
limited to, the following:

commercial paper rated, at the time of purchase, at least Prime-1 or A-1 by
Moody's or S&P, or, if unrated, of comparable quality as determined by the
Fund's investment adviser;

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

index participation contracts.

BILTMORE SPECIAL VALUES FUND

The investment objective of the SPECIAL VALUES FUND is to produce growth of
principal. 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 which the investment adviser believes to be
significantly undervalued with potential for above-average capital appreciation
commensurate with increased risk. Typical investments 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. The Fund
will limit its investments to up to 20% of total assets in securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of ADRs and up to 10% of total assets in
other securities of foreign issuers.

Acceptable investments include, but are not limited to:

domestic issues of corporate debt obligations (including convertible bonds);

securities of foreign issuers; and

master limited partnerships.

In addition, the Fund may invest in high yield corporate bonds (commonly known
as junk bonds) and speculative grade preferred stocks.
BILTMORE EMERGING MARKETS FUND
The investment objective of the EMERGING MARKETS FUND is to produce long-term
capital appreciation. 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 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. 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. Because investing in emerging markets can involve
significant risks, the Fund is designed for aggressive investors. 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
foreign companies located in emerging market countries, the Fund may also invest
in other securities, including debt securities.

Acceptable investments may also include, but will not be limited to:

preferred stocks of foreign companies;

convertible securities and warrants of foreign companies;

investments in 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 and
Global Depositary Receipts.

U.S. equity and debt securities rated, at the time of purchase, B or better by
Moody's or S&P.

In addition, the Fund may enter into foreign currency transactions and may
maintain reserves in foreign or U.S. money market instruments.

BILTMORE BALANCED FUND

The investment objective of the BALANCED FUND is to provide long-term growth of
principal and current income. The Fund pursues its investment objective by
investing primarily in a professionally-managed, diversified portfolio of equity
securities and debt securities. 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 will seek
undervalued stocks with improving prospects in an attempt 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. 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 50-70% in common stocks and convertible securities,
30-50% in preferred stocks and bonds, and 0-20% in money market instruments. The
Fund will maintain at least 25% of its assets in fixed income senior securities
(including the value of convertible senior securities attributable to their
fixed income characteristics).

Acceptable 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 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
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 S&P or Moody's or, if not rated,
are determined by the Fund's investment adviser to be of comparable quality;

mortgage-backed and asset-backed securities;

commercial paper rated not less than A-1 by S&P or Prime-1 by Moody's, 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.

BILTMORE FIXED INCOME FUND

The investment objective of the FIXED INCOME 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. The Fund pursues its investment
objectives by investing primarily in a diversified portfolio of fixed income
securities that, at the time of purchase, are rated in the top three investment
categories by a nationally recognized statistical rating organization (NRSRO)
or, if unrated, are 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.

Acceptable investments include:

domestic issues of corporate debt obligations, including demand master notes
rated at the time of purchase Aaa, Aa, or A by Moody's or AAA, AA, or A by S&P
or, if unrated, of comparable quality as determined by the Fund's investment
adviser;

convertible securities;

mortgage-backed and asset-backed securities;

commercial paper that at the time of purchase is rated not less than Prime-1 or
A-1, by Moody's or S&P, 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.

BILTMORE SHORT-TERM FIXED INCOME FUND

The investment objective of the SHORT-TERM FIXED INCOME FUND is to produce a
high level of current income with a minimum of principal volatility. 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. Otherwise, the Fund may invest in the acceptable
investments listed under "BILTMORE FIXED INCOME FUND" above.

ADDITIONAL ACCEPTABLE INVESTMENTS
In addition to the acceptable investments discussed above, each of the Funds 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
Funds may also engage in put and call options, futures, and options on futures
for hedging purposes.

- ---------------------------------------------------------
- ---------------------------------------------------------
THE BILTMORE MUNICIPAL FUNDS

BILTMORE GEORGIA MUNICIPAL BOND FUND
The investment objective of the GEORGIA MUNICIPAL BOND FUND is to provide
current income which is exempt from federal regular income tax and the personal
income taxes imposed by the State of Georgia. As a matter of investment policy
which may not be changed without shareholder approval, the Fund will invest its
assets so that, under normal circumstances, at least 80% of its total assets are
invested in obligations, the interest income from which is exempt from federal
regular income tax and the personal income taxes imposed by the State of Georgia
("Georgia Municipal Securities").

BILTMORE NORTH CAROLINA MUNICIPAL BOND FUND
The investment objective of the NORTH CAROLINA MUNICIPAL BOND FUND is to provide
current income which is exempt from federal regular income tax and the income
tax imposed by the State of North Carolina. As a matter of investment policy
which may not be changed without shareholder approval, the Fund will invest its
assets so that, under normal circumstances, at least 80% of its total assets are
invested in obligations, the interest income from which is exempt from federal
regular income tax and the income tax imposed by the State of North Carolina
("North Carolina Municipal Securities").

BILTMORE SOUTH CAROLINA MUNICIPAL BOND FUND
The investment objective of the SOUTH CAROLINA MUNICIPAL BOND FUND is to provide
current income which is exempt from federal regular income tax and South
Carolina state income taxes. As a matter of investment policy which may not be
changed without shareholder approval, the Fund will invest its assets so that,
under normal circumstances, at least 80% of its interest income is exempt from
federal regular income tax and South Carolina state income taxes or that at
least 80% of its total assets are invested in obligations, the interest income
from which is exempt from federal regular income tax and South Carolina state
income taxes ("South Carolina Municipal Securities").

The Funds' investment advisers may consider the potential for capital
appreciation in the selection of portfolio investments for each of THE BILTMORE
MUNICIPAL FUNDS.

ACCEPTABLE INVESTMENTS
The Funds invest primarily in Georgia Municipal Securities, North Carolina
Municipal Securities, and South Carolina Municipal Securities, respectively
(collectively, "State Municipal Securities"). These securities are:

obligations issued by or on behalf of any state, territory or possession of the
United States, including the District of Columbia, or any political subdivision
or agency of any of these; and

participation interests, as described below, in any of the above obligations,
the interest from which is, in the opinion of bond counsel for the issuers or
in the opinion of officers of the Trust and/or the investment advisers to the
Funds, exempt from both federal regular income tax and the personal income tax
imposed by the states of Georgia, North Carolina, and South Carolina,
respectively. It is likely that shareholders who are subject to alternative
minimum tax will be required to include interest from a portion of the
municipal securities owned by the Fund in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.

STATE MUNICIPAL SECURITIES
State Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, 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. State Municipal Securities include industrial
development bonds issued by or on behalf of public authorities to provide
financing aid to acquire sites or construct or 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. However, interest on and principal of revenue bonds 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; the
industry which is the beneficiary of such bonds is generally the only source of
payment for the bonds.

Characteristics. State Municipal Securities are subject to one or more of the
following quality standards:

rated A or above by Moody's or S&P at time of purchase;

insured by a municipal bond insurance company which is rated AAA by S&P or Aaa
by Moody's;
secured by an irrevocable escrow of direct obligations of the U.S. government;
or

unrated if determined to be of comparable quality to one of the foregoing

rating categories by the Fund's investment adviser.

(A description of the rating categories is contained in the Appendix to the
Funds' Statement of Additional Information).

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PORTFOLIO INVESTMENTS
AND STRATEGIES

INVESTMENT CONSIDERATIONS

Because the SPECIAL VALUES 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 S&P 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 S&P 500 Index.

Securities Of Foreign Issuers. THE EQUITY FUND, QUANTITATIVE EQUITY FUND,
SPECIAL VALUES FUND, EMERGING MARKETS FUND, and BALANCED 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, a
Fund will not invest in the securities of a foreign issuer if any risk
identified above appears to a Fund's investment adviser to be substantial.

Securities In Emerging Markets. Investing in the EMERGING MARKETS FUND entails a
substantial degree of risk. Because of the special risks associated with
investing in emerging markets, an investment in the EMERGING MARKETS FUND should
be considered speculative. Investors are strongly advised to carefully consider
the special risks involved in emerging markets, which are in addition to the
usual risks of investing in domestic markets and in developed markets around the
world. By itself, an investment in the EMERGING MARKETS FUND does not constitute
a balanced investment plan. Investors should be willing to assume a higher
degree of risk and accept a higher level of volatility than is generally
associated with investment in more developed markets.

(Please refer to the 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 EMERGING MARKETS FUND may encounter difficulties or be unable to
pursue legal remedies and obtain judgments in foreign courts.

Because the EMERGING MARKETS 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 investment adviser's ability to predict movements in
exchange rates, and imperfect movements between exchange rates and currency
hedges.

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 EMERGING MARKETS
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.

Investments In Debt Obligations. 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 a 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 each Fund's net
asset value by predicting the direction of interest rates; however, the
investment adviser could be incorrect in its expectations about the direction
and the extent of these market factors.

Investments In Lower-Rated Debt Obligations. From time to time, a portion of the
EMERGING MARKETS FUND'S and the SPECIAL VALUES FUND'S portfolios may consist of
lower-rated debt obligations (i.e., rated below BBB by S&P or Baa by Moody's)
which are commonly referred to as "junk bonds." The Funds will not invest more
than 35% of its total assets in such securities. 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. Purchasers should
carefully assess the risks associated with an investment in the EMERGING MARKETS
FUND and the SPECIAL VALUES 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 EMERGING MARKETS 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.

Municipal Security Investments. Yields on State Municipal Securities depend on a
variety of factors, including: the general conditions of the municipal bond
market; the size of the particular offering; the maturity of the obligations;
and the rating of the issue. Further, any adverse economic conditions or
developments affecting the respective state or its municipalities could impact a
Fund's portfolio. A municipal bond fund's concentration in securities issued by
a specific state and its political subdivisions provides a greater level of risk
than a fund which is diversified across numerous states and municipal entities.
A state's dependence on agriculture, manufacturing, tourism, and
service industries leaves it vulnerable to both the business cycle and long term
national economic trends.

(Please refer to the Funds' Statement of Additional Information for an expanded
discussion of Georgia, North Carolina, or South Carolina investment risks, as
appropriate.)

The ability of a Fund to achieve its investment objective also depends on the
continuing ability of the issuers of State Municipal Securities and
participation interests, or the guarantors of either, to meet their obligations
for the payment of interest and principal when due. Investing in State Municipal
Securities which meet the Fund's quality standards may not be possible if the
state or its municipalities do not maintain their current credit ratings. In
addition, the issuance, tax exemption and liquidity of State Municipal
Securities may be adversely affected by judicial, legislative or executive
action, including, but not limited to, rulings of state and federal courts,
amendments to the state and federal constitutions, changes in statutory law, and
changes in administrative regulations, as well as voter initiatives.

INVESTMENT PROCESSES

Quantitative Equity Fund. To select stocks for the QUANTITATIVE EQUITY 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
Exchange 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 S&P 500
Index. In managing the Fund, the investment 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 investment adviser gives
consideration to the industry weightings found in the Index.

Although the QUANTITATIVE EQUITY 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.

Equity Index Fund. The EQUITY INDEX FUND is managed passively, in the sense that
the traditional management functions of economic, financial, and market analysis
are 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 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 Index. The Fund will select a stock for purchase
into its investment portfolio based on the stock's inclusion and weighting in
the Index, starting with the heaviest-weighted stock. Thus, the proportion of
Fund assets invested in any one stock comprising the Index may not be identical
to the percentage the particular stock represents in the Index.

On occasion, so as to respond to changes in the Index's composition, as well as
corporate mergers, tender offers, and other circumstances, additional
adjustments will be made in the EQUITY INDEX 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 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 Index and approximate its
performance, investment adjustments will be made, as practicably as possible, to
account for these circumstances.

Since the EQUITY INDEX FUND will seek to duplicate the Index's stock composition
precisely, it is anticipated that the Fund's performance will approximate the
performance of the 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 Index itself, and the normal costs of a mutual fund,
discussed herein, will account for the difference between the performances of
the Fund and the 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.

S&P 500 Index. The S&P 500 Index consists of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. S&P designates the
stocks to be included in the Index on a statistical basis. A particular
stock's weighting in the Index is based on its relative total market value;
that is, its market price per share times the number of shares outstanding.
From time to time, S&P may add or delete stocks from the Index. THE
QUANTITATIVE EQUITY and EQUITY INDEX FUNDS utilize the 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 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 QUANTITATIVE EQUITY and EQUITY INDEX FUNDS incur the
normal costs of a mutual fund, including brokerage and execution costs,
advisory fees, and administrative and custodial costs and expenses. 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 Funds are not sponsored, endorsed, sold or promoted by, or
affiliated with, S&P.

Emerging Markets Fund. The investment adviser will consider the following
securities as permissable investments for the EMERGING MARKETS FUND: (i)
securities of companies the principal securities trading market for which is an
emerging market country; (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. In
selecting equity securities for the EMERGING MARKETS FUND, the investment
adviser focuses on a broad diversification of emerging market countries.
Initially, the adviser identifies those emerging market countries that, in the
investment 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 investment 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 Colombia, the Philippines, Greece, Peru and Portugal.

In constructing the EMERGING MARKETS FUND'S investment portfolio, the investment
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 investment adviser's investment judgments regarding the particular
country. The investment 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 EMERGING MARKETS
FUND'S portfolio will vary over time. It is the investment adviser's intention
that the Fund remain broadly diversified across many emerging market countries,
companies, and geographic regions. Under normal market conditions, the
investment 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
EMERGING MARKETS FUND, the investment adviser will focus on the most prominent
and largest capitalized companies. The investment 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.

Fixed Income Funds. The FIXED INCOME FUND'S and the SHORT-TERM FIXED INCOME
FUND'S investment adviser does not select securities purely to maximize the
current yield of the Funds. The Funds' investment adviser attempts to manage the
Funds' total performance, which includes both changes in principal value of the
Funds' portfolios and interest income earned, to anticipate the opportunities
and risks of changes in market interest rates. When the Funds' 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 Funds' portfolios. 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
Funds' portfolios. Further, the Funds' investment adviser attempts to improve
the Funds' total return by weighing the relative value of fixed income
securities issues having similar maturities in selecting portfolio securities.
By actively managing the Funds' portfolios in this manner, the Funds' investment
adviser seeks to provide capital appreciation during periods of falling interest
rates and protection against capital depreciation during periods of rising
rates.

PORTFOLIO INVESTMENTS

Corporate Debt Obligations. The Funds (except the EQUITY INDEX FUND and THE
BILTMORE MUNICIPAL FUNDS) may invest in corporate debt obligations, including
corporate bonds, notes, and debentures, which may have floating or fixed rates
of interest. These obligations have the requisite ratings as described above.
However, if a security loses its rating or has its rating reduced, the Fund is
not required to drop the security from its portfolio, but may consider doing so.

Fixed Rate Corporate Debt Obligations. The Funds may invest in fixed rate
corporate 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 a 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 Funds (except THE BILTMORE
MUNICIPAL FUNDS) may 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 a Fund can invest include Yankee
bonds, which are U.S. dollar-denominated bonds issued in the United States by
foreign banks or corporations.

Some of the floating rate corporate debt obligations in which the FIXED INCOME
FUND may invest include floating rate corporate debt securities issued by
savings associations 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. The Funds (except THE BILTMORE MUNICIPAL FUNDS) may
invest in 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 non-convertible 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. A
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 a Fund in achieving its investment objective. Otherwise, a
Fund will hold or trade the convertible securities. In selecting convertible
securities for a 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.
Put And Call Options. The Funds (except THE BILTMORE MUNICIPAL FUNDS) may
purchase put options on their portfolio securities. These options will be used
only as a hedge to attempt to protect securities which a Fund holds against
decreases in value. A 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. A 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 a Fund writes and sells must be
listed on a recognized options exchange. The writing of calls by a Fund is
intended to generate income for a Fund and thereby protect against price
movements in particular securities in a 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. These instruments may not be
available with regard to the securities of certain emerging markets in which the
EMERGING MARKETS FUND may invest.

The effective use of futures and options as hedging techniques depends on the
correlation between their prices and the behavior of a 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 a 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, a Fund may be unable to anticipate the extent of its losses from futures
transactions. These instruments may not be available with regard to the
securities of certain emerging markets in which the EMERGING MARKETS FUND may
invest.

Stock Index Futures And Options. The EQUITY FUND, QUANTITATIVE EQUITY FUND,
EQUITY INDEX FUND, SPECIAL VALUES FUND, EMERGING MARKETS FUND, and BALANCED 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 a Fund's total assets. Also, a Fund will not
purchase options to the extent that more than 5% of the value of a Fund's total
assets would be invested in premiums on open put option positions (and, in the
case of the SPECIAL VALUES FUND and EMERGING MARKETS FUND, margin deposits on
open positions). These futures contracts and options will be used to handle cash
flows into and out of a 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 Funds 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 Funds plan 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.

Forward Foreign Currency Exchange Contracts. The EMERGING MARKETS FUND may enter
into 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 EMERGING MARKETS 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 investment adviser will consider the likelihood of changes in currency
values when making investment decisions, the investment 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.)
Index Participation Contracts. The EQUITY INDEX FUND may 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 Index, where each stock is represented in the same proportion as it is
represented in the 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 Index. Generally, the value of
an Index participation contract will rise and fall as the value of the 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 EQUITY INDEX 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.

Mortgage-Backed Securities. The EMERGING MARKETS FUND, BALANCED FUND, FIXED
INCOME FUND, and SHORT-TERM FIXED INCOME FUND may invest in 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"), 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 a 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.

A Fund will only invest in CMOs which are rated AAA by an NRSRO or are of
comparable quality as determined by a 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.

Stripped Mortgage-Backed Securities. Some of the mortgage-related securities
purchased by the BALANCED FUND, FIXED INCOME FUND, and SHORT-TERM FIXED INCOME
FUND may represent an interest solely in the principal repayments or solely in
the interest payments on mortgage-backed securities (stripped mortgage-backed
securities or "SMBSs"). SMBSs are derivative multi-class securities. SMBSs are
usually structured with two classes and receive different proportions of the
interest and principal distributions on the pool of underlying mortgage-backed
securities. Due to the possibility of prepayments on the underlying mortgages,
SMBSs may be more interest-rate sensitive than other securities purchased by a
Fund. If prevailing interest rates fall below the level at which SMBSs were
issued, there may be substantial prepayments on the underlying mortgages,
leading to the relatively early prepayments of principal-only SMBSs
(principal-only or "PO" class) and a reduction in the amount of payments made to
holders of interest-only SMBSs (the interest-only or "IO" class). Therefore,
interest-only SMBSs generally increase in value as interest rates rise and
decrease in value as interest rates fall, counter to changes in value
experienced by most fixed income securities. If the underlying mortgages
experience slower than anticipated prepayments of principal, the yield on a PO
class will be affected more severely than would be the case with a traditional
mortgage-related security. Because the yield to maturity of an IO class is
extremely sensitive to the rate of principal payments (including prepayments) on
the related underlying mortgage-backed securities, it is possible that the Fund
might not recover its original investment on interest-only SMBSs if there are
substantial prepayments on the underlying mortgages. A Fund's inability to fully
recoup its investment in these securities as a result if a rapid rate of
principal prepayments may occur even if the securities are rated AAA by an
NRSRO. In view of these considerations, the investment adviser intends to use
these characteristics of interest-only SMBSs to reduce the effects of interest
rate changes on the value of the Fund's portfolio, while continuing to pursue
current income.

Asset-Backed Securities. The BALANCED FUND, FIXED INCOME FUND, and SHORT-TERM
FIXED INCOME FUND may invest in 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. A
Fund may invest in asset-backed securities rated A or higher at the time of
purchase 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 a Fund reinvests the
payments and any unscheduled prepayments of principal received, a Fund may
receive a rate of interest which is actually lower than the rate of interest
paid on these securities ("prepayment risks"). Mortgage-backed and asset-backed
securities are subject to higher prepayment risks than most other types of debt
instruments with prepayment risks because the underlying mortgage loans or the
collateral supporting asset-backed securities may be prepaid without penalty or
premium. Prepayment risks on mortgage-backed securities tend to increase during
periods of declining mortgage interest rates because many borrowers refinance
their mortgages to take advantage of the more favorable rates. Prepayments on
mortgage-backed securities are also affected by other factors, such as the
frequency with which people sell their homes or elect to make unscheduled
payments on their mortgages. Although asset-backed securities generally are less
likely to experience substantial prepayments than are mortgage-backed
securities, certain of the factors that affect the rate of prepayments on
mortgage-backed securities also affect the rate of prepayments on asset-backed
securities.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
motor vehicle installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the servicer
sells these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Further, if a vehicle is registered in one state and is
then reregistered because the owner and obligor moves to another state, such
reregistration could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of vehicles involved in
a typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.

U.S. Government Obligations. The U.S. government obligations in which the Funds
invest 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; Fannie Mae;
Government National Mortgage Association; and

Student Loan Marketing Association.

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.

Some of the short-term U.S. government securities the Funds may purchase carry
variable interest rates. These securities have a rate of interest subject to
adjustment at least annually. This adjusted rate is ordinarily tied to some
objective standard, such as the 91-day U.S. Treasury bill rate.

Demand Master Notes. The Funds (except THE BILTMORE MUNICIPAL FUNDS) may invest
in variable amount demand master notes. Demand master notes are short-term
borrowing arrangements between a corporation or government agency and an
institutional lender (such as a 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 demand master notes give a 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.

Temporary Investments. For temporary defensive purposes (up to 100% of total
assets) and to maintain liquidity (up to 35% of total assets), the EQUITY FUND,
QUANTITATIVE EQUITY FUND, SPECIAL VALUES FUND, and EMERGING MARKETS 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 or Prime-1 by Moody's, or, if unrated, of comparable quality
as determined by the Funds' investment adviser.

THE BILTMORE MUNICIPAL FUNDS may invest in short-term tax-exempt or taxable
temporary investments. These temporary investments include: notes issued by or
on behalf of municipal or corporate issuers; obligations issued or guaranteed by
the U.S. government, its agencies, or instrumentalities; other debt securities;
commercial paper; certificates of deposit of banks; shares of other investment
companies; and repurchase agreements (arrangements in which the organization
selling the Fund a bond or temporary investment agrees at the time of sale to
repurchase it at a mutually agreed upon time and price).

There are no rating requirements applicable to temporary investments. However,
each Fund's investment adviser will limit temporary investments to those it
considers to be of comparable quality to the Fund's acceptable investments.

Although the Funds are permitted to make taxable, temporary investments, there
is no current intention of generating income subject to federal regular income
tax. However, it is anticipated that certain temporary investments will generate
income which is subject to Georgia or North Carolina state income taxes.

Restricted And Illiquid Securities. Each Fund may invest in restricted
securities. Restricted securities are any securities in which a Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restriction on resale under federal securities law. However, a 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 restriction is not applicable to commercial paper issued under 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 Funds, 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 a 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. Each 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. Each 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 a 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, a Fund intends not to subject
such paper to the limitation applicable to restricted securities.

Repurchase Agreements. The U.S. government securities in which each 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 a Fund, a Fund could receive less than the repurchase price on any sale of
such securities.

Demand Features. The 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 a 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. A Fund uses these arrangements to provide a 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.

When-Issued And Delayed Delivery Transactions. The Funds may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which a Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause a
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, a Fund may pay more or less than the market value of the securities
on the settlement date.

A Fund may dispose of a commitment prior to settlement if the Fund's investment
adviser deems it appropriate to do so. In addition, a 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. A Fund may realize short-term profits or losses upon
the sale of such commitments.

Lending Of Portfolio Securities. In order to generate additional income, each
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
Funds will only enter into loan arrangements with broker/dealers, banks or other
institutions which a Fund's investment adviser has determined are creditworthy
under guidelines established by the Trustees and in which a Fund will receive
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 a Fund on a timely basis and a 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.

Investing In Securities Of Other Investment Companies. A Fund may invest in the
securities of other investment companies. Unless otherwise permitted by action
of the SEC, a Fund may 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. A Fund will invest in other open-end investment
companies primarily for the purpose of investing short-term cash which has not
yet been invested in other portfolio instruments. It should be noted that
investment companies incur certain expenses, such as advisory, custodian and
transfer agent fees, and therefore, any investment by a Fund in shares of
another investment company would be subject to such duplicate expenses.

Ratings. If a security loses its rating or has its rating reduced after a Fund
purchased it, the Fund is not required to sell or otherwise dispose of the
security, but may consider doing so. If ratings made by Moody's or S&P change
because of changes in those organizations or in their ratings systems, a Fund
will attempt to identify other rating organizations and systems with comparable
standards, in accordance with the investment policies of the Fund. A description
of rating categories is contained in the Appendix to the Statement of Additional
Information.

Municipal Leases. THE BILTMORE MUNICIPAL FUNDS may invest in 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.

Participation Interests. The Funds may purchase participation interests from
financial institutions such as commercial banks, savings and loan associations,
and insurance companies. These participation interests would give the Funds
undivided interests in State Municipal Securities. The financial institutions
from which a Fund purchases participation interests frequently provide or secure
irrevocable letters of credit or guarantees to assure that the participation
interests are of high quality. The Trustees will establish guidelines pursuant
to which a Fund's investment adviser determines that participation interests
meet the prescribed quality standards for the Fund.

Variable Rate Municipal Securities. Some of the State Municipal Securities which
the Funds purchase may have variable interest rates. Variable interest rates are
ordinarily based on a published interest rate, interest rate index or a similar
standard, such as the 91-day U.S. Treasury bill rate. Many variable rate
municipal securities are subject to payment of principal on demand by a Fund,
usually in not more than seven days. All variable rate municipal securities will
meet the quality standards for a Fund. The Fund's investment adviser monitors
the pricing, quality, and liquidity of the variable rate municipal securities,
including participation interests held by a Fund, on the basis of published
financial information and reports of the rating agencies and other analytical
services pursuant to guidelines established by the Trustees.

MUNICIPAL BOND INSURANCE

The GEORGIA MUNICIPAL BOND FUND, NORTH CAROLINA MUNICIPAL BOND FUND, and SOUTH
CAROLINA MUNICIPAL BOND FUND may purchase municipal securities covered by
insurance which guarantees the timely payment of principal at maturity and
interest on such securities. These insured municipal securities are either (1)
covered by an insurance policy applicable to a particular security, whether
obtained by the issuer of the security or by a third party ("Issuer-Obtained
Insurance") or (2) insured under master insurance policies issued by municipal
bond insurers, which may be purchased by a Fund (the "Policy" or "Policies").

Issuer-Obtained Insurance policies are noncancellable and continue in force as
long as the municipal securities are outstanding and their respective insurers
remain in business. If a municipal security is covered by Issuer-Obtained
Insurance, then such security need not be insured by the Policies purchased by a
Fund. (Please refer to the Funds' Statement of Additional Information for more
information.)

NON-DIVERSIFICATION
THE BILTMORE MUNICIPAL FUNDS is comprised of three non-diversified Funds. As
such, there is no limit on the percentage of assets which can be invested by a
Fund in any single issuer. An investment in a Fund, therefore, will entail
greater risk than would exist in a diversified investment company because the
higher percentage of investments among fewer issuers may result in greater
fluctuation in the total market value of a Fund's portfolio. Any economic,
political, or regulatory developments affecting the value of the securities in a
Fund's portfolio will have a greater impact on the total value of the portfolio
than would be the case if the portfolio were diversified among more issuers. A
Fund may purchase an issue of municipal securities in its entirety.
The Funds intend to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, the
aggregate value of all investments in any one issuer (except U.S. government
obligations, cash, and cash items) which exceed 5% of a Fund's total assets
shall not exceed 50% of the value of its total assets.

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.

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INVESTMENT LIMITATIONS

BORROWING MONEY

The EQUITY FUND, QUANTITATIVE EQUITY FUND, EQUITY INDEX FUND, SPECIAL VALUES
FUND, EMERGING MARKETS FUND, BALANCED FUND, FIXED INCOME FUND, and SHORT-TERM
FIXED INCOME FUND will not borrow money directly or through reverse repurchase
agreements (arrangements in which a 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, a 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. The GEORGIA
MUNICIPAL BOND FUND, NORTH CAROLINA MUNICIPAL BOND FUND, and SOUTH CAROLINA
MUNICIPAL BOND FUND will not borrow money or pledge securities except, under
certain circumstances, a Fund may borrow up to one-third of the value of its
total assets and pledge up to 10% of the value of those assets to secure such
borrowings.

DIVERSIFICATION

With respect to 75% of the value of its total assets, the EQUITY FUND,
QUANTITATIVE EQUITY FUND, EQUITY INDEX FUND, SPECIAL VALUES FUND, BALANCED FUND,
FIXED INCOME FUND, and SHORT-TERM FIXED INCOME FUND will not 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 following limitations, however, can be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.

In addition to the above limitations, The SOUTH CAROLINA MUNICIPAL BOND FUND
will not:

invest more than 5% of its total assets in industrial development bonds when
the payment of principal and interest is the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor; or

own securities of open-end or closed-end investment companies, except under
certain circumstances and subject to certain limitations described in this
prospectus, and, not exceeding 10% of its net assets.
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TRUST INFORMATION

MANAGEMENT OF THE TRUSTS

Board Of Trustees. The Trustees are responsible for managing the business
affairs of the Trusts and for exercising the Trusts' powers except those
reserved for the shareholders.

Investment Advisers. Pursuant to investment advisory contracts with the Trusts
on behalf of the Funds, and subject to direction by the Trustees, investment
decisions for THE BILTMORE FUNDS are made by Wachovia Asset Management, a
business unit of Wachovia Bank of North Carolina, N.A., and investment decisions
for GEORGIA MUNICIPAL BOND FUND, NORTH CAROLINA MUNICIPAL BOND FUND, and SOUTH
CAROLINA MUNICIPAL BOND FUND are made by Wachovia Bank of Georgia, N.A.,
Wachovia Bank of North Carolina, N.A., and Wachovia Bank of South Carolina,
N.A., respectively, (each the "Adviser" and, together, the "Advisers") subject
to direction by the Trustees. The Advisers continually conduct investment
research and supervision of investments for the Funds and are responsible for
the purchase and sale of portfolio instruments, for which they receive annual
fees from the assets of the Funds.

Sub-Adviser. The QUANTITATIVE EQUITY FUND is sub-advised by Twin Capital
Management, Inc., McMurray, Pennsylvania. Pursuant to the terms of an investment
sub-advisory agreement between the Funds' Adviser and Twin Capital Management,
Inc. ("Twin Capital" or the "Sub-Adviser"), Twin Capital furnishes certain
investment advisory services to Wachovia Asset Management, including investment
research, quantitative analysis, 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, Twin Capital is entitled to receive an annual fee of $55,000,
payable by Wachovia Asset Management, 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 Wachovia
Asset Management. Twin Capital provides investment counsel to both individuals
and institutions, including banks, thrift institutions, and pension and
profit-sharing plans. As of December 31, 1996, Twin Capital furnished services,
substantially similar to the services it provides to the Adviser, to other
accounts with assets in excess of $1.8 billion. The Sub-Adviser is controlled by
Geoffrey Gerber, its President.

Advisory Fees. The Advisers are entitled to receive annual investment
advisory fees equal to a percentage of each Fund's average daily net assets as
follows: 0.30 of 1% of EQUITY INDEX FUND; 0.55 of 1% of SHORT-TERM FIXED INCOME
FUND; 0.60 of 1% of FIXED INCOME FUND; 0.70 of 1% of EQUITY FUND, QUANTITATIVE
EQUITY FUND, and BALANCED FUND; 0.75 of 1% of GEORGIA MUNICIPAL BOND FUND, NORTH
CAROLINA MUNICIPAL BOND FUND, and SOUTH CAROLINA MUNICIPAL BOND FUND; 0.80 of 1%
of SPECIAL VALUES FUND; and 1.00% of EMERGING MARKETS FUND. These fees are
accrued daily and paid monthly. The fees paid by THE BILTMORE MUNICIPAL FUNDS,
SPECIAL VALUES FUND and EMERGING MARKETS FUND, while higher than the advisory
fees paid by other mutual funds in general, are comparable to fees paid by other
mutual funds with similar policies and objectives. The Advisers may voluntarily
choose to waive a portion of their fees or reimburse a Fund for certain expenses
but reserve the right to terminate such waiver or reimbursement at any time at
their sole discretion.

Investment decisions for the Funds will be made independently from those of any
fiduciary or other accounts that may be managed by the Advisers or their
affiliates. If, however, such accounts, the Funds, or the Advisers for their own
accounts, are simultaneously engaged in transactions involving the same
securities, the transactions may be combined and allocated to each account. This
system may adversely affect the price the Funds pay or receive, or the size of
the position they obtain.

Advisers' Background. Wachovia Asset Management has served as investment adviser
to THE BILTMORE FUNDS since March 9, 1992. Wachovia Asset Management is a
business unit of Wachovia Bank of North Carolina, N.A. which, along with
Wachovia Bank of South Carolina, N.A. and Wachovia Bank of Georgia, N.A., is a
wholly-owned subsidiary of Wachovia Corporation. Wachovia Bank of South
Carolina, N.A. has served as investment adviser for the SOUTH CAROLINA MUNICIPAL
BOND FUND since August 5, 1990. Wachovia Bank of North Carolina, N.A. and
Wachovia Bank of Georgia, N.A. have served as investment advisers to the NORTH
CAROLINA MUNICIPAL BOND FUND and GEORGIA MUNICIPAL BOND FUND, respectively,
since their inception in December 1994.

Through offices in eight states, Wachovia Corporation and its subsidiaries
provide a broad range of financial services to individuals and businesses. The
Wachovia Banks offer 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 Advisers employ an experienced staff of professional investment analysts,
portfolio managers and traders. The Advisers use fundamental analysis and other
investment management disciplines to identify investment opportunities. The
Wachovia Banks have been managing trust assets for over 100 years, with over $23
billion in managed assets as of December 31, 1996. 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 a 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.

Jerry D. Burton is a Vice President of Wachovia Asset Management. He is a
portfolio manager of the QUANTITATIVE EQUITY FUND. Mr. Burton received a
bachelors degree from Clemson University and an MBA from the College of William
and Mary. He is a Chartered Financial Analyst.

Daniel S. Earthman is a Chartered Financial Analyst and is a Senior Vice
President and portfolio manager of the BALANCED FUND. Mr. Earthman joined
Wachovia Bank of North Carolina, N.A. in 1988 as an institutional portfolio
manager. 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 North
Carolina National Bank 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.

Samuel M. Gibbs, II is the portfolio manager of the SHORT-TERM FIXED INCOME FUND
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 assumed his current position in 1977. Mr. Gibbs is
a graduate of Davidson College and has an MBA from the University of South
Carolina.

Alfred R. Guenthner is Senior Vice President and Manager of Research for
Wachovia Asset Management and is a portfolio manager of the BALANCED FUND. Mr.
Guenthner joined Wachovia Bank of North Carolina, N.A. in 1972 as an economist
and became 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.

John F. Hageman is a Chartered Financial Analyst and is a Senior Vice President
and Institutional Portfolio Manager. He is a portfolio manager of the EQUITY
FUND. Mr. Hageman is responsible for managing 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.

Paige C. Henderson is a Vice President of Wachovia Asset Management. Ms.
Henderson is an equity analyst in the Investment Asset Group and a portfolio
manager of the EMERGING MARKETS FUND. Ms. Henderson joined Wachovia Bank of
North Carolina, N.A. 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.

F. Stanley King is a Chartered Financial Analyst and a Senior Vice President of
Wachovia Bank of North Carolina, N.A. Mr. King is a portfolio manager of the
EQUITY FUND. He serves as manager of institutional portfolio management for
Wachovia Asset Management. Mr. King joined Wachovia Bank of North Carolina, N.A.
in 1985 as a securities analyst and assumed his current position in 1991. He has
both bachelor and master of science degrees from North Carolina State
University.

George E. McCall is a Certified Financial Planner and Vice President of Wachovia
Asset Management. He is a portfolio manager of the QUANTITATIVE EQUITY FUND. He
is a graduate of Presbyterian College and received his MBA from the University
of South Carolina.

Michael O. Mercer is Senior Vice President, Wachovia Bank of North Carolina,
N.A., and, in addition to being a portfolio manager of the EQUITY FUND, manages
the Wachovia Equity Investment Fund and other large institutional accounts. Mr.
Mercer is a graduate of Catawba College and received an MBA from Florida State
University. Mr. Mercer is a Chartered Financial Analyst and has been with
Wachovia Bank of North Carolina, N.A. since 1983.

Harold (Rick) Nelson III is a Senior Vice President and fixed-income portfolio
manager of Wachovia Asset Management in Atlanta. Mr. Nelson joined Wachovia in
June, 1985 as a fixed income portfolio manager. He became a portfolio manager of
the BALANCED FUND in May, 1996. Mr. Nelson is a native of Mountainside, New
Jersey. He received a bachelor of science degree in Management from St. Francis
College and an MBA in Finance at Mercer University in 1990.

Michael Peters is the portfolio manager of THE BILTMORE MUNICIPAL FUNDS. Mr.
Peters has been portfolio manager of SOUTH CAROLINA MUNICIPAL BOND FUND since
1993. Mr. Peters has been portfolio manager of GEORGIA MUNICIPAL BOND FUND and
NORTH CAROLINA MUNICIPAL BOND FUND since those Funds' inceptions in December
1994. Mr. Peters is a Vice President of Wachovia Bank of South Carolina N.A.,
Wachovia Bank of North Carolina, N.A. and Wachovia Bank of Georgia, N.A. Mr.
Peters was employed with Nations Bank from 1990 to 1993. Mr. Peters received his
MBA from Indiana University and is a Chartered Financial Analyst.

R. Emery Pike is a Chartered Financial Analyst and Vice President of Wachovia
Asset Management. He is the portfolio manager of the FIXED INCOME FUND. He holds
both a bachelors degree and an MBA from Wake Forest University.

B. Scott Sadler is a portfolio manager of the EMERGING MARKETS FUND. He is a
Vice President of Wachovia Asset Management. He joined Wachovia Bank of North
Carolina, N.A. in 1987. 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.

Scott C. Satterwhite is the portfolio manager of the SPECIAL VALUES FUND and is
a portfolio manager of the EQUITY FUND. 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.

Timothy L. Swanson is a Vice President of Wachovia Asset Management. He joined
Wachovia Bank of North Carolina, N.A. in 1991. Mr. Swanson is a portfolio
manager of the EMERGING MARKETS FUND. 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.

Michael J. Tierney is an Executive Vice President of Wachovia Bank of North
Carolina, N.A. and Chief Investment Officer with Wachovia Asset Management. He
joined Wachovia Bank of North Carolina, N.A. in 1981. Mr. Tierney is a portfolio
manager of the EMERGING MARKETS FUND. Mr. Tierney is a graduate of the
University of Connecticut, and has more than 25 years of experience managing
equity and fixed income investments.

Joseph H. Waterfill is a Senior Vice President of Wachovia Asset Management. Mr.
Waterfill is the portfolio manager of the BALANCED FUND, EQUITY FUND, and the
QUANTITATIVE EQUITY FUND. He joined Wachovia in 1976 as an employee benefit
portfolio manager. He was elected Senior Vice President in 1990. Mr. Waterfill
received a bachelor of science degree from the U.S. Naval Academy in 1963 and an
MBA from Vanderbilt University in 1973.

DISTRIBUTION OF SHARES
Federated Securities Corp., Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779 is the distributor for 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. Class B Shares of the EQUITY FUND, the QUANITATIVE EQUITY
FUND, the BALANCED FUND, and the FIXED INCOME FUND have adopted a plan for
distribution of Class B Shares permitted by Rule 12b-1 under the Investment
Company Act of 1940 (the "Plan"), whereby each of these Funds have authorized a
daily expense ("Rule 12b-1 fee") at an annual rate of up to 0.75 of 1% of the
average daily net asset value of that Fund's Class B Shares to finance the sale
of Class B Shares.

The distributor may pay all or a portion of the Rule 12b-1 fee to compensate
selected brokers and financial institutions for selling Class B Shares or for
administrative services rendered in connection with the Class B Shares.

The Funds make no payments in connection with the sale of Class B Shares other
than the Rule 12b-1 fees paid to the distributor. The distributor, however, may
pay a sales commission to brokers in connection with the sale of Class B Shares.
Except as set forth in the next paragraph, the Funds do not pay for unreimbursed
expenses of the distributor. Since the Funds' Plan is a "compensation" type
plan, however, future Rule 12b-1 fees may permit recovery of such amounts or may
result in a profit to the distributor.

The distributor may sell, assign or pledge its right to receive Rule 12b-1 fees
and contingent deferred sales charges to finance payments made to brokers in
connection with the sale of Class B Shares. Actual distribution expenses for
Class B Shares at any given time may exceed the Rule 12b-1 fees and payments
received pursuant to contingent deferred sales charges. These unrecovered
amounts, plus interest thereon, will be carried forward and paid from future
Rule 12b-1 fees and payments received through contingent deferred sales charges.
If a Plan were terminated or not continued, the Funds would not be contractually
obligated to pay for any expenses not previously reimbursed by the Funds or
recovered through contingent deferred sales charges.

Federated Securities Corp., from time to time, may pay brokers additional sums
of cash or promotional incentives based upon the amount of Class B Shares sold.
Such payments, if made, will be in addition to amounts paid under the Plans and
will not be an expense of the Funds.

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 to the Funds.
This fee, if paid, will be reimbursed by the Advisers or their affiliates and
not the Funds.

SHAREHOLDER SERVICING ARRANGEMENTS

Federated Administrative Services, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is shareholder servicing agent (the "Shareholder Servicing
Agent") for Class A Shares of each Fund and for the EQUITY FUND, the QUANITATIVE
EQUITY FUND, the BALANCED FUND, and the FIXED INCOME FUND Class B Shares. The
Funds 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 each Class' 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 FUNDS

Federated Administrative Services also provides the Funds with the
administrative personnel and services necessary to operate the Funds. Such
services include legal, accounting 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 AND THE BILTMORE MUNICIPAL
FEE 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 shall aggregate at least
$75,000 for each portfolio of THE BILTMORE FUNDS and at least $50,000 for each
portfolio of THE BILTMORE MUNICIPAL FUNDS. Federated Administrative Services may
choose voluntarily to waive or reimburse a portion of its fee at any time.

EXPENSES OF THE FUNDS AND CLASS A SHARES
AND CLASS B SHARES
Holders of Class A Shares and Class B Shares pay their allocable portion of
Trust and respective Fund expenses. The Trust expenses for which holders of
Shares pay their allocable portion include, but are not limited to: the cost of
organizing the Trust and continuing its existence; the cost of registering the
Trust; Trustees' fees; auditors' fees; the cost of meetings of Trustees; legal
fees of the Trust; association membership dues and such non-recurring and
extraordinary items as may arise.

Fund expenses for which holders of Shares pay their allocable portion based on
average daily net assets include, but are not limited to: registering a Fund and
Shares of that Fund; investment advisory services; taxes and commissions;
custodian fees; insurance premiums; auditors' fees; and such non-recurring and
extraordinary items as may arise.

The Funds' expenses under the Rule 12b-1 Plans are incurred solely by the Class
B Shares. In addition, the Funds' expenses under a shareholder services plan are
incurred by the Class A Shares and Class B Shares. The Trustees reserve the
right to allocate certain other expenses to Classes of Shares as they deem
appropriate ("Class Expenses"). These Class Expenses would be limited to:
transfer agent fees as identified by the transfer agent as attributable to
holders of shares of a Class; printing and postage expenses related to preparing
and distributing materials such as shareholder reports, prospectuses and proxies
to current shareholders of a Class; registration fees paid to the Securities and
Exchange Commission and to state securities commissions for shares of a Class;
expenses related to administrative personnel and services as required to support
holders of shares of a Class; legal fees relating solely to a Class; and
Trustees fees incurred as a result of issues relating solely to a Class.

BROKERAGE TRANSACTIONS
The Funds may engage in brokerage transactions. When selecting brokers and
dealers to handle the purchase and sale of portfolio instruments, the Advisers
look for prompt execution of the order at a favorable price. In working with
dealers, the Advisers 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 Advisers may give consideration to those firms which have sold or
are selling shares of the Funds. The Advisers make decisions on portfolio
transactions and selects brokers and dealers subject to review by the Trustees.

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

Each 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. The net asset value of Class A
Shares and Class B Shares of a Fund may differ slightly from that of Class Y
Shares of the same Fund due to the variability in daily net income resulting
from different distribution charges and shareholder services fees. The net asset
value for each Fund will fluctuate for all three classes.

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 a
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.

- ---------------------------------------------------------
- ---------------------------------------------------------
INVESTING IN THE FUNDS

SHARE PURCHASES
Fund Shares are sold on days on which Wachovia Banks, 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 that have a sales agreement with
the distributor. All purchase orders must be transmitted to a Fund by 5:00 p.m.
(Eastern time) and will be purchased at the public offering price next
determined after a Fund receives the purchase request. 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. Each 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 purchase Shares of a 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 by check, by wire of federal funds, or by debiting a
customer's account with a Wachovia Bank. Purchase orders must normally be
received by Wachovia Bank 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.

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. 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. Shares may
also be purchased through authorized broker/dealers that have a sales agreement
with the distributor. All purchase orders must normally be received by Wachovia
Investments, Inc. before 3:30 p.m. (Eastern time) in order for Shares to be
purchased at that day's offering price.

By Mail. To purchase Shares of a Fund through Wachovia Investments, Inc. by
mail, send a check made payable to (Name of 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 BILTMORE FUNDS is $250, and $500
for THE BILTMORE MUNICIPAL FUNDS. Subsequent investments in THE BILTMORE FUNDS
must be in amounts of at least $50, and for the THE BILTMORE MUNICIPAL FUNDS,
subsequent investments must be in amounts of at least $100. Minimum initial
investments may be waived from time to time for purchases by Trust Divisions of
the Wachovia Banks for their fiduciary or custodial accounts. An institutional
investor's minimum investment will be calculated by combining all accounts it
maintains with the Funds.

WHAT SHARES COST
This prospectus offers investors two classes of Shares that carry sales charges
and contingent deferred sales charges in different forms and amounts and which
bear different levels of expenses.

Class A Shares. Most investors who purchase Class A Shares pay a maximum sales
charge of 4.50% at the time of purchase. As a result, Class A Shares are not
subject to any charges when they are redeemed. Certain purchases of Class A
Shares qualify for reduced sales charges. See "Reducing the Initial Sales
Charge." Class A Shares have no conversion feature.

Class A Shares of all Funds except the SHORT-TERM FIXED INCOME FUND are sold at
their net asset value next determined after an order is received, plus a sales
charge as follows:
<TABLE>
<CAPTION>
SALES LOAD AS
A PERCENTAGE SALES LOAD AS
OF PUBLIC A PERCENTAGE
OFFERING OF NET AMOUNT
AMOUNT OF TRANSACTION PRICE INVESTED
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,00 2.00% 2.04%
$750,000 but less than $1
million 1.00% 1.01%
$1 million or more 0.25% 0.25%
</TABLE>

Shares of the SHORT-TERM FIXED INCOME FUND are sold at their net asset value
next determined after an order is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES LOAD AS
A PERCENTAGE SALES LOAD AS
OF PUBLIC A PERCENTAGE
OFFERING OF NET AMOUNT
AMOUNT OF TRANSACTION PRICE 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>

Purchases At Net Asset Value. Class A Shares of a Fund may be purchased at net
asset value, without an initial sales charge, by investment advisers registered
under the Investment Advisers Act of 1940, purchasing on behalf of their
clients, by the Wachovia Banks or affiliates for funds which are held in a
fiduciary, advisory, agency, custodial, or similar capacity, and for which the
Wachovia Banks, or an affiliate or a third party will provide shareholder
services for a fee paid by one of the Funds, and by trustees, officers,
directors and retired directors, advisory board members, employees and retired
employees of a Fund, the Wachovia Banks, the spouses and children under the age
of 21 of such persons, and any trusts, or individual retirement accounts
operated for such persons. Purchases made by or through qualified retirement
plans (each a "Delaware/Wachovia Qualified Retirement Plan" or "Plan") which
have in excess of an aggregate investment of $1 million in certain Delaware
Group Funds ("Eligible Delaware Funds") and any portfolios of THE BILTMORE FUNDS
that are available through that Plan ("Eligible Biltmore Funds" together, the
"Eligible Funds") will be made at net asset value, without the imposition of the
sales charge otherwise provided in the table above. No sales charge is imposed
on Class A Shares purchased through "wrap accounts" or similar programs under
which clients pay a fee for services. In addition, trustees, officers, directors
and employees of the distributor and its affiliates, and any bank or investment
dealer who has a sales agreement with the distributor may also purchase shares
at their net asset value.

Reducing the Initial Sales Charge. The initial sales charge can be reduced on
the purchase of shares of a 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 above,
larger purchases reduce the sales charge paid. Funds 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.

A Fund may also consider the previous purchases still invested in any of THE
BILTMORE FUNDS or THE BILTMORE MUNICIPAL FUNDS if an additional purchase is
made. For example, if a shareholder already owns shares of the EQUITY FUND
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 Funds 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 a 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 all account balances in any Biltmore Fund
toward the dollar fulfillment of the letter of intent. Prior trade prices will
not be adjusted.

Reinvestment Privilege. If shares in a Fund have been redeemed, the shareholder
has a one-time right, within 90 days, to reinvest the redemption proceeds 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 a
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 Fund shares.
For example, if a shareholder concurrently invested $70,000 in one Fund, and
$30,000 in another Fund, the sales charge would be reduced.

To receive this sales charge reduction, the Wachovia Banks, Wachovia
Investments, Inc. or the distributor must be notified 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 Eligible Biltmore Funds by a
Delaware/Wachovia Qualified Retirement 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.
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.

Class B Shares. Class B Shares are sold without an initial sales charge, but are
subject to a contingent deferred sales charge of up to 5.00% if redeemed within
seven full years following purchase. Class B Shares also bear a Rule 12b-1 fee.
Class B Shares will automatically convert into Class A Shares, based on relative
net asset value, on or around the fifteenth of the month, eight full years after
the purchase date. Class B Shares provide an investor the benefit of putting all
of the investor's dollars to work from the time the investment is made, but,
until conversion, will have a higher expense ratio and pay lower dividends than
Class A Shares due to the Rule 12b-1 fee.

Class B Shares are sold at net asset value per Share without the imposition of a
sales charge at the time of purchase. Shares redeemed within seven years of
their purchase will be subject to a contingent deferred sales charge according
to the following schedule:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
</TABLE>

No contingent deferred sales charge will be imposed on: (1) the portion of
redemption proceeds attributable to increases in the value of the account due to
increases in the net asset value per Share, (2) Shares acquired through
reinvestment of dividends and capital gains, (3) Shares held for more than seven
years after the end of the calendar month of acquisition, (4) accounts following
the death or disability of any shareholder in the account, or (5) minimum
required distributions to a shareholder over the age of 70-1/2 from an IRA or
other retirement plan.

CONVERSION FEATURE

Class B Shares include all Shares purchased pursuant to the deferred sales
charge alternative which have been outstanding for less than the period ending
eight years after the end of the month in which the shareholder's order to
purchase Class B Shares was accepted. At the end of this eight year period,
Class B Shares will automatically convert to Class A Shares, in which case the
Shares will no longer be subject to the Rule 12b-1 distribution fee which is
assessed on Class B Shares. Such conversion will be on the basis of the relative
net asset values of the two classes, without the imposition of any sales load,
fee or other charge. The purpose of the conversion feature is to relieve the
holders of the Class B Shares that have been outstanding for a period of time
sufficient for the distributor to have been compensated for distribution
expenses related to the Class B Shares from most of the burden of such
distribution-related expenses.

For purposes of conversion to Class A Shares, Class B Shares purchased through
the reinvestment of dividends and distributions paid on Class B Shares in a
shareholder's Fund acount will be considered to be held in a separate
sub-account. Each time any Class B Shares in the shareholder's Fund account
(other than those in the sub-account) convert to Class A Shares, an equal pro
rata portion of the Class B Shares in the sub-account will also convert to Class
A Shares.

Sales Charge Reallowance. For Class A Shares and Class B Shares sold with an
initial or contingent deferred sales charge, the Wachovia Banks or an affiliated
broker/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/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 a registered
broker/dealer 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 a Fund. Such payments will be predicated
upon the amount of Shares of a Fund that are sold by the dealers.

SYSTEMATIC INVESTMENT PROGRAM

Shareholders in any of the Funds may participate in a Systematic Investment
Program. Once a Fund account has been opened, shareholders in THE BILTMORE FUNDS
and THE BILTMORE MUNCIPAL FUNDS may add to their investment on a regular basis
in a minimum amount of $25. 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
a Fund, plus , in the case of Class A Shares, 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 Shareholder Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
requested in writing to a 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 for THE BILTMORE FUNDS, and monthly confirmations are sent to
report dividends paid during that month for THE BILTMORE MUNICIPAL FUNDS.

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 a 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 AND CAPITAL GAINS

Dividends are declared and paid quarterly to shareholders invested in the EQUITY
FUND, the QUANTITATIVE EQUITY FUND, EQUITY INDEX FUND and the BALANCED FUND on
the record date. Dividends are declared and paid monthly to all shareholders
invested in the FIXED INCOME FUND and the SHORT-TERM FIXED INCOME FUND on the
record date. Dividends are declared daily and paid monthly to all shareholders
invested in THE BILTMORE MUNICIPAL FUNDS on the record date. Dividends are
declared and paid annually to all shareholders of the EMERGING MARKETS FUND and
SPECIAL VALUES FUND on the record date. Unless shareholders request cash
payments by writing to a Fund, dividends are automatically reinvested in
additional Shares of a Fund on the payment dates at the ex-dividend date net
asset value without a sales charge.

Dividends are declared just prior to determining net asset value. If an order
for Shares is placed on the preceding business day, Shares purchased by wire
begin earning dividends on the business day wire payment is received by the
Custodian. If the order for Shares and payment by wire are received on the same
day, Shares begin earning dividends on the next business day. Shares purchased
by check begin earning dividends on the business day after the check is
converted into federal funds.

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

- ---------------------------------------------------------
- ---------------------------------------------------------
EXCHANGE PRIVILEGE

Shareholders of the Funds have easy access to the other Funds comprising the
Trusts through a telephone exchange program. Class A Shares and Class B Shares,
respectively, of a Fund may be exchanged for Class A Shares and Class B Shares,
respectively, of another Fund at net asset value without a sales charge (if a
sales charge was previously paid). An exchange of Class B Shares for Class B
Shares of another Biltmore Fund or for Investment Shares of the Biltmore U.S.
Treasury Money Market Fund ("Money Fund") will not be subject to a contingent
deferred sales charge. However, if the shareholder redeems the exchanged-for
shares within seven years of the original purchase of Class B Shares, a
contingent deferred sales charge will be imposed. For purposes of computing the
contingent deferred sales charge, the length of time the shareholder has owned
Class B Shares will be measured from the date of original purchase and will not
be affected by the exchange. 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, a shareholder should review a copy of the current
prospectus of the 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 Fund may vary.

Shareholders using this privilege must exchange Shares having a net asset value
at least equal to the minimum investment of the Fund into which they are
exchanging. 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. 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
or give instructions for exchange between Funds by calling the Fund, Wachovia
Investments, Inc., or in the case of customers of the Wachovia Banks, the
shareholder's account officer. Shares may be exchanged by telephone only between
Fund accounts having identical shareholder registrations.

Shares of the Funds with a sales charge may be exchanged at net asset value for
shares of other Funds with an equal sales charge or no sales charge. Exchanges
are made at net asset value, plus the difference between the sales charge
already paid on the exchanged-from Fund's shares and any sales charge of the
Fund into which the shares are to be exchanged, if higher. Shares of Funds with
no sales charge acquired by direct purchase or reinvestment of dividends on such
shares may be exchanged for shares of Funds at net asset value.

Upon receipt of proper instructions and all necessary supporting documents,
Shares submitted for exchange will be redeemed at the next-determined net asset
value. Written exchange instructions may require a signature guarantee. Exercise
of this privilege is treated as a sale for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the exchange
privilege.

Exchange By Telephone. Telephone exchange instructions must be received before
3:30 p.m. (Eastern time) for Shares to be exchanged the same day. Exchange
instructions given by telephone may be electronically recorded. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. 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.

In addition to the exchange privilege described above, participants in a
Delaware/Wachovia Qualified Retirement 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).

- ---------------------------------------------------------
- ---------------------------------------------------------
REDEEMING SHARES

Each Fund redeems Shares at its 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 or
directly to a Fund.

By Telephone. A shareholder may redeem Shares of a Fund by contacting their
trust officer or calling the Biltmore Service Center (call toll-free
1-800-994-4414) to request the redemption. Redemption requests made through the
Wachovia Banks must be received before 3:30 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 Funds. Registered broker/dealers may
charge customary fees and commissions for this service. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by a
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 a Fund by calling the Biltmore Service Center at 1-800-994-4414. Redemption
requests must be received by 3:30 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 or Wachovia Investments, Inc., as appropriate. The written
request should include the shareholder's name, the Fund name, the account number
or brokerage account numbers, 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 a Fund. Shareholders
should call the Wachovia Banks or the Biltmore Service Center 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 to be sent to an address other
than that on record with a 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 Exchange;
a savings bank or savings association whose deposits are insured by the SAIF;
or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Funds do not accept signatures guaranteed by a notary public.

The Funds and the transfer agent have adopted standards for accepting signature
guarantees from the above institutions. A Fund may elect in the future to limit
eligible signature guarantors to institutions that are members of a signature
guarantee program. The Funds and the transfer agent reserve the right to amend
these standards at any time without notice.

SYSTEMATIC WITHDRAWAL PROGRAM
Class A Shareholders having an account value of at least $10,000 and 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 a minimum of $100 as
directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions, and the
fluctuation of net asset value of shares redeemed under this program,
redemptions may reduce, and eventually deplete, the shareholder's investment in
a Fund. For this reason, payments under this program should not be considered as
yield or income on the shareholder's investment in a Fund. A shareholder may
apply for participation in this program through his financial institution. Due
to the fact that Shares are sold with an initial 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, each Fund may
redeem Shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $250 for THE BILTMORE FUNDS and $500 for THE BILTMORE MUNICIPAL FUNDS.
This requirement does not apply, however, if the balance falls below the
required minimum because of changes in a 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 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 a Trust have equal voting rights, except that in matters affecting
only a particular Fund or class, only shares of that Fund or class are entitled
to vote.

As Massachusetts business trusts, neither Trust is required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in a Trust or a Fund's operation and for the election of Trustees under
certain circumstances.

As of January 3, 1997, the Wachovia Banks and their various affiliates and
subsidiaries, acting in various capacities for numerous accounts, together were
the owners of record of in excess of 25% of the outstanding shares of the
Quantitative Equity Fund, Equity Index Fund, Special Values Fund, Fixed Income
Fund, and Short-Term Fixed Income Fund, and therefore may, for certain purposes,
be deemed to control these Funds and be able to affect the outcome of certain
matters presented for a vote of shareholders.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of a Trust's shareholders shall be called by the Trustees upon
the written request of shareholders owning at least 10% of a 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 customers.

Some entities providing services to the Funds 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 a Fund contemplated by their
investment advisory contracts and custodian agreements with the Trusts without
violating those 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 a Fund. If this happens, the Trustees
would consider alternative means of continuing available investment services. In
such event, changes in the operation of a 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.

State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.

- ---------------------------------------------------------
- ---------------------------------------------------------
TAX INFORMATION

The Funds expect to pay no federal income tax because each intends to continue
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 earned and realized
by any Fund will not be combined for tax purposes with those of any offer Fund.

Unless otherwise exempt, shareholders of THE BILTMORE FUNDS 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 Funds 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.

- ---------------------------------------------------------
- ---------------------------------------------------------
THE BILTMORE MUNICIPAL FUNDS TAX INFORMATION

FEDERAL INCOME TAX

Shareholders of THE BILTMORE MUNICIPAL FUNDS are not required to pay federal
regular income tax on any dividends received from the Fund that represent net
interest on tax-exempt municipal bonds ("exempt-interest dividends"). However,
dividends representing net interest income earned on some municipal bonds may be
included in calculating the federal alternative minimum tax.

The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and increased or reduced by certain
alternative minimum tax adjustments.

Interest on certain "private activity" bonds issued after August 7, 1986, is a
tax preference item for both individuals and corporations. Unlike traditional
governmental purpose municipal bonds, which finance roads, schools, libraries,
prisons, and other public facilities, private activity bonds provide benefits to
private parties. A Fund may purchase all types of municipal bonds, including
private activity bonds. If a Fund purchases any such bonds, a portion of its
dividends may be treated as a tax preference item.

In addition, in the case of a corporate shareholder, exempt-interest dividends
may become subject to the 20% corporate alternative minimum tax because the
dividends are included in a corporations's "adjusted current earnings." The
corporate alternative minimum tax treats 75% of the excess of the taxpayer's
"adjusted current earnings" over the taxpayer's preadjustment alternative
minimum taxable income as an alternative minimum tax adjustment. "Adjusted
current earnings" is based upon the concept of a corporation's "earnings and
profits". Since "earnings and profits" generally includes the full amount of any
Fund dividend (including exempt-interest dividends), and preadjustment
alternative minimum taxable income does not include exempt-interest dividend to
municipal bonds which are not private activity bonds, 75% of the difference will
be included in the calculation of the corporation's alternative minimum tax.

Shareholders should consult with their tax advisers to determine whether they
are subject to the alternative minimum tax and, if so, the tax treatment of
dividends paid by a Fund.

Dividends of a Fund representing net interest income earned on some taxable
temporary investments and any realized net short-term gains are taxed as
ordinary income. Distributions representing net long-term capital gains realized
by a Fund, if any, will be taxable to its shareholders as long-term capital
gains regardless of the length of time the shareholders have held their shares.

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and other
distributions is provided annually.

GEORGIA AND NORTH CAROLINA TAXES

Under existing Georgia and North Carolina laws, shareholders of the GEORGIA
MUNICIPAL BOND FUND and NORTH CAROLINA MUNICIPAL BOND FUND will not be subject
to Georgia or North Carolina income taxes, respectively, on Fund dividends to
the extent that such dividends represent exempt-interest dividends as defined in
the Internal Revenue Code of 1986, as amended, which are directly attributable
to (i) interest on obligations issued by or on behalf of the States of Georgia
or North Carolina, respectively, or their respective political subdivisions; or
(ii) interest on obligations of the United States or any other issuer whose
obligations are exempt from state income taxes under federal law.

To the extent that Fund dividends are attributable to other sources, such
dividends will be subject to the relevant state's income taxes.

SOUTH CAROLINA TAXES

Under current South Carolina law, shareholders of the SOUTH CAROLINA MUNICIPAL
BOND FUND will not be subject to South Carolina income taxes on Fund dividends
to the extent that such dividends qualify as either (1) exempt-interest
dividends under the Internal Revenue Code, which are derived from interest on
obligations of the state of South Carolina or any of its political subdivisions;
(2) dividends derived from interest on certain obligations of the United States;
and (3) dividends derived from interest on obligations of any agency or
instrumentality of the United States that is prohibited by federal law from
being taxed by a state or any political subdivision of a state. To the extent
that Fund dividends are attributable to other sources, such dividends will be
subject to South Carolina taxes.

OTHER STATE AND LOCAL TAXES

Income from THE BILTMORE MUNICIPAL FUNDS is not necessarily free from state
income taxes in states other than Georgia, North Carolina, or South Carolina,
respectively, or from personal property taxes. State laws differ on this issue,
and shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.

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

THE BILTMORE FUNDS and THE BILTMORE MUNICIPAL FUNDS offer three classes of
shares: Class Y Shares, Class A Shares and Class B Shares of the Equity Fund,
the Quantitative Equity Fund, the Balanced Fund, and the Fixed Income Fund for
individuals and other customers of the Wachovia Banks.

Class Y Shares are sold to accounts for which the Wachovia Banks or their
affiliates act in a fiduciary, advisory, agency, custodial or similar capacity
at net asset value without a sales charge. Class Y Shares are not distributed
pursuant to a Rule 12b-1 Plan and are not subject to a shareholder services fee.

The stated advisory fee is the same for all classes of the Funds. Financial
institutions and brokers providing sales and/or administrative services may
receive different compensation with respect to one class of shares than with
respect to another class of shares of the same Fund.

The amount of dividends payable to Class A Shares and Class B Shares will be
less than those payable to Class Y Shares by the difference between Class
Expenses and distribution and shareholder services expenses borne by the shares
of each respective class.

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- ---------------------------------------------------------
PERFORMANCE INFORMATION

From time to time, the Funds advertise their total return, yield, and if
applicable, tax-equivalent yield.

Total return represents the change, over a specified period of time, in the
value of an investment in a 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 each 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 tax-equivalent yield of THE BILTMORE MUNICIPAL FUNDS 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 specific tax rate.

The yield and the tax-equivalent yield do not necessarily reflect income
actually earned by a Fund and, therefore, may not correlate to the dividends or
other distributions paid to shareholders.

Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class Y Shares of a Fund. Because Class A Shares and Class B Shares
are subject to a shareholder services fee and Class B Shares are subject to a
Rule 12b-1 fee, the yield will be lower than that of Class Y Shares. The sales
load applicable to

Class A Shares also contributes to a lower total return for Class A Shares. The
performance information reflects the effect of the maximum sales load which, if
excluded, would increase the total return, yield, and, as applicable,
tax-equivalent yield. In addition, Class B Shares are subject to similar
non-recurring charges, such as the contingent deferred sales charge, which, if
excluded, would increase the total return for Class B Shares.

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

<S> <C>
Biltmore Equity Fund Federated Investors Tower
Biltmore Quantitative Equity Fund Pittsburgh, Pennsylvania 15222-3779
Biltmore Equity Index Fund
Biltmore Special Values Fund
Biltmore Emerging Markets Fund
Biltmore Balanced Fund
Biltmore Fixed Income Fund
Biltmore Short-Term Fixed Income Fund
Biltmore Georgia Municipal Bond Fund
Biltmore North Carolina Municipal Bond Fund
Biltmore South Carolina Municipal Bond Fund

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

Investment Adviser Wachovia Asset Management
(The Biltmore Funds) 100 North Main Street
(North Carolina Municipal Bond Fund) Winston-Salem, North Carolina 27101

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

Investment Adviser Wachovia Bank of Georgia, N.A.
(Georgia Municipal Bond Fund) 191 Peachtree Street, N.E
Atlanta, Georgia 30303

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

Investment Adviser Wachovia Bank of South Carolina, N.A.
(South Carolina Municipal Bond Fund) 1426 Main Street
Columbia, South Carolina 29226
- -----------------------------------------------------------------------------------------

Counsel to The Biltmore Funds and Kirkpatrick & Lockhart LLP
The Biltmore Municipal Funds 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

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

The Biltmore Service Center 101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226

- -----------------------------------------------------------------------------------------
</TABLE>

The Biltmore Funds
The Biltmore Municipal Funds

January 31, 1997 G01513-01 (1/97)
822-27 (1/97)

The Biltmore Funds and
The Biltmore Municipal Funds
Class Y Shares

Prospectus

January 31, 1997

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THE BILTMORE FUNDS
BILTMORE EQUITY FUND
BILTMORE QUANTITATIVE EQUITY FUND
BILTMORE EQUITY INDEX FUND
BILTMORE SPECIAL VALUES FUND
BILTMORE EMERGING MARKETS FUND
BILTMORE BALANCED FUND
BILTMORE FIXED INCOME FUND
BILTMORE SHORT-TERM FIXED INCOME FUND

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE BILTMORE MUNICIPAL FUNDS
BILTMORE GEORGIA MUNICIPAL BOND FUND
BILTMORE NORTH CAROLINA MUNICIPAL BOND FUND
BILTMORE SOUTH CAROLINA MUNICIPAL BOND FUND

This prospectus provides you with information specific to the Class Y Shares of
the Funds. It contains the information you should read and know before you
invest in the Class Y Shares of the Funds. The Funds also offer Class A and, in
some cases, Class B Shares. Keep this prospectus for future reference.

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

TABLE OF CONTENTS

- ----------------------------------------------------------
SUMMARY OF INVESTMENT INFORMATION 1
- ----------------------------------------------------------
SUMMARY OF FUND EXPENSES 2
- ----------------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- ----------------------------------------------------------
GENERAL INFORMATION 6
- ----------------------------------------------------------
THE BILTMORE FUNDS 6
Biltmore Equity Fund 6
Biltmore Quantitative Equity Fund
6
Biltmore Equity Index Fund 6
Biltmore Special Values Fund 7
Biltmore Emerging Markets Fund 7
Biltmore Balanced Fund 7
Biltmore Fixed Income Fund 8
Biltmore Short-Term Fixed Income Fund 8
Additional Acceptable Investments 8
- ----------------------------------------------------------
THE BILTMORE MUNICIPAL FUNDS 8
Biltmore Georgia Municipal Bond Fund 8
Biltmore North Carolina Municipal Bond Fund 8
Biltmore South Carolina Municipal Bond Fund 9
Acceptable Investments 9
State Municipal Securities 9
- ----------------------------------------------------------
PORTFOLIO INVESTMENTS AND STRATEGIES 9
Investment Considerations 9
Equity Investments 9
Securities of Foreign Issuers 10
Securities in Emerging Markets 10
Investments in Debt Obligations 11
Investments in Lower-Rated Debt Obligations 11
Municipal Security Investments 11
Investment Processes 11
Quantitative Equity Fund 11
Equity Index Fund 12
S&P 500 Index 12
Emerging Markets Fund 13
Fixed Income Funds 13
Portfolio Investments 13
Corporate Debt Obligations 13
Fixed Rate Corporate Debt Obligations 13
Floating Rate Corporate Debt Obligations 14
Convertible Securities 14
Put and Call Options 14
Stock Index Futures and Options 15
Forward Foreign Currency Exchange
Contracts 15
Index Participation Contracts 15
Mortgage-Backed Securities 16
Adjustable Rate Mortgage Securities 16
Collateralized Mortgage Obligations 16
Real Estate Mortgage Investment Conduits 16
Stripped Mortgage-Backed Securities 16
Asset-Backed Securities 17
U.S. Government Obligations 17
Demand Master Notes 18
Temporary Investments 18
Restricted and Illiquid Securities 18
Repurchase Agreements 18
Demand Features 18
When-Issued and Delayed Delivery
Transactions 19
Lending of Portfolio Securities 19
Investing in Securities of Other Investment
Companies 19
Ratings 19
Municipal Leases 19
Participation Interests 19
Variable Rate Municipal Securities 19
Municipal Bond Insurance 19
Non-Diversification 20
Duration 20
- ----------------------------------------------------------
INVESTMENT LIMITATIONS 20
Borrowing Money 20
Diversification 20
- ----------------------------------------------------------
TRUST INFORMATION 21
Management of the Trusts 21
Board of Trustees 21
Investment Advisers 21
Sub-Adviser 21
Advisory Fees 21
Advisers' Background 21
Distribution of Shares 23
Administrative Arrangements 23
Administration of the Funds 23
Expenses of the Funds and Class Y Shares 23
Brokerage Transactions 24
- ----------------------------------------------------------
NET ASSET VALUE 24
- ----------------------------------------------------------
INVESTING IN THE FUNDS 24
Share Purchases 24
Minimum Investment Required 24
Systematic Investment Program 24
Certificates and Confirmations 24
Subaccounting Services 25
Dividends and Capital Gains 25
- ----------------------------------------------------------
EXCHANGE PRIVILEGE 25
Exchange by Telephone 25
- ----------------------------------------------------------
REDEEMING SHARES 25
By Telephone 26
By Mail 26
Signatures 26
Systematic Withdrawal Program 26
Accounts with Low Balances 26

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS (CONT'D)

- ----------------------------------------------------------
SHAREHOLDER INFORMATION 26
Voting Rights 26
- ----------------------------------------------------------
EFFECT OF BANKING LAWS 27
- ----------------------------------------------------------
TAX INFORMATION 27
- ----------------------------------------------------------
THE BILTMORE MUNICIPAL FUNDS TAX INFORMATION 27
Federal Income Taxes 27
Georgia and North Carolina Taxes 28
South Carolina Taxes 28
Other State and Local Taxes 28

- ----------------------------------------------------------
OTHER CLASSES OF SHARES 28
- ----------------------------------------------------------
PERFORMANCE INFORMATION 29
- ----------------------------------------------------------
ADDRESSES BACK COVER

- ---------------------------------------------------------
- ---------------------------------------------------------
SUMMARY OF INVESTMENT
INFORMATION

WHO MAY WANT TO INVEST IN THE BILTMORE FUNDS AND THE BILTMORE MUNICIPAL FUNDS?

BILTMORE EQUITY FUND ("EQUITY FUND")--seeks to produce growth of principal and
income;

BILTMORE QUANTITATIVE EQUITY FUND ("QUANTITATIVE EQUITY FUND")--seeks to
provide growth of principal and income;
BILTMORE EQUITY INDEX FUND ("EQUITY INDEX FUND")-- seeks 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" or "Index");

BILTMORE SPECIAL VALUES FUND ("SPECIAL VALUES FUND")-- seeks to produce growth
of principal;

BILTMORE EMERGING MARKETS FUND ("EMERGING MARKETS FUND")--seeks to produce
long-term capital appreciation;

BILTMORE BALANCED FUND ("BALANCED FUND")--seeks to provide long-term growth of
principal and current income;

BILTMORE FIXED INCOME FUND ("FIXED INCOME FUND")-- seeks a high level of total
return;

BILTMORE SHORT-TERM FIXED INCOME FUND ("SHORT-TERM FIXED INCOME FUND")--seeks
to produce a high level of current income;

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

SUMMARY OF FUND EXPENSES

THE BILTMORE FUNDS

THE BILTMORE MUNICIPAL FUNDS
CLASS Y SHARES

SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
QUANTITATIVE EQUITY SPECIAL
EQUITY EQUITY INDEX VALUES
FUND FUND FUND FUND
----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None None None None
Maximum Sales Charge on Reinvested Dividends
(as a percentage of offering price) None None None None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None None None None
Redemption Fees (as a percentage of amount redeemed, if applicable) None None None None
Exchange Fee None None None None

<CAPTION>
EMERGING
MARKETS BALANCED
FUND FUND
----- -----
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None None
Maximum Sales Charge on Reinvested Dividends
(as a percentage of offering price) None None
Contingent Deferred Sales Charge (as a percentage of origin
price or redemption proceeds, as applicable) None None
Redemption Fees (as a percentage of amount redeemed, if app None None
Exchange Fee None None
</TABLE>

ANNUAL CLASS Y SHARES OPERATING EXPENSES
(As a percentage of projected average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fee (after waiver, if applicable) (1) 0.60% 0.59% 0.25% 0.72%
12b-1 Fees None None None None
Other Expenses (after reimbursement, if applicable)(2) 0.30% 0.28% 0.23% 0.43%
Total Class Y Shares Operating Expenses
(after waivers if applicable) (3) 0.90% 0.87% 0.48% 1.15%

<CAPTION>
<S> <C> <C>
Management Fee (after waiver, if applicable) (1) 1.00% 0.53%
12b-1 Fees None None
Other Expenses (after reimbursement, if applicable)(2) 0.60% 0.23%
Total Class Y Shares Operating Expenses
(after waivers if applicable) (3) 1.60% 0.76%
</TABLE>

SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
FIXED SHORT-TERM GEORGIA NORTH CAROLINA
INCOME FIXED-INCOME MUNI BOND MUNI BOND
FUND FUND FUND FUND
--------- ----- ----- -----
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None None None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None None None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None None None None
Redemption Fees (as a percentage of amount redeemed, if
applicable) None None None None
Exchange Fee None None None None

<CAPTION>
SOUTH CAROLINA
MUNI BOND
FUND
-----
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of or
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 projected average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fee (after waiver, if applicable) (1) 0.48% 0.32% 0.00% 0.31%
12b-1 Fees None None None None
Other Expenses (after reimbursement, if applicable) (2) 0.26% 0.31% 0.92% 0.54%
Total Class Y Shares Operating Expenses
(after waivers and reimbursement, if applicable) (3) 0.74% 0.63% 0.92% 0.85%

<CAPTION>
<S> <C>
Management Fee (after waiver, if applicable) (1) 0.26%
12b-1 Fees None
Other Expenses (after reimbursement, if applicable) (2) 0.32%
Total Class Y Shares Operating Expenses
(after waivers and reimbursement, if applicable) 0.58%
</TABLE>

(2)
Other expenses are expected to be 1.49% for the GEORGIA MUNICIPAL BOND
FUND, absent an anticipated reimbursement of other operating expenses.

(3)
The Annual Class Y Shares Operating Expenses and the Operating Expenses
absent the voluntary waivers/ reimbursements were 0.90% and 1.09% for the
EQUITY FUND, 0.87% and 0.98% for the QUANTITATIVE EQUITY FUND, 0.48% and
0.54% for the EQUITY INDEX FUND, 1.15% and 1.39% for the SPECIAL VALUES
FUND, 0.63% and 0.76% for the EMERGING MARKETS FUND, 0.76% and 0.92% for
the BALANCED FUND, 0.75% and 0.89% for the FIXED INCOME FUND,

0.64% and 0.83% for the SHORT-TERM FIXED INCOME FUND, 0.89% and 2.46% for
the GEORGIA MUNICIPAL BOND FUND, 0.84% and 1.49% for the NORTH CAROLINA
MUNICIPAL BOND FUND, and 0.57% and 1.11% for the South Carolina Municipal
Bond Fund for the fiscal year ended November 30, 1996. The Annual Class Y
Shares Operating Expenses are expected to be 1.00% for the EQUITY FUND,
0.98% for the QUANTITATIVE EQUITY FUND, 0.53% for the EQUITY INDEX FUND,
1.23% for the SPECIAL VALUES FUND, 0.93% for the BALANCED FUND, 0.86% for
the FIXED INCOME FUND and the SHORT-TERM FIXED INCOME FUND, 2.24% for the
GEORGIA MUNICIPAL BOND FUND, 1.29% for the NORTH CAROLINA MUNICIPAL BOND
FUND, and 1.07% for the SOUTH CAROLINA MUNICIPAL BOND FUND, absent the
voluntary waivers/reimbursement described above in Notes 1 and 2.

EXAMPLE

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's Class Y Shares charge no sales charges or redemption
fees.
<TABLE>
<CAPTION>
QUANTITATIVE EQUITY SPECIAL EMERGING
EQUITY EQUITY INDEX VALUES MARKETS BALANCED
FUND FUND FUND FUND FUND FUND
--- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 9 $ 9 $ 5 $ 12 $ 16 $ 8
3 Years $ 29 $ 28 $ 15 $ 37 $ 51 $ 24
</TABLE>

<TABLE>
<CAPTION>
SHORT-TERM GEORGIA NORTH CAROLINA SOUTH CAROLINA
FIXED INCOME FIXED-INCOME MUNI BOND MUNI BOND MUNI BOND
FUND FUND FUND FUND FUND
--- --- --- --- ---
<S> <C> <C> <C> <C> <C>
1 Year $ 8 $ 6 $ 9 $ 9 $ 6
3 Years $ 24 $ 20 $ 29 $ 27 $ 19
</TABLE>

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

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

THE BILTMORE FUNDS AND THE BILTMORE MUNICIPAL FUNDS

FINANCIAL HIGHLIGHTS--CLASS Y SHARES

(For a Class Y Share outstanding throughout each period)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 17, 1997, on the Fund's
financial statements for the year ended November 30, 1996, and on the following
table for the periods presented, is included in the Fund's Annual Report to
shareholders dated November 30, 1996, 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>
NET REALIZED AND
UNREALIZED GAIN/
(LOSS) ON
NET ASSET INVESTMENTS, FUTURES DISTRIBUTIONS
VALUE, NET CONTRACTS, AND TOTAL FROM FROM NET
PERIOD ENDED BEGINNING INVESTMENT FOREIGN CURRENCY INVESTMENT INVESTMENT NET ASSET VALUE,
NOVEMBER 30, OF PERIOD INCOME TRANSACTIONS OPERATIONS INCOME END OF PERIOD
- ------------------------------------------------------------------------------------------------------------------
BILTMORE EQUITY FUND
<S> <C> <C> <C> <C> <C> <C>
1996(a) $ 12.43 0.03 2.40 2.43 (0.05) $ 14.81
<CAPTION>
BILTMORE QUANTITATIVE EQUITY FUND
<S> <C> <C> <C> <C> <C> <C>
1996(a) $ 13.09 0.04 2.60 2.64 (0.06) $ 15.67
<CAPTION>
BILTMORE EQUITY INDEX FUND
<S> <C> <C> <C> <C> <C> <C>
1996(a) $ 13.37 0.09(d) 2.60 2.69 (0.08) $ 15.98
<CAPTION>
BILTMORE SPECIAL VALUES FUND
<S> <C> <C> <C> <C> <C> <C>
1996(a) $ 13.62 0.03 2.02 2.05 -- $ 15.67
<CAPTION>
BILTMORE EMERGING MARKETS FUND
<S> <C> <C> <C> <C> <C> <C>
1996(a) $ 11.92 0.01(d) (0.26) (0.25) -- $ 11.67
<CAPTION>
BILTMORE BALANCED FUND
<S> <C> <C> <C> <C> <C> <C>
1996(a) $ 11.68 0.08 1.63 1.71 (0.09) $ 13.30
<CAPTION>
BILTMORE FIXED INCOME FUND
<S> <C> <C> <C> <C> <C> <C>
1996(a) $ 9.45 0.17 0.40 0.57 (0.19) $ 9.83
<CAPTION>
BILTMORE SHORT-TERM FIXED INCOME FUND
<S> <C> <C> <C> <C> <C> <C>
1996(a) $ 9.67 0.11(d) 0.18 0.29 (0.17) $ 9.79
<CAPTION>
BILTMORE GEORGIA MUNICIPAL BOND FUND
<S> <C> <C> <C> <C> <C> <C>
1996(a) $ 10.71 0.17 0.29 0.46 (0.17) $ 11.00
<CAPTION>
BILTMORE NORTH CAROLINA MUNICIPAL BOND FUND
<S> <C> <C> <C> <C> <C> <C>
1996(a) $ 10.71 0.16 0.32 0.48 (0.16) $ 11.03
<CAPTION>
BILTMORE SOUTH CAROLINA MUNICIPAL BOND FUND
<S> <C> <C> <C> <C> <C> <C>
1996(a) $ 10.73 0.20 0.32 0.52 (0.20) $ 11.05
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from July 22, 1996 (date of initial
public investment) to November 30, 1996.

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

(d) Per share information is based on average shares outstanding.

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended November 30, 1996, 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. (For purposes of this prospectus,
"THE BILTMORE FUNDS" refers only to those portfolios of the Trust that are
included in this combined prospectus.) THE BILTMORE MUNICIPAL FUNDS was
established as a Massachusetts business trust under a Declaration of Trust dated
August 15, 1990. Each Declaration of Trust permits the respective Trust to offer
separate series of shares of beneficial interest representing interests in
separate portfolios of securities. As of the date of this prospectus, the Trusts
offer three classes of shares: Class A Shares, Class Y Shares, and for the
Equity Fund, the Quantitative Equity Fund, the Balanced Fund and the Fixed
Income Fund, Class B Shares. Class Y Shares are offered to certain accounts held
by Wachovia Bank of Georgia, N.A., Wachovia Bank of North Carolina, N.A., and
Wachovia Bank of South Carolina, N.A. (collectively, "Wachovia Banks") and their
affiliates in a fiduciary, advisory, agency, custodial, or similar capacity.
Class A Shares and Class B Shares are sold to those customers as well as other
individuals and customers of the Wachovia Banks. This prospectus relates only to
Class Y Shares ("Shares") of the Funds.

Unless indicated otherwise, the investment policies of a Fund may be changed by
the Trustees without shareholder approval. However, shareholders will be
notified before any material change in these policies becomes effective.
For additional information about investment limitations, strategies, and certain
investment policies, please refer to the "Portfolio Investments and Strategies"
section of this prospectus.

- ---------------------------------------------------------
- ---------------------------------------------------------
THE BILTMORE FUNDS

BILTMORE EQUITY FUND
The investment objective of the EQUITY FUND is to produce growth of principal
and income. 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. The Fund's
investment adviser 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") or Standard & Poor's Ratings Group ("S&P").

BILTMORE EQUITY INDEX FUND
The investment objective of the EQUITY INDEX FUND is to provide a total return
that approximates that of the stock market as measured by the S&P 500 Index. The
Fund pursues its investment objective by investing in a broadly diversified
portfolio of common stocks that make up the Index. The Fund will normally seek
to be invested in all the stocks that comprise the Index and achieve a
correlation between the performance of its portfolio and that of
the Index of at least 0.95 of 1%; a figure of 1.00 would represent perfect
correlation. 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. Under normal circumstances, at least 95% of the value of the Fund's total
assets will be invested in stocks represented in the Index and S&P 500 Index
futures contracts. However, the Fund is not required to sell securities if the
95% investment level changes due to increases or decreases in the market value
of portfolio securities.

In addition, the Fund may hold cash reserves which may be invested in, but not
limited to, the following:

commercial paper rated, at the time of purchase, at least Prime-1 or A-1 by
Moody's or S&P or, if unrated, of comparable quality as determined by the
Fund's investment adviser;

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

BILTMORE SPECIAL VALUES FUND

Acceptable investments 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.

In addition, the Fund may invest in high yield corporate bonds (commonly known
as junk bonds) and speculative grade preferred stocks.

BILTMORE EMERGING MARKETS FUND
The investment objective of the EMERGING MARKETS FUND is to produce long-term
capital appreciation. 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 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. 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. Because investing in emerging markets can involve
significant risks, the Fund is designed for aggressive investors. 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
foreign companies located in emerging market countries, the Fund may also invest
in other securities, including debt securities.

Acceptable investments may also include, but will not be limited to:

preferred stocks of foreign companies;
convertible securities and warrants of foreign companies;

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; and
U.S. equity and debt securities rated, at the time of purchase, B or better by
Moody's or S&P.

In addition, the Fund may enter into foreign currency transactions and may
maintain reserves in foreign or U.S. money market instruments.

BILTMORE BALANCED FUND
The investment objective of the BALANCED FUND is to provide long-term growth of
principal and current income. The Fund pursues its investment objective by
investing primarily in a professionally-managed, diversified portfolio of equity
securities and debt securities. 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 will seek
undervalued stocks with improving prospects in an attempt 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. 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 50-70%
in common stocks and convertible securities, 30-50% in preferred stocks and
bonds, and 0-20% in money market instruments. The Fund will maintain at least
25% of its assets in fixed income senior securities (including the value of
convertible senior securities attributable to their fixed income
characteristics).

Acceptable investments include but are not limited to:

convertible securities;

mortgage-backed and asset-backed securities;

commercial paper rated not less than A-1 by S&P or Prime-1 by Moody's 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.

BILTMORE FIXED INCOME FUND

Acceptable investments include:

convertible securities;
mortgage-backed and asset-backed securities;

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

BILTMORE SHORT-TERM FIXED INCOME FUND

- ---------------------------------------------------------
- ---------------------------------------------------------
THE BILTMORE MUNICIPAL FUNDS

imposed by the State of North Carolina. As a matter of investment policy which
may not be changed without shareholder approval, the Fund will invest its assets
so that, under normal circumstances, at least 80% of its total assets are
invested in obligations, the interest income from which is exempt from federal
regular income tax and the income tax imposed by the State of North Carolina
("North Carolina Municipal Securities").

The Funds' investment advisers may consider the potential for capital
appreciation in the selection of portfolio investments for each of THE BILTMORE
MUNICIPAL FUNDS.

obligations, including industrial development bonds, issued on behalf of the
states of Georgia, North Carolina, and South Carolina, respectively, and their
respective political subdivisions or agencies;
obligations issued by or on behalf of any state, territory or possession of the
United States, including the District of Columbia, or any political subdivision
or agency of any of these; and
participation interests, as described below, in any of the above obligations,
the interest from which is, in the opinion of bond counsel for the issuers or
in the opinion of officers of the Trust and/or the investment advisers to the
Funds, exempt from both federal regular income tax and the personal income tax
imposed by the states of Georgia, North Carolina, and South Carolina,
respectively. It is likely that shareholders who are subject to alternative
minimum tax will be required to include interest from a portion of the
municipal securities owned by the Fund in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.

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. However, interest on and principal of revenue bonds are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue.

Characteristics. State Municipal Securities are subject to one or more of the
following quality standards:

rated A or above by Moody's or S&P at time of purchase;

insured by a municipal bond insurance company which is rated AAA by S&P or Aaa
by Moody's;
secured by an irrevocable escrow of direct obligations of the U.S. government;
or

unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Fund's investment adviser.

(A description of the rating categories is contained in the Appendix to the
Funds' Statement of Additional Information).

- ---------------------------------------------------------
- ---------------------------------------------------------
PORTFOLIO INVESTMENTS
AND STRATEGIES

INVESTMENT CONSIDERATIONS

Equity Investments. As with other mutual funds that invest in equity securities,
the EQUITY FUND, QUANTITATIVE EQUITY FUND, EQUITY INDEX FUND, SPECIAL VALUES
FUND and BALANCED FUND are 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.
Because the SPECIAL VALUES 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 S&P 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 S&P 500 Index.

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 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 EMERGING
MARKETS FUND may encounter difficulties or be unable to pursue legal remedies
and obtain judgments in foreign courts.
Because the EMERGING MARKETS 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 investment adviser's ability to predict movements in
exchange rates, and imperfect movements between exchange rates and currency
hedges.

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.

Municipal Security Investments. Yields on State Municipal Securities depend on a
variety of factors, including: the general conditions of the municipal bond
market; the size of the particular offering; the maturity of the obligations;
and the rating of the issue. Further, any adverse economic conditions or
developments affecting the respective state or its municipalities could impact a
Fund's portfolio. A municipal bond fund's concentration in securities issued by
a specific state and its political subdivisions provides a greater level of risk
than a fund which is diversified across numerous states and municipal entities.
A state's dependence on agriculture, manufacturing, tourism, and service
industries leaves it vulnerable to both the business cycle and long term
national economic trends.

(Please refer to the Funds' Statement of Additional Information for an expanded
discussion of Georgia, North Carolina, or South Carolina investment risks, as
appropriate.)

INVESTMENT PROCESSES

Quantitative Equity Fund. To select stocks for the QUANTITATIVE EQUITY 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 Exchange 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.

S&P 500 Index. The S&P 500 Index consists of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. S&P designates the
stocks to be included in the Index on a statistical basis. A particular
stock's weighting in the Index is based on its relative total market value;
that is, its market price per share times the number of shares outstanding.
From time to time, S&P may add or delete stocks from the Index. The
QUANTITATIVE EQUITY and EQUITY INDEX FUNDS utilize the 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 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
QUANTITATIVE EQUITY and EQUITY INDEX FUNDS incur the normal costs of a
mutual fund, including brokerage and execution costs, advisory fees, and
administrative and custodial costs and expenses. 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 Funds are not
sponsored, endorsed, sold or promoted by, or affiliated with, S&P.

PORTFOLIO INVESTMENTS

redemption price or a fixed income security approaching maturity, where the
expectation of call or redemption is high.

Put And Call Options. The Funds (except THE BILTMORE MUNICIPAL FUNDS) may
purchase put options on their portfolio securities. These options will be used
only as a hedge to attempt to protect securities which a Fund holds against
decreases in value. A 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. A 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 a Fund writes and sells must be
listed on a recognized options exchange. The writing of calls by a Fund is
intended to generate income for a Fund and thereby protect against
price movements in particular securities in a Fund's portfolio.

Index Participation Contracts. The EQUITY INDEX FUND may 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 Index, where each stock is represented in the same proportion as it is
represented in the 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 Index. Generally, the value of
an Index participation contract will rise and fall as the value of the 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.

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.

Stripped Mortgage-Backed Securities. Some of the mortgage-related securities
purchased by the BALANCED FUND, FIXED INCOME FUND, and SHORT-TERM FIXED INCOME
FUND may represent an interest solely in the principal repayments or solely in
the interest payments on mortgage-backed securities (stripped mortgage-backed
securities or "SMBSs"). SMBSs are derivative multi-class securities. SMBSs are
usually structured with two classes and receive different proportions of the
interest and principal distributions on the pool of underlying mortgage-backed
securities. Due to the possibility of prepayments on the underlying mortgages,
SMBSs may be more interest-rate sensitive than other securities purchased by a
Fund. If prevailing interest rates fall below the level at which SMBSs were
issued, there may be substantial prepayments on the underlying mortgages,
leading to the relatively early prepayments of principal-only SMBSs
(principal-only or "PO" class) and a reduction in the amount of payments made to
holders of interest-only SMBSs (the interest-only or "IO" class). Therefore,
interest-only SMBSs generally increase in value as interest rates rise and
decrease in value as interest rates fall, counter to
changes in value experienced by most fixed income securities. If the underlying
mortgages experience slower than anticipated prepayments of principal, the yield
on a PO class will be affected more severely than would be the case with a
traditional mortgage-related security. Because the yield to maturity of an IO
class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage-backed securities, it is
possible that the Fund might not recover its original investment on
interest-only SMBSs if there are substantial prepayments on the underlying
mortgages. A Fund's inability to fully recoup its investment in these securities
as a result if a rapid rate of principal prepayments may occur even if the
securities are rated AAA by an NRSRO. In view of these considerations, the
investment adviser intends to use these characteristics of interest-only SMBSs
to reduce the effects of interest rate changes on the value of the Fund's
portfolio, while continuing to pursue current income.

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; Fannie Mae,
Government National Mortgage Association; and

Student Loan Marketing Association.

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.

Some of the short-term U.S. government securities the Funds may purchase carry
variable interest rates. These

securities have a rate of interest subject to adjustment at least annually. This
adjusted rate is ordinarily tied to some objective standard, such as the 91-day
U.S. Treasury bill rate.

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 as
determined by the Funds' investment adviser.

from the underlying security. A Fund uses these arrangements to provide a Fund
with liquidity and not to protect against changes in the market value of the
underlying securities. The bankruptcy, receivership or default by the issuer of
the demand feature, or a default on the underlying security or other event that
terminates the demand feature before its exercise, will adversely affect the
liquidity of the underlying security. Demand features that are exercisable even
after a payment default on the underlying security may be treated as a form of
credit enhancement.

Lending Of Portfolio Securities. In order to generate additional income, each
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
Funds will only enter into loan arrangements with broker/dealers, banks or other
institutions which a Fund's investment adviser has determined are creditworthy
under guidelines established by the Trustees and in which a Fund will receive
collateral equal to at least 100% of the value of the securities loaned.There is
a risk that when lending portfolio securities, the securities may not be
available to a Fund in a timely basis and a 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.

MUNICIPAL BOND INSURANCE

The GEORGIA MUNICIPAL BOND FUND, NORTH CAROLINA MUNICIPAL BOND FUND, and SOUTH
CAROLINA MUNICIPAL BOND FUND may purchase municipal securities covered by
insurance which guarantees the timely payment of principal at maturity and
interest on such securities. These insured
municipal securities are either (1) covered by an insurance policy applicable to
a particular security, whether obtained by the issuer of the security or by a
third party ("Issuer-Obtained Insurance") or (2) insured under master insurance
policies issued by municipal bond insurers, which may be purchased by a Fund
(the "Policy" or "Policies").

THE BILTMORE MUNICIPAL FUNDS will require or obtain municipal bond insurance
when purchasing municipal securities which would not otherwise meet a Fund's
quality standards. A Fund may also require or obtain municipal bond insurance
when purchasing or holding specific municipal securities when, in the opinion of
the Fund's investment adviser, such insurance would benefit the Fund (for
example, through improvement of portfolio quality or increased liquidity of
certain securities). The Georgia Municipal Bond Fund's and South Carolina
Municipal Bond Fund's investment advisers anticipate that between 30% and 60% of
each Fund's net assets will be invested in municipal securities which are
insured. The North Carolina Municipal Bond Fund's investment adviser anticipates
that between 10% and 50% of the Fund's net assets will be invested in municipal
securities which are insured.
Issuer-Obtained Insurance policies are noncancellable and continue in force as
long as the municipal securities are outstanding and their respective insurers
remain in business. If a municipal security is covered by Issuer-Obtained
Insurance, then such security need not be insured by the Policies purchased by a
Fund. (Please refer to the Fund's Statement of Additional Information for more
information.)

NON-DIVERSIFICATION

THE BILTMORE MUNICIPAL FUNDS is comprised of three non-diversified Funds. As
such, there is no limit on the percentage of assets which can be invested by a
Fund in any single issuer. An investment in a Fund, therefore, will entail
greater risk than would exist in a diversified investment company because the
higher percentage of investments among fewer issuers may result in greater
fluctuation in the total market value of a Fund's portfolio. Any economic,
political, or regulatory developments affecting the value of the securities in a
Fund's portfolio will have a greater impact on the total value of the portfolio
than would be the case if the portfolio were diversified among more issuers. A
Fund may purchase an issue of municipal securities in its entirety.

The Funds intend to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year, the
aggregate value of all investments in any one issuer (except U.S. government
obligations, cash, and cash items) which exceed 5% of a Fund's total assets
shall not exceed 50% of the value of its total assets.

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INVESTMENT LIMITATIONS

BORROWING MONEY

In addition to the above limitations, The SOUTH CAROLINA MUNICIPAL BOND FUND
will not:
invest more than 5% of its total assets in industrial development bonds when
the payment of principal and interest is the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor; or

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TRUST INFORMATION

MANAGEMENT OF THE TRUSTS

Board Of Trustees. The Trustees are responsible for managing the business
affairs of the Trusts and for exercising the Trusts' powers except those
reserved for the shareholders.

Advisory Fees. The Advisers are entitled to receive annual investment advisory
fees equal to a percentage of each Fund's average daily net assets as follows:
0.30 of 1% of EQUITY INDEX FUND; 0.55 of 1% of SHORT-TERM FIXED INCOME FUND;
0.60 of 1% of FIXED INCOME FUND; 0.70 of 1% of EQUITY FUND, QUANTITATIVE EQUITY
FUND, and BALANCED FUND; 0.75 of 1% of GEORGIA MUNICIPAL BOND FUND, NORTH
CAROLINA MUNICIPAL BOND FUND, and SOUTH CAROLINA MUNICIPAL BOND FUND; 0.80 of 1%
of SPECIAL VALUES FUND; and 1.00% of EMERGING MARKETS FUND. These fees are
accrued daily and paid monthly. The fees paid by THE BILTMORE MUNICIPAL FUNDS,
SPECIAL VALUES FUND and EMERGING MARKETS FUND, while higher than the advisory
fees paid by other mutual funds in general, are comparable to fees paid by other
mutual funds with similar policies and objectives. The Advisers may voluntarily
choose to waive a portion of their fees or reimburse a Fund for certain expenses
but reserve the right to terminate such waiver or reimbursement at any time at
their sole discretion.

Michael Peters is the portfolio manager of THE BILTMORE MUNICIPAL FUNDS. Mr.
Peters has been portfolio manager of SOUTH CAROLINA MUNICIPAL BOND FUND since
1993. Mr. Peters has been portfolio manager of GEORGIA MUNICIPAL BOND FUND and
NORTH CAROLINA MUNICIPAL BOND FUND since those Funds' inceptions in December
1994. Mr. Peters is a Vice President of Wachovia Bank of South Carolina N.A.,
Wachovia Bank of North Carolina, N.A. and
Wachovia Bank of Georgia, N.A. Mr. Peters was employed with Nations Bank from
1990 to 1993. Mr. Peters received his MBA from Indiana University and is a
Chartered Financial Analyst.

DISTRIBUTION OF SHARES

Federated Securities Corp., Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779 is the distributor for 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.

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 to the Funds.
This fee, if paid, will be reimbursed by the Adviser or their affiliates, not
the Funds.

ADMINISTRATION OF THE FUNDS

Federated Administrative Services, Pittsburgh, Pennsylvania, also provides the
Funds with the administrative personnel and services necessary to operate the
Funds. Such services include legal, accounting 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 AND THE BILTMORE MUNICIPAL
FEE 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
on assets in excess of $750
.075 of 1% million
</TABLE>

EXPENSES OF THE FUNDS AND CLASS Y SHARES

Holders of Shares pay their allocable portion of Trust and respective Fund
expenses. The Trust expenses for which holders of Shares pay their allocable
portion include, but are not limited to: the cost of organizing the Trust and
continuing its existence; the cost of registering the Trust; Trustees' fees;
auditors' fees; the cost of meetings of Trustees; legal fees of the Trust;
association membership dues and such non-recurring and extraordinary items as
may arise.

("Class Expenses"). These Class Expenses would be limited to: transfer agent
fees as identified by the transfer agent as attributable to holders of shares;
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders of
a Class; registration fees paid to the Securities and Exchange Commission and to
state securities commissions for Shares of a Class; expenses related to
administrative personnel and services as required to support holders of Shares
of a Class; legal fees relating solely to a Class; and Trustees fees incurred as
a result of issues relating solely to a Class.

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NET ASSET VALUE

The net asset value of Class Y Shares of a Fund may differ slightly from that of
Class A Shares and Class B Shares of the same Fund due to the variability in
daily net income resulting from different distribution charges and shareholder
services fees. The net asset value for each Fund will fluctuate for all three
classes.
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 a
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.

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INVESTING IN THE FUNDS

SHARE PURCHASES
Fund Shares are sold on days on which Wachovia Banks, 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. All purchase
orders must be transmitted to a Fund by 5:00 p.m. (Eastern time) and will be
purchased at the public offering price next determined after a Fund receives the
purchase request. 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. Each Fund and the distributor reserve the right to
reject any purchase request.

Trust customers of the Wachovia Banks may purchase Shares of a 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.

MINIMUM INVESTMENT REQUIRED
There are no sales charges imposed on Class Y Shares of the Funds. Minimum
initial investments on Class Y Shares may be waived from time to time for
purchases by Trust Divisions of the Wachovia Banks for their fiduciary or
custodial accounts. An institutional investor's minimum investment will be
calculated by combining all accounts it maintains with the Funds. The minimum
initial investment in THE BILTMORE FUNDS is $250, and $500 for THE BILTMORE
MUNICIPAL FUNDS. Subsequent investments in THE BILTMORE FUNDS must be in amounts
of at least $50, and for THE BILTMORE MUNICIPAL FUNDS, subsequent investments
must be in amounts of at least $100.

SYSTEMATIC INVESTMENT PROGRAM

CERTIFICATES AND CONFIRMATIONS

As the transfer agent, Federated Shareholder Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
requested in writing to a 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 for THE BILTMORE FUNDS, and monthly confirmations are sent to
report dividends paid during that month for THE BILTMORE MUNICIPAL FUNDS.

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 a 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 AND CAPITAL GAINS

Dividends are declared and paid quarterly to shareholders invested in the EQUITY
FUND, the QUANTITATIVE EQUITY FUND, the EQUITY INDEX FUND and the BALANCED FUND
on the record date. Dividends are declared and paid monthly to all shareholders
invested in the FIXED INCOME FUND and the SHORT-TERM FIXED INCOME FUND on the
record date. Dividends are declared daily and paid monthly to all shareholders
invested in THE BILTMORE MUNICIPAL FUNDS on the record date. Dividends are
declared and paid annually to all shareholders of the EMERGING MARKETS FUND and
SPECIAL VALUES FUND on the record date. Unless shareholders request cash
payments by writing to a Fund, dividends are automatically reinvested in
additional Shares of a Fund on the payment dates at the ex-dividend date net
asset value without a sales charge.
Dividends are declared just prior to determining net asset value. If an order
for Shares is placed on the preceding business day, Shares purchased by wire
begin earning dividends on the business day wire payment is received by the
Custodian. If the order for Shares and payment by wire are received on the same
day, Shares begin earning dividends on the next business day. Shares purchased
by check begin earning dividends on the business day after the check is
converted into federal funds.

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

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EXCHANGE PRIVILEGE

Shareholders of the Funds have easy access to the other Funds comprising the
Trusts through a telephone exchange program. Class Y Shares of a Fund may be
exchanged for Class Y Shares of another Fund at net asset value. The exchange
privilege is available to shareholders residing in any state in which the Shares
being acquired may be legally sold. Prior to any exchange, a shareholder should
review a copy of the current prospectus of the 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 Fund
may vary.

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REDEEMING SHARES

By Telephone. A shareholder may redeem Shares of a Fund by contacting their
trust officer or calling the Biltmore Service Center (call toll-free
1-800-994-4414) to request the redemption. Redemption requests made through the
Wachovia Banks must be received before 3:30 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 Funds. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by a Fund, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.

Normally, a check for the proceeds is mailed within three business days, but 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 or brokerage account numbers, 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 a Fund. Shareholders should call the Wachovia Banks or the
Biltmore Service Center 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 Exchange;
a savings bank or savings association whose deposits are insured by the SAIF;
or

any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Funds do not accept signatures guaranteed by a notary public.
The Funds and the Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. A Fund may elect in the future to limit
eligible signature guarantors to institutions that are members of a signature
guarantee program. The Funds and the Transfer Agent reserve the right to amend
these standards at any time without notice.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders having an account value of at least $10,000 and 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 a minimum of $100 as directed by the
shareholder. Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions, and the fluctuation of net asset
value of shares redeemed under this program, redemptions may reduce, and
eventually deplete, the shareholder's investment in a Fund. For this reason,
payments under this program should not be considered as yield or income on the
shareholder's investment in a Fund. A shareholder may apply for participation in
this program through his financial institution.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, each Fund may
redeem Shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $250 for THE BILTMORE FUNDS and $500 for THE BILTMORE MUNICIPAL FUNDS.
This requirement does not apply, however, if the balance falls below the
required minimum because of changes in a 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 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 a Trust have equal voting rights, except that in matters affecting
only a particular Fund or class, only shares of that Fund or class are entitled
to vote.

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

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EFFECT OF BANKING LAWS

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings 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 Funds expect to pay no federal income tax because each intends to continue
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 of THE BILTMORE FUNDS are subject to
federal income tax on any dividends and other distributions, including capital
gain distributions, received. This applies whether dividends and other
distributions are received in cash or as additional shares. The Funds will
provide shareholders with tax information for reporting purposes. Distributions
representing long-term capital gains, if any, will be taxable to a Funds net
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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THE BILTMORE MUNICIPAL FUNDS TAX INFORMATION

FEDERAL INCOME TAX

Interest on certain "private activity" bonds issued after August 7, 1986, is a
tax preference item for both individuals and corporations. Unlike traditional
governmental purpose municipal bonds, which finance roads, schools, libraries,
prisons, and other public facilities, private activity bonds provide benefits to
private parties. A Fund may purchase all types of municipal bonds, including
private activity bonds. If a Fund purchases any such
bonds, a portion of its dividends may be treated as a tax preference item.

Shareholders should consult with their tax advisers to determine whether they
are subject to the alternative minimum tax and, if so, the tax treatment of
dividends paid by a Fund.

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and other
distributions is provided annually.

GEORGIA AND NORTH CAROLINA TAXES

To the extent that Fund dividends are attributable to other sources, such
dividends will be subject to the relevant state's income taxes.

For purposes of the Georgia intangibles tax, shareholders of the GEORGIA
MUNICIPAL BOND FUND may exclude from the share value of the Fund that portion of
the total share value which is attributable to the value of United States
obligations held in the Fund. To the extent that the Fund is comprised of other
types of obligations, shares of the Fund will be taxable at the rate of 10 cents
per $1,000 in value of the shares held on January 1 of each year.

SOUTH CAROLINA TAXES
Under current South Carolina law, shareholders of the SOUTH CAROLINA MUNICIPAL
BOND FUND who are subject to South Carolina individual or corporate income taxes
will not be subject to such taxes on Fund dividends to the extent that such
dividends qualify as either (1) exempt-interest dividends under the Internal
Revenue Code, which are derived from interest on obligations of the state of
South Carolina or any of its political subdivisions; (2) dividends derived from
interest on certain obligations of the United States; and (3) dividends derived
from interest on obligations of any agency or instrumentality of the United
States that is prohibited by federal law from being taxed by a state or any
political subdivision of a state. To the extent that Fund dividends are
attributable to other sources, such dividends will be subject to South Carolina
taxes.

OTHER STATE AND LOCAL TAXES

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OTHER CLASSES OF SHARES

THE BILTMORE FUNDS and THE BILTMORE MUNICIPAL FUNDS offer three classes of
shares: Class Y Shares for institutional investors, and Class A Shares and Class
B Shares of the Equity Fund, the Quantitative Equity Fund, the Balanced Fund,
and the Fixed Income Fund for institutional investors, individuals and other
customers of the Wachovia Banks.

Class A Shares and Class B Shares are sold at net asset value plus a sales
charge which, at the election of the purchaser, may be imposed either (i) at the
time of purchase (the Class A Shares), or (ii) on a contingent deferred basis
(the Class B Shares). Class B Shares are distributed pursuant to Rule 12b-1
Plans adopted by the Trusts, whereby the distributor is paid a fee of 0.75 of 1%
of Class B Shares' average daily net asset value. In addition, Class A Shares
and Class B Shares pay a shareholder services fee of 0.25% of the respective
class' average daily net assets.

Class A Shares of a Fund may be purchased at net asset value, without a sales
charge, by certain investors described in the Class A Shares' prospectus.

The stated advisory fee is the same for all classes of the Funds. Financial
institutions and brokers providing sales

and/or administrative services may receive different compensation with respect
to one class of shares than with respect to another class of shares of the same
Fund.

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PERFORMANCE INFORMATION

From time to time, the Funds advertise their total return, yield, and if
applicable, tax-equivalent yield.

The yield and the tax-equivalent yield do not necessarily reflect income
actually earned by a Fund and, therefore, may not correlate to the dividends or
other distributions paid to shareholders.

Total return and yield will be calculated separately for Class Y Shares, Class A
Shares, and Class B Shares of a Fund. Because Class B Shares are subject to a
Rule 12b-1 fee, and Class A Shares and Class B Shares are subject to a
shareholder services fee, the yield will be lower than that of Class Y Shares.
The sales load applicable to Class A Shares also contributes to a lower total
return for Class A Shares. The performance information reflects the effect of
the maximum sales load which, if excluded, would increase the total return,
yield, and, as applicable, tax-equivalent yield. In addition, Class B Shares are
subject to similar non-recurring charges, such as the contingent deferred sales
charge, which, if excluded, would increase the total return for Class B Shares.

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

Addresses

Biltmore Equity Fund Federated Investors Tower
Biltmore Quantitative Equity Fund Pittsburgh, Pennsylvania 15222-3779
Biltmore Equity Index Fund
Biltmore Special Values Fund
Biltmore Emerging Markets Fund
Biltmore Balanced Fund
Biltmore Fixed Income Fund
Biltmore Short-Term Fixed Income Fund
Biltmore Georgia Municipal Bond Fund
Biltmore North Carolina Municipal Bond Fund
Biltmore South Carolina Municipal Bond Fund

Investment Adviser Wachovia Asset Management
(The Biltmore Funds) 100 North Main Street
(North Carolina Municipal Bond Fund) Winston-Salem, North Carolina 27101
Investment Adviser Wachovia Bank of Georgia, N.A.
(Georgia Municipal Bond Fund) 191 Peachtree Street, N.E.
Atlanta, Georgia 30303

Investment Adviser Wachovia Bank of South Carolina, N.A.
(South Carolina Municipal Bond Fund) 1426 Main Street
Columbia, South Carolina 29226

Counsel to The Biltmore Funds and Kirkpatrick & Lockhart LLP
The Biltmore Municipal Funds 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

The Biltmore Service Center 101 Greystone Boulevard
SC-9215
Columbia, South Carolina 29226

The Biltmore Funds
The Biltmore Municipal Funds

January 31, 1997 G01689-01-IS (1/97)
822-28 (1/97)

THE BILTMORE FUNDS
THE BILTMORE MUNICIPAL FUNDS

CLASS A SHARES
ALL PORTFOLIOS
CLASS Y SHARES
ALL PORTFOLIOS
CLASS B SHARES
BILTMORE EQUITY FUND
BILTMORE QUANTITATIVE EQUITY FUND
BILTMORE BALANCED FUND
BILTMORE FIXED INCOME FUND

STATEMENT OF ADDITIONAL INFORMATION

THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ WITH THE
PROSPECTUSES OF THE BILTMORE FUNDS AND THE BILTMORE MUNICIPAL FUNDS
(INDIVIDUALLY REFERRED TO AS THE "TRUST" OR COLLECTIVELY AS THE
``TRUSTS'), DATED JANUARY 31, 1997. THIS STATEMENT IS NOT A
PROSPECTUS ITSELF. TO RECEIVE A COPY OF THE PROSPECTUSES, CALL THE
BILTMORE SERVICE CENTER TOLL-FREE AT 1-800-994-4414.

Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated January 31, 1997
FEDERATED SECURITIES CORP.
DISTRIBUTOR
A SUBSIDIARY OF FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVES, POLICIES AND
LIMITATIONS 1

Portfolio Turnover 15
Investment Limitations 16
THE BILTMORE FUNDS AND THE BILTMORE
MUNICIPAL FUNDS MANAGEMENT 21

Officers and Trustees 21
Fund Ownership 22
Trustees Compensation 23
Trustee Liability 23
INVESTMENT ADVISORY SERVICES 23

Advisers to the Funds 23
Advisory and Sub-Advisory Fees 24
BROKERAGE TRANSACTIONS 24

OTHER SERVICES 26

Administration 26
Custodian 26
Transfer Agent 26
Legal Services 27
Independent Auditors 27
DISTRIBUTION PLAN (CLASS B SHARES ONLY)
AND
SHAREHOLDER SERVICES PLAN (CLASS A AND
CLASS B SHARES ONLY) 27

PURCHASING FUND SHARES 28

Conversion to Federal Funds 28
Exchanging Securities for Fund Shares
28
DETERMINING NET ASSET VALUE 28

DETERMINING MARKET VALUE OF SECURITIES28

REDEEMING FUND SHARES 29

Redemption in Kind 29
MASSACHUSETTS BUSINESS TRUSTS 29

TAX STATUS 29

The Funds' Tax Status 29
Shareholders' Tax Status 30
Capital Gains 30
TOTAL RETURN 31

YIELD 32

TAX-EQUIVALENT YIELD 33

PERFORMANCE COMPARISONS 36

FINANCIAL STATEMENTS 39

STANDARD & POOR'S CORPORATION 39

APPENDIX 40

GENERAL INFORMATION

The Biltmore Funds was established as a Massachusetts business trust
under a Declaration of Trust dated November 19, 1991. The Biltmore
Municipal Funds was established as a Massachusetts business trust under a
Declaration of Trust dated August 15, 1990. Prior to June 3, 1993, The
Biltmore Municipal Funds was known as `The Passageway Funds.''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. The
following Funds (individually referred to as the `Fund'' or collectively
as the `Funds'') are portfolios of the Trusts:
Shares of Biltmore Equity Fund (``Equity Fund'') are currently offered in
three classes: Class A Shares, Class B Shares, and Class Y Shares.
Shares of Biltmore Quantitative Equity Fund (``Quantitative Equity
Fund') are currently offered in three classes: Class A Shares, Class B
Shares, and Class Y Shares.
Shares of Biltmore Equity Index Fund (``Equity Index Fund'') are
currently offered in two classes: Class A Shares and Class Y Shares.
Shares of Biltmore Special Values Fund (``Special Values Fund'') are
currently offered in two classes: Class A Shares and Class Y Shares.
Shares of Biltmore Emerging Markets Fund (``Emerging Markets Fund'') are
currently offered in two classes: Class A Shares and Class Y Shares.
Shares of Biltmore Balanced Fund (``Balanced Fund'') are currently
offered in three classes: Class A Shares, Class B Shares, and Class Y
Shares.

Shares of Biltmore Fixed Income Fund (``Fixed Income Fund'') are
currently offered in three classes: Class A Shares, Class B Shares, and
Class Y Shares.
Shares of Biltmore Short-Term Fixed Income Fund (``Short-Term Fixed
Income Fund') are currently offered in two classes: Class A Shares and
Class Y Shares.
Shares of Biltmore Georgia Municipal Bond Fund (``Georgia Municipal Bond
Fund') are currently offered in two classes: Class A Shares and Class Y
Shares
Shares of Biltmore North Carolina Municipal Bond Fund (``North Carolina
Municipal Bond Fund') are currently offered in two classes: Class A Shares
and Class Y Shares
Shares of Biltmore South Carolina Municipal Bond Fund (``South Carolina
Municipal Bond Fund') are currently offered in two classes: Class A Shares
and Class Y Shares.
Prior to July 22, 1996, each Fund offered a single class of shares,
which is currently designated as Class A Shares.
INVESTMENT OBJECTIVES, POLICIES, AND LIMITATIONS OF THE FUNDS

The prospectuses discuss the objective of each Fund and the policies
that each Fund employs to achieve its objective. The following discussion
supplements the description of each Fund's investment policies.
Each Fund's respective investment objective cannot be changed without
the approval of shareholders.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Funds. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid assets
of the Funds sufficient to make payment for the securities to be purchased

are segregated on the Funds' records at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
settled. The Funds do 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 a Fund's assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when a 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. A 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 Funds do 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.
REPURCHASE AGREEMENTS
The Funds require the 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 a 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 Funds
believe that, under the regular procedures normally in effect for custody
of a 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. A Fund will only enter into
repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Funds'
advisers to be creditworthy pursuant to guidelines established by the
Trustees.
REVERSE REPURCHASE AGREEMENTS
The Funds may enter into reverse repurchase agreements under certain
circumstances. This transaction is similar to borrowing cash. In a reverse
repurchase agreement, a 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
a 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 a Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a 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.
MONEY MARKET INSTRUMENTS
The Funds may invest in money market instruments such as:
instruments of domestic and foreign banks and savings and loans if they
- -
have capital, surplus, and undivided profits of over $100,000,000, or if
the principal amount of the instrument is federally insured;
commercial paper rated, at the time of purchase, A-1 or better by
- -
Standard & Poor's Ratings Group ("S&P") or Prime-1 or better by Moody's

Investors Service ("Moody's") or, if unrated, are of comparable quality
as determined by the Fund's investment adviser.
time and savings deposits whose accounts are insured by the Bank
- -
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC"), or in institutions whose accounts are
insured by the Savings Association Insurance Fund ("SAIF"), which is
also administered by the FDIC, including certificates of deposit issued
by and other time deposits in foreign branches of BIF-insured banks; or
bankers' acceptances.
- -
The Equity Fund, Quantitative Equity Fund, Special Values Fund and the
Biltmore Municipal Funds may invest in money market instruments as
temporary investments, from time to time, for defensive purposes.
FUTURES AND OPTIONS TRANSACTIONS
The Funds (except the Biltmore Municipal Funds) may engage in futures
and options transactions. As a means of reducing fluctuations in the net
asset value of shares of a Fund, a 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, or writing call options on futures contracts. A Fund
also may write covered call options on portfolio securities to attempt to
increase its current income.
A 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.

FUTURES CONTRACTS
The Funds (except the Biltmore Municipal Funds) 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 Funds 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 a Fund's anticipated holding
period. A 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
The Funds (except the Biltmore Municipal Funds)may engage in
`margin'' in futures transactions. Unlike the purchase or sale of a
security, a 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.. 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 a 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 a 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 a 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.
A Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
The Funds will comply with the following restrictions when purchasing
and selling futures contracts. First, a 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 each Fund's total
assets, after taking into account the unrealized profits and losses on
those contracts it has entered into. Second, a Fund will not enter
into these contracts for speculative purposes. Third, since a 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, each 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 Funds will submit to
the CFTC special calls for information, the Funds will not register as
a commodities pool operators.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Funds (except the Biltmore Municipal Funds) may purchase put
options on portfolio securities to protect against price movements in
particular securities in its portfolio. A put option gives a 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. A
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 Funds (except the Biltmore Municipal Funds) 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 with
it has segregated cash in the amount of any additional consideration.
As the writer of a call option, a 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 a Fund writes and sells must be listed on a recognized
options exchange. Writing of call options by a Fund is intended to

generate income for the Fund and thereby protect against price
movements in particular securities in the Fund's portfolio.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Equity Fund, Quantitative Equity Fund, Special Values Fund,
Emerging Markets Fund, Balanced Fund, Fixed Income Fund, and Short-
Term Fixed Income Fund may engage in put options on financial futures
contracts. A 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, a Fund will normally close out its option by selling an
identical option. If the hedge is successful, the proceeds received by
a 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, a 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 a 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
The Equity Fund, Quantitative Equity Fund, Special Values Fund,
Emerging Markets Fund, Balanced Fund, Fixed Income Fund, and Short-
Term Fixed Income Fund may engage in call options on financial futures
contracts. In addition to purchasing put options on futures, a 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 a 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 a 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.
A 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 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.
OVER-THE-COUNTER OPTIONS
The Equity Fund, Quantitative Equity Fund, Special Values Fund,
Emerging Markets Fund, Balanced Fund, Fixed Income Fund, and Short-
Term Fixed Income 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 a Fund and 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 Funds' investment advisers.
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.

STOCK INDEX FUTURES AND OPTIONS
The Equity Fund, Quantitative Equity Fund, Equity Index Fund, Special
Values Fund, Emerging Markets Fund, and Balanced Fund may utilize
stock index futures contracts, options, and options on futures
contracts as discussed in the prospectuses.
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.
A 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.
There are several risks accompanying the utilization of futures
contracts to effectively anticipate market movements. 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 effectiveness of purchasing stock index options will depend upon
the extent to which price movements in a 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 a 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 a Fund of options on stock
indices will be subject to the ability of a 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.
RISKS
When a 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 Funds'
adviser could be incorrect in its expectations about the direction or
extent of market factors such as stock price movements. In these
events, a 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 Funds'
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. A 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 a Fund's ability to effectively hedge its
portfolio.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in 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

Trusts' Board. The Board considers the following criteria in determining
the liquidity of certain restricted securities:
the frequency of trades and quotes for the security;
- -
the number of dealers willing to purchase or sell the security and the
- -
number of other potential buyers;
dealer undertakings to make a market in the security; and
- -
the nature of the security and the nature of the marketplace trades.
- -
CONVERTIBLE SECURITIES
The Funds (except the Biltmore Municipal Funds) may invest in
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.

A 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 a 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,
a 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
The Funds (except the Biltmore Municipal Funds) may invest in 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.

OBLIGATIONS OF FOREIGN ISSUERS
The Equity Fund, Quantitative Equity Fund, Special Values Fund, Emerging
Markets Fund, and Balanced Fund may invest in 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.
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 a Fund's assets and income may be
affected by changes in exchange rates and regulations.
WARRANTS
The Funds (except the Biltmore Municipal Funds) 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.
CORPORATE DEBT SECURITIES
The Equity Fund, Quantitative Equity Fund, Special Values Fund, Emerging
Markets Fund, Balanced Fund, Fixed Income Fund, and Short-Term Fixed Income
Fund may invest in 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 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, limitations as are described in each issuer's
prospectus.

MORTGAGE-BACKED SECURITIES
The Emerging Markets Fund, Balanced Fund, Fixed Income Fund, and Short-
Term Fixed Income Fund may invest in mortgage-backed securities. The
mortgages underlying mortgage-backed securities often may be prepaid
without penalty or premium. Therefore, mortgage-backed securities are
generally subject to higher prepayment risks than most other types of debt
instruments. 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. Depending upon market conditions, the yield that the Fund receives
from the reinvestment of such prepayments, or any scheduled principal
payments, may be lower than the yield on the original mortgage security. As
a consequence, mortgage-backed securities may be a less effective means of
"locking in" interest rates than other types of debt securities having the
same stated maturity and may also have less potential for capital
appreciation. For certain types of asset pools, such as collateralized
mortgage obligations, prepayments may be allocated to one tranche of
securities ahead of other tranches in order to reduce the risk of
prepayments for the other tranches.
Prepayments may result in a capital loss to the Fund to the extent that
the prepaid mortgage securities were purchased at a market premium over
their stated principal amount. Conversely, the prepayment of mortgage-
backed securities purchased at a market discount from their stated
principal amount will accelerate the recognition of interest income by the
Fund, which would be taxed as ordinary income when distributed to the
shareholders.

PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
The Emerging Markets Fund, Balanced Fund, Fixed Income Fund, and Short-
Term Fixed Income Fund may invest in 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 adjustable rate mortgages (``ARMs''),
collateralized mortgage obligations (`CMOs''), and real estate mortgage
investment conduits (`REMICs'') in which the Emerging Markets Fund,
Balanced Fund, Fixed Income Fund, and Short-Term Fixed Income Fund invest
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 a 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 Emerging Markets Fund, Balanced Fund, Fixed Income Fund, and
Short-Term Fixed Income Fund invest 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 a 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 a Fund invests to
be shorter than the maturities stated in the underlying mortgages.
DEMAND MASTER NOTES
The Funds (except the Biltmore Municipal Funds) 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 a 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 a 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
The Funds (except the Biltmore Municipal Funds) may invest in variable
rate demand notes. Variable rate demand notes are long-term corporate debt
instruments that have variable or floating interest rates and provide a
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 a
Fund to demand the repurchase of the security on not more than seven days
prior notice. Other notes only permit a Fund to tender the security at the
time of each interest rate adjustment or at other fixed intervals.

DEMAND FEATURES
The Funds (except the Biltmore Municipal Funds) 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.
U.S. GOVERNMENT OBLIGATIONS
The Funds may invest in U.S. government obligations. The types of U.S.
government obligations in which the Funds 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 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.
- -
The Equity Fund, Quantitative Equity Fund, and Special Values Fund and
The Biltmore Municipal Funds may invest in U.S. government obligations as
temporary investments, from time to time, for defensive purposes.
VARIABLE RATE U.S. GOVERNMENT SECURITIES
The Funds may invest in 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.
HIGH YIELD SECURITIES
The Special Values Fund and Emerging Markets Fund may invest in high
yield securities. Generally, the lowest-rated securities in which the Fund

may investare rated B by S&P or 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.
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
date; and the level of market yield of similar fixed income securities.
Generally, bonds with lower coupons or longer maturities will be more
volatile than bonds with higher coupon 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 Funds.
INVESTMENT PHILOSOPHY OF THE EMERGING MARKETS FUND
As described in the Fund's prospectus under "Investment Policies" and
"Investment Process," the Fund's investment adviser manages the Fund's
portfolio to attempt to capture the return opportunities presented by
securities of issuers and companies located in emerging markets. In light
of recent political events (for example, the fall of Communism in Europe,
the opening of China to Western investment, the move toward free-market
capitalism in many developing countries, etc.), conditions for investing in
many emerging market economies have become attractive. A number of emerging
market capitalist economies present striking market growth opportunities
(stemming from the increasing number of working-class and middle-class
citizens in those nations who are now demanding improved housing,
infrastructure such as roads and utilities and a greater array of consumer
goods). In view of the fact that approximately 75% of the world's
population resides in emerging market countries, and many of these
countries are still in the early or initial stages of growth and
development, it is conceivable that many of these emerging market countries
will exhibit economic and earnings growth that exceeds similar measurements
in what have been traditionally characterized as the developed nations of
Europe, Japan, and the United States. While past performance is not a
guarantee of future results, this trend has been seen in recent years, as
the stock markets of a number of emerging market economies have

outperformed the stock markets of more developed countries. Investors
should recognize that investments in emerging market countries present a
number of risks, which are discussed in the Fund's prospectus. Currently,
the Fund may invest in the securities of issuers located in the following
countries: Argentina, Brazil, Chile, China, the Czech Republic, Egypt,
Greece, Hong Kong, Hungary, India, Indonesia, Luxenbourg, Malaysia, Mexico,
Morocco, Peru, the Philippines, Poland, Portugal, Slovak Republic, South
Korea, Taiwan, Thailand, Turkey, and Venezuela.
SOVEREIGN DEBT OBLIGATIONS
Sovereign debt instruments are issued or guaranteed by foreign
governments or their agencies, including debt of Latin American nations or
other developing countries. Sovereign debt may be in the form of
conventional securities or other types of debt instruments, such as loans
or loan participations. Sovereign debt of developing countries may involve
a high degree of risk. Governmental entities responsible for repayment of
the debt may be unable or unwilling to repay principal and interest when
due, and may require renegotiation or rescheduling of debt payments. In
addition, prospects for repayment of principal and interest may depend on
political as well as economic factors. Debt obligations of supranational
entities 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 Inter-American Development Bank.
FOREIGN CURRENCY TRANSACTIONS
CURRENCY RISKS
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange

markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Funds
value their assets daily in U.S. dollars, a Fund may not convert its
holdings to U.S. dollars daily. A Fund may incur conversion costs when it
converts its holdings to another currency. Foreign exchange dealers may
realize a profit on the difference between the price at which a Fund buys
and sells currencies.
Foreign currency exchange transactions are conducted either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or through forward contracts to purchase or sell foreign
currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Emerging Markets Fund may enter into forward foreign currency
exchange contracts in order to protect against possible loss resulting from
an adverse change in the relationship between the U.S. dollar and a foreign
currency involved in an underlying transaction. However, forward foreign
currency exchange contracts may limit potential gains which could result
from a positive change in such currency relationships. The Fund's
investment adviser believes that it is important to have the flexibility to
enter into forward currency exchange contracts whenever it determines that
it is in the Fund's best interest to do so. The Fund will not speculate in
foreign currency exchange.
The Fund will not enter into forward foreign currency exchange contracts
or maintain a net exposure in such contracts when it would be obligated to
deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency or, in
the case of a "cross-hedge" denominated in a currency or currencies that
the investment adviser believes will tend to be closely correlated with

that currency with regard to price movements. Generally, the Fund will not
enter into a forward foreign currency exchange contract with a term longer
that one year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to
buy or sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option has
the right, but not the obligation, to buy the currency. Conversely, the
owner of a put option has the right, but not the obligation, to sell the
currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position during
the option period at any time prior to expiration.
A call option on a foreign security generally rises in value if the
underlying currency appreciates in value, and a put option on a foreign
currency generally falls in value if the underlying currency depreciates in
value. Although purchasing a foreign currency option can protect the Fund
against an adverse movement in the value of a foreign currency, the option
will not limit the movement in the value of such currency. For example, if
the Fund was holding securities denominated in a foreign currency that was
appreciating and had purchased a foreign currency to put a hedge against a
decline in the value of the currency, the Emerging Markets Fund would not
have to exercise its put option. Likewise, if the Fund were to enter into a
contract to purchase a security denominated in foreign currency and, in
conjunction with that purchase, were to purchase a foreign currency call
option to hedge against a rise in value of the currency, and if the value
of the currency instead depreciated between the date of purchase and the

settlement date, the Fund would not have to exercise its call. Instead, the
Fund could acquire in the spot market the amount of foreign currency needed
for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain
additional risks associated with foreign currency options. The markets in
foreign currency options are relatively new, and the Emerging Markets
Fund's ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. Although the Fund
will not purchase or write such options unless and until, in the opinion of
the investment adviser, the market for them has developed sufficiently to
ensure that the risks in connection with such options are not greater than
the risks in connection with the underlying currency, there can be no
assurance that a liquid secondary market will exist for a particular option
at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a
foreign security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may
be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd market lot (generally consisting
of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global, around-
the-clock market. To the extent that the U.S. option markets are closed
while the markets for the underlying currencies remain open, significant
price and rate movements may take place in the underlying markets that
cannot be reflected in the options markets until they reopen.
FOREIGN CURRENCY FUTURES TRANSACTIONS
By using foreign currency futures contracts and options on such
contracts, the Emerging Markets Fund may be able to achieve many of the
same objectives as it would through the use of forward foreign currency
exchange contracts. The Fund may be able to achieve these objectives
possibly more effectively and at a lower cost by using futures transactions
instead of forward foreign currency exchange contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED OPTIONS
Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition,
there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
futures currencies, as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such

options is subject to the maintenance of a liquid secondary market. To
reduce this risk, the Emerging Markets Fund will not purchase or write
options on foreign currency futures contracts unless and until, in the
opinion of the investment adviser, the market for such options has
developed sufficiently that the risks in connection with such options are
not greater than the risks in connection with transactions in the
underlying foreign currency futures contracts. Compared to the purchase or
sale of foreign currency futures contracts, the purchase of call or put
options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the option (plus
transaction costs). However, there may be circumstances when the purchase
of a call or put option on a futures contract would result in a loss, such
as when there is no movement in the price of the underlying currency or
futures contract.
MUNICIPAL SECURITIES
The Georgia Municipal Bond Fund, North Carolina Municipal Bond Fund, and
South Carolina Municipal Bond Fund invest in municipal securities. If a
security loses its rating or has its rating reduced after a Fund has
purchased it, the Fund is not required to drop the security from its
portfolio, but may consider doing so. If ratings made by Moody's or S&P
change because of changes in those organizations or in their rating
systems, the Funds will try to use comparable ratings as standards in
accordance with the investment policies described in the prospectus.
PARTICIPATION INTERESTS
The financial institutions from which the Funds purchase participation
interests frequently provide or secure from another financial
institution irrevocable letters of credit or guarantees and give the
Funds the right to demand payment of the principal amounts of the

participation interests plus accrued interest on short notice (usually
within seven days).
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value
of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential for
capital appreciation or depreciation is less for variable rate
municipal securities than for fixed income obligations.
Many municipal securities with variable interest rates purchased by
the Funds are subject to repayment of principal (usually within seven
days) on a Fund's demand. The terms of these variable rate demand
instruments require payment of principal and accrued interest from the
issuer of the municipal obligations, the issuer of the participation
interests, or a guarantor of either issuer.
MUNICIPAL LEASES
The Funds may purchase municipal securities in the form of
participation interests which represent undivided proportional
interests in lease payments by a governmental or non-profit entity.
The lease payments and other rights under the lease provide for and
secure the 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 certificate trustee cannot
accelerate lease obligations upon default. The trustee would only be
able to enforce lease payments as they become due. In the event of a
default or failure of appropriation, it is unlikely that the trustee

would be able to obtain an acceptable substitute source of payment or
that the substitute source of payment will generate tax-exempt income.
In determining the liquidity of municipal lease securities, a Fund's
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors:
owhether the lease can be terminated by the lessee;
othe potential recovery, if any, from a sale of the leased property
upon termination of the lease;
othe lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and
prospects);
othe likelihood that the lessee will discontinue appropriating
funding for the leased property because the property is no longer
deemed essential to its operations (e.g., the potential for an
"event of non- appropriation"); and
oany credit enhancement or legal recourse provided upon an event of
non- appropriation or other termination of the lease.
MUNICIPAL BOND INSURANCE
The Funds may purchase two types of Policies issued by municipal bond
insurers. One type of Policy covers certain municipal securities only
during the period in which they are in a Fund's portfolio. In the event
that a municipal security covered by such a Policy is sold from a Fund, the
insurer of the relevant Policy will be liable only for those payments of
interest and principal which are due and owing at the time of sale.
The other type of Policy covers municipal securities not only while they
remain in the Fund's portfolio but also until their final maturity even if
they are sold out of the Fund's portfolio, so that the coverage may benefit
all subsequent holders of those municipal securities. The Fund will obtain

insurance which covers municipal securities until final maturity even after
they are sold out of the Fund's portfolio only if, in the judgment of the
investment adviser, the Fund would receive net proceeds from the sale of
those securities, after deducting the cost of such permanent insurance and
related fees, significantly in excess of the proceeds it would receive if
such municipal securities were sold without insurance. Payments received
from municipal bond issuers may not be tax-exempt income to shareholders of
the Fund.
The premiums for the Policies are paid by the Fund and the yield on the
Fund's portfolio is reduced thereby. Premiums for the Policies are paid by
the Fund monthly, and are adjusted for purchases and sales of municipal
securities during the month. A Fund may purchase Policies from MBIA Corp.
("MBIA"), AMBAC Indemnity Corporation ("AMBAC"), Financial Guaranty
Insurance Company ("FGIC"), or any other municipal bond insurer which is
rated AAA by S&P or Aaa by Moody's. Each Policy guarantees the payment of
principal and interest on those municipal securities it insures. The
Policies will have the same general characteristics and features. A
municipal security will be eligible for coverage if it meets certain
requirements set forth in the Policy. In the event interest or principal on
an insured municipal security is not paid when due, the insurer covering
the security will be obligated under its Policy to make such payment not
later than 30 days after it has been notified by the Fund that such non-
payment has occurred. MBIA, AMBAC, and FGIC will not have the right to
withdraw coverage on securities insured by their Policies so long as such
securities remain in the Fund's portfolio, nor may MBIA, AMBAC, or FGIC
cancel their Policies for any reason except failure to pay premiums when
due.

MBIA, AMBAC, and FGIC will reserve the right at any time upon 90 days'
written notice to a Fund to refuse to insure any additional municipal
securities purchased by the Fund after the effective date of such notice.
The Funds reserve the right to terminate any of the Policies if they
determine that the benefits to a Fund of having its portfolio insured under
such Policy are not justified by the expense involved.
Additionally, the Funds reserve the right to enter into contracts with
insurance carriers other than MBIA, AMBAC, or FGIC if such carriers are
rated AAA by S&P or Aaa by Moody's.
Under the Policies, municipal bond insurers unconditionally guarantee to
the Georgia Municipal Bond Fund, North Carolina Municipal Bond Fund, and
South Carolina Municipal Bond Fund the timely payment of principal and
interest on the insured municipal securities when and as such payments
shall become due but shall not be paid by the issuer, except that in the
event of any acceleration of the due date of the principal by reason of
mandatory or optional redemption (other than acceleration by reason of
mandatory sinking fund payments), default or otherwise, the payments
guaranteed will be made in such amounts and at such times as payments of
principal would have been due had there not been such acceleration. The
municipal bond insurers will be responsible for such payments less any
amounts received by a Fund from any trustee for the municipal bond issuers
or from any other source. The Policies do not guarantee payment on an
accelerated basis, the payment of any redemption premium, the value for the
shares of a Fund, or payments of any tender purchase price upon the tender
of the municipal securities. The Policies also do not insure against
nonpayment of principal of or interest on the securities resulting from the
insolvency, negligence or any other act or omission of the trustee or other
paying agent for the securities. However, with respect to small issue

industrial development municipal bonds and pollution control revenue
municipal bonds covered by the Policies, the municipal bond insurers
guarantee the full and complete payments required to be made by or on
behalf of an issuer of such municipal securities if there occurs any change
in the tax- exempt status of interest on such municipal securities,
including principal, interest or premium payments, if any, as and when
required to be made by or on behalf of the issuer pursuant to the terms of
such municipal securities. A when-issued municipal security will be covered
under the Policies upon the settlement date of the issuer of such when-
issued municipal securities. In determining to insure municipal securities
held by a Fund, each municipal bond insurer has applied its own standard,
which corresponds generally to the standards it has established for
determining the insurability of new issues of municipal securities. This
insurance is intended to reduce financial risk, but the cost thereof and
compliance with investment restrictions imposed under the Policies will
reduce the yield to shareholders of each Fund.
If a Policy terminates as to municipal securities sold by a Fund on the
date of sale, in which event municipal bond insurers will be liable only
for those payments of principal and interest that are then due and owing,
the provision for insurance will not enhance the marketability of
securities held by the Fund, whether or not the securities are in default
or subject to significant risk of default, unless the option to obtain
permanent insurance is exercised. On the other hand, since issuer-obtained
insurance will remain in effect as long as the insured municipal securities
are outstanding, such insurance may enhance the marketability of municipal
securities covered thereby, but the exact effect, if any, on marketability
cannot be estimated. The Funds generally intend to retain any securities
that are in default or subject to significant risk of default and to place

a value on the insurance, which ordinarily will be the difference between
the market value of the defaulted security and the market value of similar
securities of minimum investment grade (i.e., rated "BBB" by S&P or "Baa"
by Moody's) that are not in default. To the extent that a Fund holds
defaulted securities, it may be limited in its ability to manage its
investment and to purchase other municipal securities. Except as described
above with respect to securities that are in default or subject to
significant risk of default, the Funds will not place any value on the
insurance in valuing the municipal securities that it holds.
Municipal bond insurance may be provided by one or more of the following
insurers or any other municipal bond insurer which is rated "Aaa" by
Moody's or "AAA" by S&P:
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
Municipal Bond Investors Assurance Corp. ("MBIA") is a wholly-owned
subsidiary of MBIA, Inc. MBIA, domiciled in New York, is regulated by
the New York State Insurance Department and licensed to do business in
various states. The address of MBIA is 113 King Street, Armonk, New
York, 10504, and its telephone number is (914) 273-4545. As of January
3, 1997, S&P has rated the claims-paying ability of MBIA "AAA."
AMBAC INDEMNITY CORPORATION
AMBAC Indemnity Corporation ("AMBAC") is a Wisconsin-domiciled stock
insurance company, regulated by the Insurance Department of Wisconsin,
and licensed to do business in various states. AMBAC is a wholly-owned
subsidiary of AMBAC, Inc., a financial holding company which is owned
by the public. Copies of certain statutorily required filings of AMBAC
can be obtained from AMBAC. The address of AMBAC's administrative
offices is One State Street Plaza, 17th Floor, New York, New York
10004, and its telephone number is (212) 668-0340. As of January 3,
1997, S&P has rated the claims-paying ability of AMBAC "AAA."

FINANCIAL GUARANTY INSURANCE COMPANY
Financial Guaranty Insurance Company ("Financial Guaranty") is a
wholly- owned subsidiary of FGIC Corporation, a Delaware holding
company. FGIC Corporation is wholly-owned by General Electric Capital
Corporation. Financial Guaranty is subject to regulation by the New
York State Insurance Department and is licensed to do business in
various states. The address of Financial Guaranty is 175 Water Street,
New York, New York 10038, and its telephone number is 1-800-352-0001.
As of January 3, 1997, S&P has rated the claims-paying ability of
Financial Guaranty "AAA."
CONCENTRATION OF INVESTMENTS
The Georgia Municipal Bond Fund, North Carolina Municipal Bond Fund, and
South Carolina Municipal Bond Fund generally will not invest more than 25%
of its total assets in any one industry. Governmental issuers of municipal
securities are not considered part of any "industry." However, municipal
securities backed only by the assets and revenues of nongovernmental users
may, for this purpose, be deemed to be related to the industry in which
such nongovernmental users engage, and the 25% limitation would apply to
such obligations. It is nonetheless possible that the Funds may invest more
than 25% of their assets in a broader segment of the municipal securities
market, such as revenue obligations of hospitals and other health care
facilities, housing agency revenue obligations, or airport revenue
obligations. This would be the case only if a Fund's investment adviser
determines that the yields available from obligations in a particular
segment of the market justified the additional risks associated with a
large investment in such segment. Although such obligations could be
supported by the credit of governmental users or by the credit of
nongovernmental users engaged in a number of industries, economic,

business, political and other developments generally affecting the revenues
of such users (for example, proposed legislation or pending court decisions
affecting the financing of such projects and market factors affecting the
demand for their services or products) may have a general adverse effect on
all municipal securities in such a market segment.
PORTFOLIO TURNOVER
The Funds 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 a Fund's investment objective. Securities in each
portfolio will be sold whenever A Fund's investment adviser believes it is
appropriate to do so in light of a Fund's investment objective, 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 a 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 a 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 an investment adviser deems it appropriate to make
changes in a Fund's portfolio.
During the fiscal years ended November 30, 1996 and 1995, the Equity
Fund's portfolio turnover rates were 64% and 65%, respectively.
During the fiscal years ended November 30, 1996 and 1995, the
Quantitative Equity Fund's portfolio turnover rates were 44% and 63%,
respectively.
During the fiscal years ended November 30, 1996 and 1995, the Equity
Index Fund's portfolio turnover rates were 14% and 60%, respectively.

During the fiscal years ended November 30, 1996 and 1995, the Special
Values Fund's portfolio turnover rates were 38% and 57%, respectively.
During the fiscal years ended November 30, 1996 and for the period from
December 26, 1994 (date of initial public investment) to November 30, 1995,
the Emerging Markets Fund's portfolio turnover rates were 30% and 17%,
respectively.
During the fiscal years ended November 30, 1996 and 1995, the Balanced
Fund's portfolio turnover rates were 99% and 102%, respectively.
During the fiscal years ended November 30, 1996 and 1995, the Fixed
Income Fund's portfolio turnover rates were 181% and155%, respectively.
During the fiscal years ended November 30, 1996 and 1995, the Short-Term
Fixed Income Fund's portfolio turnover rates were 145% and 147%,
respectively.
During the fiscal years ended November 30, 1996 and for the period from
December 26, 1994 (date of initial public investment) to November 30, 1995,
the Georgia Municipal Bond Fund's portfolio turnover rates were 14% and
14%, respectively.
During the fiscal years ended November 30, 1996 and for the period from
December 26, 1994 (date of initial public investment) to November 30, 1995,
the North Carolina Municipal Bond's portfolio turnover rates were 7% and
19%, respectively.
During the fiscal years ended November 30, 1996 and 1995, the South
Carolina Municipal Bond Fund's portfolio turnover rates were 20% and 15%,
respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Equity Fund, Quanitative Equity Fund, Equity Index Fund, Special
Values Fund, Emerging Markets Fund, and Balanced Fund will not sell

any securities short or purchase any securities on margin, other than
in connection with buying stock index futures contracts, put options
on stock index futures, put options on financial futures and portfolio
securities, and writing covered call options, but may obtain such
short-term credits as are necessary for the clearance of purchases and
sales of portfolio securities.
The Short-Term Fixed Income Fund will not sell any securities short or
purchase any securities on margin, other than in connection with put
options on financial futures, put options on portfolio securities, and
writing covered call options, but may obtain such short-term credits
as may be necessary for clearance of purchases and sales of
securities.
The Fixed Income Fund, Georgia Municipal Bond Fund, North Carolina
Municipal Bond Fund, and South Carolina Municipal Bond Fund will not
sell any securities short or purchase any securities on margin but may
obtain such short-term credits as may be necessary for clearance of
purchases and sales of securities.
The deposit or payment by a Fund of initial or variation margin in
connection with financial futures contracts or related options
transactions is not considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Equity Fund and Special Values Fund will not issue senior
securities, except that it may borrow money directly or through
reverse repurchase agreements in amounts up to one-third of the value
of its net assets, including the amounts borrowed.
The Quantitative Equity Fund and Emerging Markets Fund will not issue
senior securities, except that a Fund may borrow money directly or

through reverse repurchase agreements in amounts up to one-third of
the value of its total assets, including the amounts borrowed.
The Equity Index Fund, Balanced Fund, Fixed Income Fund and Short-Term
Fixed Income Fund will not issue senior securities, except as
permitted by its investment objective and policies, and except that a
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 Georgia Municipal Bond Fund, North Carolina Municipal Bond Fund,
and South Carolina Municipal Bond Fund will not issue senior
securities, except that a Fund may borrow money in amounts up to one-
third of the value of its total assets, including the amounts
borrowed.
The Funds will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure to facilitate management of the
portfolio by enabling a Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. A Fund will not purchase any securities while
borrowings in excess of 5% of the value of its total assets are
outstanding.
PLEDGING ASSETS
The Equity Fund, Quanitative Equity Fund, and Special Values Fund will
not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, the Fund may mortgage, pledge,
or hypothicatemassets to secure such borrowings having a market value
not exceeding the lesser of the dollar amounts borrowed or 15% of the
value of total assets at the time of the borrowing. For purposes of

this limitation, the following are not deemed to be pledges: margin
deposits for the purchase and sale of futures contracts and related
options, and segregation or collateral arrangements made in connection
with options activities or the purchase of securities on a when-issued
basis.
The Equity Index Fund, Balanced Fund, Fixed Income Fund, and Short-
Term Fixed Income Fund will not mortgage, pledge, or hypothecate any
assets except to secure permitted borrowings. In those cases, the Fund
may mortgage, pledge or hypothecate assets to secure such borrowings
having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets at the time of the
borrowing. For purposes of this limitation, the following are not
deemed to be pledges: margin deposits for the purchase and sale of
futures contracts and related options, and segregation or collateral
arrangements made in connection with options activities or the
purchase of securities on a when-issued basis.
The Emerging Markets Fund will not mortgage, pledge, or hypothecate
any assets except to secure permitted borrowings. For purposes of this
limitation, the following will not be deemed to be pledges of the
Fund's assets: (a) the deposit of assets in escrow in connection with
the writing of covered put or call options and the purchase of
securities on a when-issued basis; and (b) collateral arrangements
with respect to (i) the purchase and sale of stock options (and
options on stock indices) and (ii) initial or variation margin for
futures contracts.
The Georgia Municipal Bond Fund, North Carolina Municipal Bond Fund,
and South Carolina Municipal Bond Fund will not mortgage, pledge, or
hypothecate any assets except to secure permitted borrowings. In

those cases, South Carolina Municipal Bond Fund may mortgage, pledge,
or hypothecate assets having a market value not exceeding 10% of the
value of its total assets at the time of the pledge.
INVESTING IN REAL ESTATE
The Funds (except Georgia Municipal Bond Fund, North Carolina
Municipal Bond Fund, and South Carolina Municipal Bond Fund) will not
buy or sell real estate, including limited partnership interests,
although a Fund may invest in the securities of companies whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
The Georgia Municipal Bond Fund, North Carolina Municipal Bond Fund,
and South Carolina Municipal Bond Fund will not buy or sell real
estate, although a Fund may invest in municipal bonds secured by real
estate or interests in real estate.
INVESTING IN COMMODITIES
The Equity Fund, Quantitative Equity Fund, Equity Index Fund, Special
Values Fund, and Emerging Markets Fund will not purchase or sell
commodities, commodity contracts, or commodity futures contracts.
However, a 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.
TheFixed Income Fund will not purchase or sell commodities, commodity
contracts, or commodity futures contracts except to the extent that a
Fund may engage in transactions involving futures contracts and
related options.
The Balanced Fund and Short-Term Fixed Income Fund will not purchase
or sell commodities, commodity contracts, or commodity futures
contracts except that a Fund may purchase and sell futures contracts
and related options.

The Georgia Municipal Bond Fund, North Carolina Municipal Bond Fund,
and South Carolina Municipal Bond Fund will not buy or sell
commodities, commodity contracts, or commodities futures contracts.
UNDERWRITING
The Equity Fund, Special Values Fund, Balanced Fund, Fixed Income
Fund, and Short-Term Fixed Income 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.
The Quanitative Equity Fund, Equity Index Fund, Emerging Markets Fund,
Georgia Municipal Bond Fund, North Carolina Municipal Bond Fund, and
South Carolina Municipal Bond 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
which the Fund may purchase pursuant to its investment objective,
policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Funds (except Georgia Municipal Bond Fund, North Carolina
Municipal Bond Fund, and South Carolina Municipal Bond Fund) will not
purchase securities issued by any one issuer (other than cash, cash
items or securities issued or guaranteed by the government of the
United States or its agencies or instrumentalities and repurchase
agreements collateralized by such securities) if, as a result, more
than 5% of the value of its total assets would be invested in the
securities of that issuer. Also, a Fund will not acquire more than 10%
of the outstanding voting securities of any one issuer.

CONCENTRATION OF INVESTMENTS
The Funds (except Emerging Markets Fund, Georgia Municipal Bond Fund,
North Carolina Municipal Bond Fund, and South Carolina Municipal Bond
Fund) will not invest 25% or more of the value of their total assets
in any one industry, except that a Fund may invest 25% or more of the
value of its total assets in securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities, and repurchase
agreements collateralized by such securities.
The Emerging Markets Fund will not invest 25% or more of the value of
its total assets in any one industry. However, the Fund may invest
25% or more of the value of its assets in cash or cash items,
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.
The Georgia Municipal Bond Fund,and North Carolina Municipal Bond 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 industrial
development bonds or other securities, the interest upon which is paid
from revenues of similar type projects. A Fund may invest 25% or more
of the value of its total assets in cash, cash items, or securities
issued or guaranteed by the government of the United States or its
agencies, or instrumentalities and repurchase agreement collateralized
by such U.S. government securities. Concentrating investments in one
industry may subject a Fund to more risk than if it did not
concentrate.
South Carolina Municipal Bond 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 types of projects . The Fund may invest as
temporary investments more than 25% of the value of its assets in cash
or cash items, 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 CASH OR SECURITIES
The Equity Fund and Special Values Fund will not lend any of their
assets except portfolio securities, the market value of which do not
exceed one-third of the value of a Fund's total assets.
The Quantitative Equity Fund and Emerging Markets Fund will not lend
any of their assets except portfolio securities.
This shall not prevent the above Funds from purchasing or holding U.S.
government obligations, money market instruments, demand master notes,
bonds, debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by the Fund's investment objective,
policies, and limitations.
The Equity Index Fund will not lend any of its assets except portfolio
securities, the market value of which does not exceed one-third of the
value of the Fund's total assets. This shall not prevent the purchase
or holding of corporate or government bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer,
repurchase agreements, or engaging in other transactions where
permitted by a Fund's investment objective, policies and limitations.
The Balanced Fund, Fixed Income Fund, and Short-Term Fixed Income 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 a
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.
The Georgia Municipal Bond Fund and North Carolina Municipal Bond Fund
will not lend any assets except portfolio securities. The Funds may,
however, accquire publically or non-publically issued municipal bonds
or temporary investments or enter into repurchase agreements in
accordance with a Fund's investment objective, policies, limitations
and Declaration of Trust.
South Carolina Municipal Bond Fund will not lend any of its assets
except portfolio securities up to one-third of the value of its total
assets. The Fund may, however, acquire publicly or non-publicly
issued municipal bonds or temporary investments or enter into
repurchase agreements in accordance with its investment objective,
policies, and limitations or the Trust's Declaration of Trust.
INVESTING IN RESTRICTED SECURITIES
South Carolina Municipal Bond Fund will not invest more than 10% of
the value of its net assets in securities subject to restrictions on
resale, under the Securities Act of 1933.
DEALING IN PUTS AND CALLS
South Carolina Municipal Bond Fund will not buy or sell puts, calls,
straddles, spreads, or any combination of these.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds will limit their investment in other investment companies to
not more than 3% of the total outstanding voting stock of any
investment company, will invest no more than 5% of their total assets
in any one investment company, and will invest no more than 10% of
their total assets in investment companies in general, unless, they
are permitted to exceed these limitations by action of the SEC. The
Funds will purchase securities of closed-end investment companies only
in open market transactions involving only customary brokers'
commissions. However, these limitations are not applicable if the
securities are acquired in a merger, consolidation, reorganization, or
acquisition of assets. It should be noted that investment companies
incur certain expenses such as custodian and transfer agency fees, and
therefore, any investment by a Fund in shares of another investment
company would be subject to such duplicate expenses. The Funds will
invest in other investment companies primarily for the purpose of
investing its short-term cash on a temporary basis.
However, the Equity Index Fund may invest in Standard & Poor's
Depository Receipts (SPDRs), which represent interests in the
portfolio of securities held by a unit investment trust, a type of
investment company. SPDRs trade like shares of common stock on the
American Stock Exchange and are intended to provide investment results
that generally correspond to the price and yield performance of the
S&P 500 Index. The Fund's purchase of SPDRs are subject to the 3%, 5%
and 10% limitations described above and secondary market purchases and
sales are subject to ordinary brokerage commissions. The Funds have a
present intention of investing no more than 5% of their total assets
in investment companies during the current fiscal year.

INVESTING IN RESTRICTED SECURITIES.
The Funds will not invest more than 10% of their total assets in
securities subject to restrictions on resale under the Securities Act
of 1933, except for certain restricted securities which meet the
criteria for liquidity as established by the Trustees.

INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 15% of their net assets in
securities which are illiquid, including repurchase agreements
providing for settlement in more than seven days after notice, over-
the-counter options, non-negotiable time deposits with maturities over
seven days, and certain securities not determined under guidelines
established by the Trustees to be liquid.
INVESTING IN NEW ISSUES
The Funds (except Georgia Minicipal Bond Fund, North Carolina
Municipal Bond Fund, and South Carolina Municipal Bond Fund) will not
invest more than 5% of the value of their total assets in portfolio
instruments of unseasoned issuers, including their predecessors, that
have been in operation for less than three years.
The Georgia Minicipal Bond Fund, North Carolina Municipal Bond Fund,
and South Carolina Municipal Bond Fund will not invest more than 5% of
the value of their total assets in industrial development bonds where
the principal and interest are the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor.

INVESTING IN PUT OPTIONS
The Funds (except Georgia Minicipal Bond Fund, North Carolina
Municipal Bond Fund, and South Carolina Municipal Bond Fund ) will not
purchase put options on securities, other than put options on stock
indices, unless the securities are held in a Fund's portfolio and not
more than 5% of the value of a Fund's total assets would be invested
in premiums on open put option positions.
The Georgia Municipal Bond Fund, North Carolina Municipal Bond Fund,
and South Carolina Municipal Bond Fund will not buy or sell puts,
calls, straddles, spreads, or any combination of these.
WRITING COVERED CALL OPTIONS
The Funds will not write call options on securities unless the
securities are held in a Fund's portfolio or unless a Fund is entitled
to them in deliverable form without further payment or after
segregating cash in the amount of any further payment.
INVESTING IN WARRANTS
The Funds will not invest more than 5% of net assets in warrants. No
more than 2% of a Fund's net assets, to be included within the overall
5% limit on investments in warrants, may be warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Funds will not purchase securities of a company for purposes of
exercising control or management.
ARBITRAGE TRANSACTIONS
The Funds will not enter into transactions for the purpose of engaging
in arbitrage.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in

percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
For purposes of its policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association, having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of deposit, to
be `cash items.''
The Funds do not intend to borrow money in excess of 5% of the value of
their total assets during the current fiscal year

THE BILTMORE FUNDS AND THE BILTMORE MUNICIPAL FUNDS MANAGEMENT

OFFICERS AND TRUSTEES
Officers and Trustees of the Trusts are listed with their principal
occupations, birthdates, and present positions.. Except as listed below,
none of the Trustees or Officers are affiliated with Wachovia Bank of
Georgia, N.A., Wachovia Bank of North Carolina, N.A., Wachovia Bank of
South 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*
2835 Greenbriar
Harbor Springs, 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.

Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
March 23, 1960

Vice President and Assistant Treasurer
Vice President, Federated Services Company.

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

Secretary
Senior Corporate Counsel, Federated Investors.

* All Trustees are independent of the Trusts.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
The following list indicates the beneficial ownership of shareholders
who are the beneficial owners of more than 5% of the outstanding shares of
the following Funds as of January 3, 1997:
Acting in various capacities for numerous accounts, Wachovia Securities
Inc., Winston-Salem, North Carolina, was owner of record of 234,665 Class
A Shares (14.11%) of Equity Fund; Wachovia Bank of North Carolina, N.A.,
Winston-Salem, North Carolina,was owner of record of 1,635,425 Class Y
Shares (16.50%) of Equity Fund; Wachovia Bank of Georgia, N.A., Atlanta,
Georgia, was owner of record of 602,665 Class Y Shares (6.08%) of Equity
Fund; Wachovia Bank of North Carolina, N.A., Winston-Salem, North
Carolina,was owner of record of 5,477,345 Class Y Shares (55.41%) of
Quantitative Equity Fund; Wachovia Bank of South Carolina, N.A., Columbia,
South Carolina was owner of record of 642,512 Class Y Shares (6.50%) of
Quantitative Equity Fund; Wachovia Bank of North Carolina, N.A., Winston-
Salem, North Carolina,was owner of record of 8,113,547 Class Y Shares
(57.88%) of Equity Index Fund; Wachovia Bank of North Carolina, N.A.,
Winston-Salem, North Carolina,was owner of record of 2,675,168 Class Y
Shares (64.24%) of Special Values Fund; Wachovia Securities Inc., Winston-
Salem, North Carolina,was owner of record of 27,834 Class A Shares (5.89%)
of Emerging Markets Fund; Wachovia Bank of North Carolina, N.A., Winston-
Salem, North Carolina, was owner of record of 1,054,612 Class Y Shares
(9.41%) of Emerging Markets Fund; Wachovia Securities Inc., Winston-Salem,
North Carolina,was owner of record of 17,197 Class B Shares (8.87%) of
Balanced Fund; Wachovia Bank of North Carolina, N.A., Winston-Salem, North

Carolina, was owner of record of 5,021,097 Class Y Shares (24.61%) of
Balanced Fund; Wachovia Securities inc., Winston-Salem, North Carolina,was
owner of record of 74,613 Class A Shares (17.92%) and 9,700 Class B Shares
(84.18%) of Fixed Income Fund; Wachovia Bank of North Carolina, N.A.,
Winston-Salem, North Carolina, was owner of record of 4,053,024 Class Y
Shares (22.44%) of Fixed Income Fund; Wachovia Securities Inc., Winston-
Salem, North Carolina,was owner of record of 120,160 Class A Shares
(64.03%) of Short-Term Fixed Income Fund; Wachovia Bank of North Carolina,
N.A., Winston-Salem, North Carolina, was owner of record of 7,834,447 Class
Y Shares (64.96%) of Short-Term Fixed Income Fund; Wachovia Bank of North
Carolina, N.A., Winston-Salem, North Carolina,was owner of record of 79,566
Class Y Shares (12.97%) of Georgia Municipal Bond Fund; Wachovia Bank of
Georgia, N.A., Atlanta, Georgia, was owner of record of 454,712 Class Y
Shares (39.63%) of Georgia Municipal Bond Fund; Wachovia Securities Inc.,
Winston-Salem, North Carolina,was owner of record of 105,763 Class A Shares
(8.57%) of North Carolina Municipal Bond Fund; Wachovia Bank of North
Carolina, N.A., Winston-Salem, North Carolina, was owner of record of
234,962 Class Y Shares (8.87%) of North Carolina Municipal Bond Fund;
Wachovia Bank of South Carolina, N.A., Columbia, South Carolina,was owner
of record of 361,327 Class Y Shares (10.62%) of South Carolina Municipal
Bond Fund.
TRUSTEES COMPENSATION

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

James A. Hanley, $24,600

Trustee

Samuel E. Hudgins, $24,600
Trustee

J. Berkley Ingram, Jr., $22,500
Trustee

D. Dean Kaylor, $22,500
Trustee

Charles S. Way, Jr., $22,500
Trustee

*Information is furnished for the fiscal year ended November 30, 1996.
+The total compensation is paid by The Biltmore Funds, which is
comprised of twelve portfolios and The Biltmore Municipal Funds, which is
comprised of three 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

ADVISERS TO THE FUNDS
Investment decisions for The Biltmore Funds are made by Wachovia Asset
Management, a business unit of Wachovia Bank of North Carolina, N.A., and
investment decisions for Georgia Municipal Bond Fund, North Carolina
Municipal Bond Fund, and South Carolina Municipal Bond Fund are made by
Wachovia Bank of Georgia, N.A., Wachovia Bank of North Carolina, N.A., and
Wachovia Bank of South Carolina, N.A., respectively, (each the "Adviser"
and, together, the "Advisers").
Twin Capital Management, Inc. (``Twin Capital'') serves as the sub-
adviser to the Quantitative Equity Fund under the terms of an investment
sub-advisory agreement between Wachovia Asset Management and Twin Capital.
Twin Capital, incorporated as a Pennsylvania corporation in 1989, is a
registered investment adviser under the Investment Advisers Act of 1940.
The Advisers shall not be liable to the Trust, a Fund or any shareholder
of the Funds 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 them by their contracts with
the Trusts.
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 AND SUB-ADVISORY FEES
For its advisory services, the investment advisers receive an annual
investment advisory fee as described in the prospectus. The following
shows all investment advisory fees incurred by the Funds and the amounts of

those fees that were voluntarily waived. Twin Capital receives an annual
sub-advisory fee, payable solely by Wachovia Asset Management, as described
in the prospectuses.
Year Ended Amount Year Ended Amount
Year Ended Amount
Fund Name Nov. 30, 1996 Waived-1996 Nov. 30, 1995
Waived-1995 Nov. 30, 1994 Waived-1994

Equity Fund $1,003,098 $107,888 $754,597 $76,995
$511,439 $73,062
Quantitative Equity
Fund $984,868 $100,131 $728,298 $89,503 $439,878* $62,841
Equity Index Fund $616,302 $88,233 $545,415 $97,171 $503,953
$83,992
Special Values Fund $324,764 $76,655 $160,840 $59,075 $117,003
$58,501
Emerging Markets Fund $1,006,829 $1,057 $371,458**
$60,903
Balanced Fund $1,588,214 $352,189 $1,394,516
$316,346 $1,291,534 $274,994
Fixed Income Fund $1,047,666 $177,507 $957,389 $159,425
$862,327 $143,721
Short-Term Fixed
Income Fund $649,181 $211,508 $768,294 $220,989 $816,857
$222,781
Georgia Municipal
Bond Fund $84,212 $78,762 $49,436**$40,609
North Carolina Municipal

Bond Fund $210,288 $176,041 $77,710**$63,053
South Carolina Municipal
Bond Fund $743,153 $500,413 $639,686 $469,407 $624,986 $488,215
* Represents the period from March 28, 1994 (date of initial public
investment) to November 30, 1994.
**Represents the period from December 26, 1994 (date of initial public
investment) to November 30, 1995.
BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the investment advisers look for prompt
execution of the order at a favorable price. In working with dealers,
the investment advisers will generally use those who are recognized
dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The investment
advisers make decisions on portfolio transactions and select brokers
and dealers subject to guidelines established by the Trustees. The
investment advisers may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to a
Fund or to the investment advisers 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 investment
advisers or their affiliates in advising a Fund and other accounts. To
the extent that receipt of these services may supplant services for
which the investment advisers or their affiliates might otherwise have
paid, it would tend to reduce their expenses. The investment advisers
and their 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, 1996, 1995,
and1994, the Equity Fund paid $252,493, $176,610, and $142,056,
respectively, in commissions on brokerage transactions. For the fiscal
years ended November 30, 1996, 1995, and for the period from March28,
1994 (date of initial public investment) to November 30, 1994, the
Quantitative Equity Fund paid $165,434, $98,771, and $163,527,
respectively, in commissions on brokerage transactions. For the fiscal
years ended November 30, 1996, 1995, and 1994, the Equity Index Fund
paid $15,333, $28,337, and $32,790, respectively, in commissions on
brokerage transactions. For the fiscal years ended November 30, 1996,
1995, and 1994, the Special Values Fund paid $155,248, $57,052, and
$56,762, respectively, in commissions on brokerage transactions. For
the fiscal year ended November 30, 1996 and for the period from
December 26, 1994 (date of initial public investment) to November 30,
1995, the Emerging Markets Fund paid $538,172, and $437,055,
respectively, in commissions on brokerage transactions. For the
fiscal years ended November 30, 1996, 1995, and 1994, the Balanced
Fund paid $269,729, $140,316, and $262,992, respectively, in
commissions on brokerage transactions. For the fiscal years ended
November 30, 1996, 1995, and1994, the Fixed Income Fund, Short-Term
Fixed Income Fund, Georgia Municipal Bond Fund, North Carolina
Municipal Bond Fund, and South Carolina Municipal Bond Fund paid no
commissions on brokerage transactions.
As of November 30, 1996, the Equity Index Fund owned $6,082,960,
$891,855, $403,002, $485,914, and $169,588 of securities issued by

General Electric Co., American Express, Dean Witter Discover & Co.,
Merrill Lynch & Co.,Inc., and Salomon, Inc., respectively, several of
its regular broker/dealers, which derive more than 15% of its gross
revenues from securities-related activities.
As of November 30, 1996, the Balanced Fund owned $2,910,544 of
securities issued by General Electric Co., one of its regular
broker/dealers, which derives more than 15% , of its gross revenues
from securities-related activities.
As of November 30, 1996, the Fixed Income Fund owned $5,084,348 of
securities issued by Merrill Lynch, Pierce, Fenner & Smith, one of its
regular broker/dealers, which derive more than 15% of its gross
revenues from securities-related activities.
As of November 30, 1996, the Short-Term Fixed Income Fund owned
$2,480,050 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 Funds are made independently from
those of the other accounts managed by the investment advisers, investments
of the type the Funds may make may also be made by those other accounts.
When a Fund and one or more other accounts managed by the investment
advisers 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 an investment adviser to be equitable to
each. In some cases, this procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or disposed of by a
Fund. In other cases, however, it is believed that coordination and the
ability to participate in volume transactions will be to the benefit of a
Fund.

OTHER SERVICES

ADMINISTRATION
Federated Administrative Services ("FAS"), a subsidiary of Federated
Investors, provides administrative personnel and services to the Funds for
a fee as described in the prospectuses. The following shows all fees earned
by FAS and the amounts of those fees that were voluntarily waived:
Year Ended Amount Year Ended Amount
Year Ended Amount
Fund Name Nov. 30, 1996 Waived-1996 Nov. 30, 1995
Waived-1995 Nov. 30, 1994 Waived-1994
Equity Fund $124,288 $0 $96,714 $0 $75,000
$2,936
Quantitative Equity
Fund $121,949 $0 $93,391 $0 $59,254 * $0
Equity Index Fund $178,161 $0 $163,299 $0 $166,703
$0
Special Values Fund $35,122 $0 $75,000 $56,955 $75,000
$60,820
Emerging Markets Fund $87,231 $0 $ 75,000** $41,860

Balanced Fund $196,750 $0 $178,968 $46,191 $183,610
$44,122
Fixed Income Fund $151,450 $0 $143,274 $0 $142,981
$0
Short-Term Fixed

Income Fund $102,429 $0 $125,580 $0 $148,458
$0
Georgia Municipal
Bond Fund $9,732 $0 $50,000 ** $44,142
North Carolina Municipal
Bond Fund $24,266 $0 $50,000 ** $40,270
South Carolina Municipal
Bond Fund $86,019 $0 $76,587 $0 $101,152 $3,488
* Represents the period from March 28, 1994 (date of initial public
investment) to November 30, 1994.
**Represents the period from December 26, 1994 (date of initial public
investment) to November 30, 1995.
In addition, for the fiscal years ended November 30, 1996, 1995, and
1994, FAS reimbursed the Equity Fund $0, $0, and $40,467, respectively, in
other Fund operating expenses; for the fiscal years ended November 30,
1996, 1995, and 1994, FAS reimbursed the Equity Index Fund $0, $0, and
$50,455, respectively, in other Fund operating expenses; for the fiscal
years ended November 30, 1996, 1995, and 1994, FAS reimbursed the Balanced
Fund $0, $0, and $46,191, respectively, in other Fund operating expenses;
for the fiscal years ended November 30, 1996, 1995, and 1994, FAS
reimbursed the Fixed Income Fund $0, $0, and $48,849, respectively, in
other Fund operating expenses; for the fiscal years ended November 30,
1996, 1995, and 1994, FAS reimbursed the Short-Term Fixed Income Fund $0,
$0, and $39,787, 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 Funds. Under
the Custodian Agreement, the Custodian holds the Funds' portfolio

securities in safekeeping and keeps all necessary records and documents
relating to its duties. For the services to be provided to the Trusts
pursuant to the Custodian Agreement, the Trusts pay the Custodian an annual
fee based upon the average daily net assets of the Funds and which is
payable monthly. The Custodian will also charge transaction fees and out-
of-pocket expenses.
TRANSFER AGENT
Federated Services Company, Pittsburgh, Pennsylvania a subsidiary of
Federated Investors, is transfer agent (the "Transfer Agent") for the
shares of the Funds, and dividend disbursing agent for the Funds. Federated
Services Company also provides certain accounting and recordkeeping
services with respect to the Funds' portfolio investments.
LEGAL SERVICES
Legal services for the Funds 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.
DISTRIBUTION PLAN (CLASS B SHARES ONLY) AND SHAREHOLDER SERVICES PLAN
(CLASS A SHARES AND CLASS B SHARES ONLY)

These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services Company, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to: marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,

computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting Distribution Plans, the Trustees expect that the Funds will
be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist a Fund in pursuing its investment objective. By
identifying potential investors whose needs are served by a Fund's
objectives, and properly servicing these accounts, it may be possible to
curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended November 30, 1996, payments in the amount of
$979 were made pursuant to the Plan on behalf of Equity Fund. In addition,
for the fiscal year the Equity Fund Class A Shares paid shareholder service
fees in the amount of $112,041, all of which was waived, and Class B Shares
paid $326.
For the fiscal year ended November 30, 1996, payments in the amount of
$1,652 were made pursuant to the Plan on behalf of Quantitative Equity
Fund. In addition, for the fiscal year the Quanitative Equity Fund Class A
Shares paid shareholder service fees in the amount of $101,106, all of
which was waived, and Class B Shares paid $551.

For the fiscal year ended November 30, 1996, the Equity Index Fund Class
A Shares paid shareholder service fees in the amount of $146,700, all of
which was waived.
For the fiscal year ended November 30, 1996, the Special Values Fund
Class A Shares paid shareholder service fees in the amount of $36,749, all
of which was waived.
For the fiscal year ended November 30, 1996, the Emerging Markets Fund
Class A Shares paid shareholder service fees in the amount of $82,304, all
of which was waived.
For the fiscal year ended November 30, 1996, payments in the amount of
$1,822 were made pursuant to the Plan on behalf of Balanced Fund. In
addition, for the fiscal year the Balanced Fund Class A Shares paid
shareholder service fees in the amount of $163,749, all of which was
waived, and Class B Shares paid $607.
For the fiscal year ended November 30, 1996, payments in the amount of
$195 were made pursuant to the Plan on behalf of Fixed Income Fund. In
addition, for the fiscal year the Fixed Income Fund Class A Shares paid
shareholder service fees in the amount of $132,440, all of which was
waived, and Class B Shares paid $65.
For the fiscal year ended November 30, 1996, the Short-Term Fixed Income
Fund Class A Shares paid shareholder service fees in the amount of $85,662,
all of which was waived.
For the fiscal year ended November 30, 1996, Georgia Municipal Bond Fund
Class A Shares paid shareholder service fees in the amount of $9,722 all of
which was waived.
For the fiscal year ended November 30, 1996, North Carolina Municipal
Bond Fund Class A Shares paid shareholder service fees in the amount of
$24,077, all of which was waived.

For the fiscal year ended November 30, 1996, South Carolina Municipal
Bond Fund Class A Shares paid shareholder service fees in the amount of
$86,827, all of which was waived.
PURCHASING FUND SHARES

Shares of a 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 each Fund's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from shareholders
must be in federal funds or be converted into federal funds. The Wachovia
Banks act as the shareholders' agent in depositing checks and converting
them to federal funds.
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. A Fund will
allow such exchanges only upon the prior approval of the Fund and a
determination by the Fund and the investment adviser that the securities to
be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies
of a 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 a 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 a Fund are described in the prospectuses.
Dividend income is recorded on the ex-dividend date, except certain
dividends from foreign securities where the ex-dividend date may have
passed, are recorded as soon as a Fund is informed of the ex-dividend date.
DETERMINING MARKET VALUE OF SECURITIES

The market values of a 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

A Fund redeems shares at the next computed net asset value after the
Fund receives the redemption request. Redemption procedures are explained
in the prospectuses under "Redeeming Shares."
REDEMPTION IN KIND
Although eah 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 Trusts have elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940, which obligates a 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

Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for acts or obligations of the Trusts. To protect
shareholders, the Trusts have filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders for such acts or
obligations of the Trusts. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument the
Trusts or the Trustees enter into or sign on behalf of a Fund.
In the unlikely event a shareholder is held personally liable for a
Trust's obligations on behalf of a 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, a Trust will defend any claim made
and pay any judgment against a shareholder of a Fund for any act or
obligation of the Trust on behalf of the Fund. Therefore, financial loss
resulting from liability as a shareholder of a Fund will occur only if the
Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from the assets of the Fund.
TAX STATUS

THE FUNDS' TAX STATUS
Each 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, each
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.
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 to avoid liability of federal income taxes, a 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 of the Equity Fund, Quantitative Equity Fund, Equity Index
Fund, Special Values Fund, Emerging Markets Fund, Balanced Fund, Fixed
Income Fund, and Short-Term Fixed Income Fund 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 a 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.

No portion of any income dividend income paid by the Georgia Municipal
Bond Fund, North Carolina Municipal Bond Fund, and South Carolina Municipal
Bond Fund is eligible for the dividends received deductions available to
corporations.
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.
Capital gains or losses may be realized by the Georgia Municipal Bond
Fund, North Carolina Municipal Bond Fund, and South Carolina Municipal Bond
Fund on the sale of portfolio securities and as a result of discounts from
par value on securities held to maturity. Sales would generally be made
because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares.

TOTAL RETURN

The average annual total return 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.
Cumulative total return reflects a Fund's total performance over a specific
period of time. This total return assumes and is reduced by the payment of
the maximum sales charge. The Funds' cumulative total returns are
representative of investment activity since a Fund's effective date.
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C> <C>
FUND NAME CLASS A CLASS A CLASS A CLASS B CLASS Y SHARES
SHARES SHARES SHARES SHARES CUMULATIVE
AVERAGE AVERAGE AVERAGE CUMULATIVE TOTAL RETURN
ANNUAL ANNUAL ANNUAL TOTAL SINCE INCEPTION
TOTAL TOTAL RETURN TOTAL RETURN RETURN
RETURN 5-YEAR SINCE SINCE
1-YEAR PERIOD* INCEPTION** INCEPTION
PERIOD*

Equity Fund 19.90% 15.08%+ 14.25%++ 19.57%++

Quantitative 18.15% 19.04%# 14.92%++ 20.19%++
Equity Fund

Equity Index 21.48% 17.17%+ 20.14++
Fund

Special 33.53% 15.90%+ 15.05%++
Values Fund

Emerging 7.39% 5.92## (2.10%)++
Markets Fund
Balanced Fund 13.23% 11.93%+ 9.47%++ 14.69%++
Fixed Income 0.72% 4.36%+ 0.77%++ 6.12%++
Fund
Short-Term 2.70% 4.00%+ 3.00%++
Fixed Income
Fund
Georgia 0.21% 7.09%## 4.31%++
Municipal
Bond Fund
North 0.42% 7.43%## 4.55%++
Carolina
Municipal
Bond Fund
South 0.80% 6.63% 6.85%### 4.86%++
Carolina
Municipal
Bond Fund

</TABLE>

* For the fiscal year ended November 30, 1996.
** Start of performance
+ May 7, 1993 through November 30, 1996
++ July 23, 1996 through November 30, 1996
# March 25, 1994 through November 30, 1996
## December 23, 1994 through November 30, 1996
### January 11, 1991 through November 30, 1996
YIELD

The yield for a 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 a 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 a Fund, the performance will be reduced for those
shareholders paying those fees.
The Funds' yield for the thirty-day period ended November 30, 1996, is
as follows:
FUND NAME CLASS A SHARES CLASS B SHARES CLASS Y SHARES

Equity Fund 0.77% (0.15%) 0.81%

Quantitative 1.11% 0.21% 1.17%
Equity Fund
Equity Index Fund 1.50% 1.57% 1.57%
Special Values 0.40% 0.40%
Fund
Emerging Markets 0.00% 0.00%
Fund
Balanced Fund 2.52% 1.68% 2.65%
Fixed Income Fund 5.21% 4.46% 5.47%
Short-Term Fixed 5.11% 5.24%
Income Fund
Georgia Municipal 3.96% 4.16%
Bind Fund
North Carolina 3.88% 4.09%
Municipal Bond
Fund
South Carolina 4.40% 4.63%
Municipal Bond
Fund

TAX-EQUIVALENT YIELD

The tax-equivalent yield of a Fund is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that a Fund would
have had to earn to equal its actual yield, assuming that income is 100%
tax-exempt.

The Funds may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in a Fund's
portfolio generally remain free from federal regular income tax*, and is
often free from state and local taxes as well. As the tables below
indicate, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable
yields.
Georgia Municipal Bond Fund Class A Shares' tax-equivalent yield for
the thirty-day period ended November 30, 1996 was 5.74%, assuming a 31%
tax bracket.
Georgia Municipal Bond Fund Class Y Shares' tax-equivalent yield for
the thirty-day period ended November 30, 1996 was 6.03%, assuming a 31%
tax bracket.

TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF GEORGIA

TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED
FEDERAL
AND STATE:21.00% 34.00% 37.00% 42.00% 45.60%

JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750

Tax-Exempt
Yield Taxable Yield Equivalent

1.50% 1.90% 2.27% 2.38% 2.59% 2.76%
2.00% 2.53% 3.03% 3.17% 3.45% 3.68%
2.50% 3.16% 3.79% 3.97% 4.31% 4.60%
3.00% 3.80% 4.55% 4.76% 5.17% 5.51%
3.50% 4.43% 5.30% 5.56% 6.03% 6.43%
4.00% 5.06% 6.06% 6.35% 6.90% 7.35%
4.50% 5.70% 6.82% 7.14% 7.76% 8.27%
5.00% 6.33% 7.58% 7.94% 8.62% 9.19%
5.50% 6.96% 8.33% 8.73% 9.48% 10.11%
6.00% 7.59% 9.09% 9.52% 10.34% 11.03%
6.50% 8.23% 9.85% 10.32% 11.21% 11.95%
7.00% 8.86% 10.61% 11.11% 12.07% 12.87%
North Carolina Municipal Bond Fund Class A Shares' tax-equivalent yield
for the thirty-day period ended November 30, 1996 was 5.62%, assuming a
31% tax bracket.
North Carolina Municipal Bond Fund Class Y Shares' tax-equivalent yield
for the thirty-day period ended November 30, 1996 was 5.93%, assuming a
31% tax bracket.

TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF NORTH CAROLINA

TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%

COMBINED
FEDERAL
AND STATE 22.00% 35.00% 38.75% 43.75% 47.35%

JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750

SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750

Tax-Exempt
Yield Taxable Yield Equivalent

3.50% 4.49% 5.38% 5.71% 6.22% 6.65%
4.00% 5.13% 6.15% 6.53% 7.11% 7.60%
4.50% 5.77% 6.92% 7.35% 8.00% 8.55%
5.00% 6.41% 7.69% 8.16% 8.89% 9.50%
5.50% 7.05% 8.46% 9.98% 9.78% 10.45%
6.00% 7.69% 9.23% 9.80% 10.67% 11.40%
6.50% 8.33% 10.00% 10.61% 11.56% 12.35%
7.00% 8.97% 10.77% 11.43% 12.44% 13.30%
7.50% 9.62% 11.54% 12.24% 13.33% 14.25%
8.00% 10.26% 12.31% 13.06% 14.22% 15.19%

South Carolina Municipal Bond Fund Class A Shares' tax-equivalent yield
for the thirty-day period ended November 30, 1996 was 6.38%, assuming a
31% tax bracket.
South Carolina Municipal Bond Fund Class Y Shares' tax-equivalent yield
for the thirty-day period ended November 30, 1996 was 6.71%, assuming a
31% tax bracket.

TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF SOUTH CAROLINA

TAX BRACKET:
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED
FEDERAL
AND STATE 22.00% 35.00% 38.00% 43.00% 46.60%

JOINT $1- $40,401- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750

SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750

Tax-Exempt
Yield Taxable Yield Equivalent

2.50% 3.21% 3.85% 4.03% 4.39% 4.68%
3.00% 3.85% 4.62% 4.84% 5.26% 5.62%
3.50% 4.49% 5.38% 5.65% 6.14% 6.55%
4.00% 5.13% 6.15% 6.45% 7.02% 7.49%
4.50% 5.77% 6.92% 7.26% 7.89% 8.43%
5.00% 6.41% 7.69% 8.06% 8.77% 9.36%
5.50% 7.05% 8.46% 8.87% 9.65% 10.30%
6.00% 7.69% 9.23% 9.68% 10.53% 11.24%
6.50% 8.33% 10.00% 10.48% 11.40% 12.17%
7.00% 8.97% 10.77% 11.29% 12.28% 13.11%

Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state
and local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The charts above are for illustrative purposes only. They are not
indicators of past or future performance of the Funds.
* Some portion of a Fund's income may be subject to the federal
alternative minimum tax and state and local taxes.

PERFORMANCE COMPARISONS

A Fund's performance depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio
securities;

ochanges in the Fund's expenses;
othe relative amount of Fund cash flow; and
ovarious other factors.
A 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, a Fund will quote its Lipper ranking 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.
oRUSSELL 2000 INDEX is a broadly diversfied index consisting of
approximately 2,000 small capitalization common stocks that can be
ised to compare the total returns of funds whose portfolios are
invested primarily in small capitalization common stocks.
oEUROPE, AUSTRALIA, AND FAR EAST ("EAFE") is a market
capitalization weighted foreign securities index, which is widely
used to measure the performance of European, Australian, New
Zealand and Far Eastern stock markets. The index covers
approximately 1,020 companies drawn from 18 countries in the above
regions. The index values its securities daily in both U.S.
dollars and local currency and calculates total returns monthly.
EAFE U.S. dollar total return is a net dividend figure less
Luxembourg withholding tax. The EAFE is monitored by Capital
International, S.A., Geneva, Switzerland.
oINTERNATIONAL FINANCE CORPORATION ("IFC") EMERGING MARKET INDICES
are market capitalization-weighted foreign securities indices,
which are used to measure the performance of emerging markets (as
defined by the World Bank) in Europe, Asia, Latin America, and
the Middle East/Africa. The IFC calculates both a "Global" and an
"Investable" version of its index. The "Global" version includes
companies and countries with regard to their access to foreign

investors. The "Investable" Index adjusts company and market
weights to reflect their accessibility to foreign investors. The
IFC Global Index currently covers approximately 1,200 securities
in 25 markets; the IFC Investable Index currently covers
approximately 900 securities in 24 markets. Both indices are
presently calculated in local currency and in US dollars, without
dividends and with gross dividends reinvested (e.g., before
withholding taxes). The IFC is a subsidiary of the World Bank,
and has been collecting data on emerging markets since 1975.
oMORGAN STANLEY CAPITAL INTERNATIONAL ("MSCI") EMERGING MARKETS
INDICES are market capitalization-weighted foreign securities
indices, which are used to measure the performance of emerging
markets (as defined by the World Bank) in Europe, Asia, Latin
America, and the Middle East/Africa. MSCI calculates a "Global"
and a "Free" version of its index. The "Global" version includes
companies and countries without regards to their access to foreign
investors. The "Free" Index adjusts company and market weights to
reflect their assessibility to foreign investors. The MSCI Global
Index currently covers approximately 630 securities in 20
markets; the MSCI Free Index currently covers approximately 560
securities in 19 markets. Both indices are presently calculated
in local currency and in US dollars, without dividends and with
gross dividends reinvested (e.g., before withholding taxes).
oMERRILL LYNCH COMPOSITE 1-3 YEAR TREASURY INDEX is an unmanaged
index tracking short-term U.S. government securities with
maturities between 1 and 2.99 years. The index is produced by
Merrill Lynch, Pierce, Fenner & Smith.

oMERRILL 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.
oSALOMON 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.
oMERRILL 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.
oMERRILL 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.
oLEHMAN 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.

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; Fannie Mae; Government National Mortgage
Association; and Student Loan Marketing Association; foreign
obligations; and U.S. investment-grade corporate debt and
mortgage-backed obligations. All corporate debt included in the
Aggregate Bond Index has a minimum S&P rating of BBB or a minimum
Moody's rating of Baa.
oMERRILL 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).
oMERRILL 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).
oS&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.
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.

oSEI BALANCED UNIVERSE is composed of 916 portfolios managed by 390
managers representing $86 billion in assets. To be included in the
universe, a portfolio must contain a 5% minimum commitment in both
equity and fixed-income securities. Consulting universes may be
composed of pension, profit-sharing, commingled,
endowment/foundation and mutual funds.
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.
oMERRILL LYNCH CORPORATE MASTER is an unmanaged index comprised of
approximately 4,356 corporate debt obligations rated BBB or
better. These quality parameters are based in composites pf
ratings assigned by S&P and Moody's. Only bonds with a minimum
maturity of ine year are included.
OLEHMAN BROTHERS STATE GENERAL OBLIGATIONS INDEX is an index
comprised of all state general obligation debt issues and is
compiled without regard to maturities. These bonds are rated A or
better and represent a variety of coupon ranges. Index figures are
total returns calculated for one, three, and twelve month periods
as well as year-to-date. Total returns are also calculated as of
the index inception, December 31, 1979.

oLEHMAN BROTHERS FIVE-YEAR STATE GENERAL OBLIGATIONS BONDS is an
index comprised of all state general obligation debt issues with
maturities between four and six years. These bonds are rated A or
better and represent a variety of coupon ranges. Index figures are
total returns calculated for one, three, and twelve month periods
as well as year-to-date. Total returns are also calculated as of
the index inception, December 31, 1979.
oLEHMAN BROTHERS THREE-YEAR STATE GENERAL OBLIGATIONS BONDS is an
index comprised of the same issues noted above except that the
maturities range between two and four years. Index figures are
total returns calculated for the same periods as listed above.
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, 1996,
are incorporated herein by reference from the Funds' Annual Reports dated

November 30, 1996 (File Nos. 33-44590 and 811-6504). A copy of an 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 a Fund or any member of
the public regarding the advisability of investing in securities
generally or in a Fund particularly or the ability of the S&P 500 Index
(as defined in the prospectuses) to track general stock market
performance. S&P's only relationship to Federated Securities Corp., the
Funds' 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 a Fund. S&P has no obligation to take the needs of the Licensee or the
owners of a 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 a Fund to be issued or in the determination or calculation
of the equation by which a Fund is to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing
or trading of a 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 a 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.

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.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB, B, CCC, CC -- Debt rated ``BB'', `B'', ``CCC'', and `CC'' is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms

of the obligation. `BB'' indicates the lowest degree of speculation and
`CC'' the highest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed by
large uncertainties of major risk exposure to adverse conditions.
C -- The rating ``C'' is reserved for income bonds on which no interest
is being paid.
D -- Debt rated ``D'' is in default, and payment of interest and/or
repayment of principal is in arrears.
NR--NR indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that S&P does
not rate a particular type of obligation as a matter of policy.
S&P may apply a plus (+) sign or minus (-) sign to the above rating
classifications to show relative standing within the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING
AAA--Bonds which are rated ``AAA'' are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected by
a large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
AA--Bonds which are rated ``AA'' are judged to be of high quality by
all standards. Together with the `AAA'' group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in `AAA
`securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in `AAA' securities.

A--Bonds which are rated ``A'' possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
some time in the future.
BAA--Bonds which are rated ``BAA'' are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
BA--Bonds which are ``BA'' are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B--Bonds which are rated ``B'' generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
CAA -- Bonds which are rated ``CAA'' are of poor standing. Such issues
may be in default or there may be present elements of danger with respect
to principal or interest.
CA--Bonds which are rated ``CA'' represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.

C--Bonds which are rated ``C'' are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects or
ever attaining any real investment standing.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and
3 in each generic rating classification from `AA'' through ``B'' in its
corporate bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S 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
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3--Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B--Issues rated "B" are regarded as having only speculative capacity
for timely payment.
C--This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D--Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on the

date due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
PRIME-1--Issuers rated ``PRIME-1'' (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. `PRIME-1'' repayment capacity will normally be evidenced by
many of the following characteristics:
oLeading market positions in well-established industries;
oHigh rates of return on funds employed;
oConservative capitalization structure with moderate reliance on
debt and ample asset protection;
oBroad margins in earnings coverage of fixed financial charges and
high internal cash generation; or
oWell-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2- Issuers rated ``PRIME-2'' (or related supporting
institutions) have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is
maintained.
STANDARD & POOR'S RATINGS GROUP MUNICIPAL BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.

AA--Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small
degree.
A--Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effect
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB, B, CCC, CC--Debt rated "BB," "B," "CCC" and "CC" is regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "CC" the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these outweighed by large
uncertainties of major risk exposure to adverse conditions.
C--The rating "C" is reversed for income bonds on which no interest is
being paid.
D--Debt rated "D" is in default, and payment of interest and/or
repayment of principal is in arrears.
STANDARD & POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus sign (+) designation.

SP-2--Satisfactory capacity to pay principal and interest.
SP-3--Speculative capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATINGS
AAA--Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
AA--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in "Aaa" securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in "Aaa" securities.
A--Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
some time in the future.
BAA--Bonds which are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds

lack outstanding investment characteristics and in fact have speculative
characteristics as well.
BA--Bonds which are ``Ba'' are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B--Bonds which are rated ``B'' generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
CAA--Bonds which are rated ``Caa'' are of poor standing. Such issues
may be in default or there may be present elements of danger with respect
to principal or interest.
CA--Bonds which are rated ``Ca'' represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C--Bonds which are rated ``C'' are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
PRIME-1--Issuers rated PRIME-1 (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. PRIME-1 repayment capacity will normally be evidenced by the
following characteristics:
oLeading market positions in well established industries;
oHigh rates of return on funds employed;

oConservative capitalization structure with moderate reliance on
debt and ample asset protection;
oBroad margins in earning coverage of fixed financial charges and
high internal cash generation; and
oWell-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions)
have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the
characteristics cited above, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3--Issuers rated PRIME-3 (or related supporting institutions)
have an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
NOT PRIME--Issuers rated NOT PRIME do not fall within any of the Prime
rating categories.
MOODY'S INVESTORS SERVICE, INC. SHORT TERM LOAN RATINGS
MIG 1/VMIG 1--This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support
or demonstrated broad based access to the market for refinancing.
MIG 2/VMIG 2--This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

MIG 3/VMIG 3--This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength
of the preceding grades. Liquidity and cash flow protection may be narrow
and market access for refinancing is likely to be less well established.

3012917B (1/97)

Prospectus

January 31, 1997

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

An investment in the Fund is neither insured nor guaranteed by the U.S.
government. The Fund attempts to maintain a stable net asset value of $1.00 per
share; there can be no assurance that the Fund will be able to do so.

The Fund is a money market fund which invests in money market instruments to
provide current income consistent with stability of principal and liquidity.

The Fund pursues this investment objective by investing exclusively in money
market instruments maturing in 397 days or less.

The shares offered by this prospectus are not deposits or obligations of, or
endorsed or guaranteed by, Wachovia Bank of North Carolina, N.A. or its
affiliates or subsidiaries, and are not insured by the Federal Deposit
Insurance Corporation (the "FDIC"), the Federal Reserve Board, or any other
government agency.

This prospectus contains the information you should read and know before you
invest in Institutional Shares of the Fund. Keep this prospectus for future
reference.

Biltmore
Money Market Fund
(A Portfolio of The Biltmore Funds)
Institutional Shares

The Fund has also filed a Statement of Additional Information for Institutional
Shares and Investment Shares, dated January 31, 1997 with the Securities and
Exchange Commission ("SEC"). 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. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Funds is

maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

These securities have not been approved or disapproved by the securities and
exchange commission nor has the securities and exchange commission passed upon
the accuracy or adequacy of this prospectus. Any representation to the contrary
is a criminal offense.

WACHOVIA

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

TABLE OF CONTENTS

- ---------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ---------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 2
- ---------------------------------------------------
GENERAL INFORMATION 3
- ---------------------------------------------------
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
U.S. Government Obligations 4

Variable Rate Demand Notes 4
Bank Instruments 4
Short-Term Credit Facilities 4
Repurchase Agreements 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed Delivery
Transactions 5
Investing in Securities of Other
Investment Companies 5
Concentration of Investments 6
Lending of Portfolio Securities 6
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 7

Adviser's Background 7
Distribution of Institutional Shares 7
Administration of the Fund 7
Administrative Services 7
- ---------------------------------------------------
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
- ---------------------------------------------------
EXCHANGES 9
- ---------------------------------------------------
REDEEMING INSTITUTIONAL SHARES 9
By Telephone 10
- ---------------------------------------------------
SHAREHOLDER INFORMATION 10
Voting Rights 10
- ---------------------------------------------------
EFFECT OF BANKING LAWS 10
- ---------------------------------------------------
TAX INFORMATION 11
- ---------------------------------------------------
PERFORMANCE INFORMATION 11
- ---------------------------------------------------
OTHER CLASSES OF SHARES 12
- ---------------------------------------------------
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
<CAPTION>
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C>
Management Fee (after waiver) (1) 0.18%
12b-1 Fees None
Other Expenses (after waiver) (2) 0.19%
Total Institutional Shares Operating Expenses (after waivers)(3) 0.37%
</TABLE>

(2) Other expenses would have been 0.20% absent the voluntary waiver by the
portfolio accountant. The portfolio accountant can terminate this voluntary
waiver at any time at its sole discretion.

(3) The Annual Institutional Shares Operating Expenses would have been 0.69.%
absent the voluntary waiver described above in Notes 1 and 2.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of 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 $47
</TABLE>

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

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

BILTMORE MONEY MARKET FUND FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
Year Ended November 30, 1996 1995 1994 1993 1992(a)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.05 0.06 0.04 0.03 0.02
Less distributions
Distributions from net investment income (0.05) (0.06) (0.04) (0.03) (0.02)
--------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- -----------
Total Return (b) 5.25% 5.75% 3.77% 3.05% 1.71%
Ratios to Average Net Assets
Expenses 0.37% 0.38% 0.38% 0.25% 0.14%*
Net investment income 5.14% 5.61% 3.74% 3.00% 3.38%*
Expense waiver/reimbursement (c) 0.32% 0.34% 0.40% 0.56% 0.65%*
Supplemental Data
Net assets, end of period (000 omitted) $135,748 $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.

Further information about the Fund's performance is contained in the Fund's
Annual Report for the fiscal year ended Novmber 30, 1996, which can be obtained
free of charge.

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

of Trustees (the "Trustees") has established two classes of shares of Biltmore
Money Market Fund, Institutional Shares and Investment Shares. This prospectus
relates only to the Institutional Shares of the Fund.

Institutional Shares are offered only for purchase through the bank subsidiaries
of Wachovia Corporation: Wachovia Bank of North Carolina, N.A., Wachovia Bank of
Georgia, N.A., Wachovia Bank of South Carolina, N.A. 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 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 Equity Fund (Class A Shares,
Class B Shares, and Class Y Shares), Biltmore Quantitative Equity Fund (Class A
Shares, Class B Shares, and Class Y Shares), Biltmore Equity Index Fund (Class A
Shares and Class Y Shares), Biltmore Special Values Fund (Class A Shares and
Class Y Shares), Biltmore Emerging Markets Fund (Class A Shares and Class Y
Shares), Biltmore Balanced Fund (Class A Shares, Class B Shares, and Class Y
Shares), Biltmore Fixed Income Fund (Class A Shares, Class B Shares, and Class Y
Shares), Biltmore Short-Term Fixed Income Fund (Class A Shares and Class Y

Shares), Biltmore Prime Cash Management Fund (Institutional Shares), Biltmore
Tax-Free Money Market Fund (Institutional Shares and Investment Shares), and
Biltmore U.S. Treasury Money Market Fund (Institutional Shares and Investment
Shares).

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income consistent
with stability of principal and liquidity. The investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by complying
with the diversification and other 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 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; Federal Home Loan Banks; Federal Home Loan
Mortgage Corporation; Fannie Mae; Government National Mortgage Association; and
Student Loan Marketing Association.

Variable Rate Demand Notes. Variable rate demand notes are long-term corporate
debt instruments that have variable or floating interest rates and provide the
Fund with the right to tender the security for repurchase at its stated

principal amount plus accrued interest. Such securities typically bear interest
at a rate that is intended to cause the securities to trade at par. The interest
rate may float or be adjusted at regular intervals (ranging from daily to
annually), and is normally based on an interest rate index or a published
interest rate. Most variable rate demand notes allow the Fund to demand the
repurchase of the security on not more than seven days prior notice. Other notes
only permit the Fund to tender the security at the time of each interest rate
adjustment or at other fixed intervals. See "Demand Features." The Fund treats
variable rate demand notes as maturing on the later of the date of the next
interest rate adjustment or the date on which the Fund may next tender the
security for repurchase.

Bank Instruments. The Fund only invests in U.S. and foreign bank instruments
either issued by an institution having capital, surplus and undivided profits
over $100 million or insured by the Bank Insurance Fund ("BIF"), which is
administered by the FDIC. Bank instruments may include Eurodollar Certificates
of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs") and
Eurodollar Time Deposits ("ETDs"). The Fund will treat securities
credit-enhanced with a bank's irrevocable letter of credit or unconditional
guaranty as bank instruments.

Short-Term Credit Facilities. Demand notes are short-term borrowing arrangements
between a corporation and an institutional lender (such as the Fund) payable
upon demand by either party. The notice period for demand typically ranges from
one to seven days, and the party may demand full or partial payment. The Fund
may also enter into, or acquire participations in, short-term revolving credit
facilities with corporate borrowers. Demand notes and other short-term credit
arrangements usually provide for floating or variable rates of interest.

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, default, or change in the credit quality of the party providing
the credit enhancement will adversely affect the quality and marketability of
the underlying security and could cause losses to the Fund.

DEMAND FEATURES. The Fund may acquire securities that are subject to puts and

standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.

RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, and repurchase agreements providing for settlement in more than seven
days after notice, to 10% of its net assets.

The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law, and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a

view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Fund believes that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees are quite liquid. The Fund intends,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Trustees, including Section 4(2) commercial paper,
as determined by the Fund's investment adviser, as liquid and not subject to the
investment limitation applicable to illiquid securities. In addition, because
Section 4(2) commercial paper is liquid, the Fund intends to not subject such
paper to the limitation applicable to restricted securities.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.

The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund may
enter into transactions to sell purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase similar

securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but, unless permitted otherwise by
action of the Securities and Exchange Commission, 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.

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 the 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 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 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
$23 billion in managed assets as of December 31, 1996. 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 of 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.

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, 1997, the Wachovia Banks and their
various affiliates and subsidiaries, acting in various capacities for numerous
accounts, together were the owner of record of in excess of 25% of the

outstanding shares of the Fund, and therefore may, for certain purposes, be
deemed to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.

As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of Trustees
under certain circumstances.

Trustees may be removed by the Trustees or 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.

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.

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

The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.

Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.

Unless otherwise exempt, shareholders will be subject to federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares. Shareholders are
urged to consult their own tax advisers regarding the status of their accounts
under state and local tax laws.

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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.

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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 Portfolio of The Biltmore Funds
An Open-End Management Investment Company

Cusip 090297102
January 31, 1997 2020203A-IS (1/97)
822-16 (1/97)

Prospectus
January 31, 1997

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 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 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 Statement of Additional Information for Investment
Shares and Institutional Shares, dated January 31, 1997, with the Securities
and Exchange Commission ("SEC"). The information contained in the Statements of

Additional Information is incorporated by reference into this prospectus. You
may request a copy of any of the 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. The Statements of Additional
Information, material incorporated by reference into this document and other
information regarding the Funds is maintained electronically with the SEC at
Internet Web Site (http://www.sec.gov).

[LOGO]

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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 5
- ---------------------------------------------------
BILTMORE TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 6
- ---------------------------------------------------
BILTMORE U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 7
- ---------------------------------------------------
GENERAL INFORMATION 8
- ---------------------------------------------------
INVESTMENT INFORMATION 8
Money Market Fund 8
Investment Objective 8
Investment Policies 8
Acceptable Investments 8
U.S. Government Obligations 9
Bank Instruments 9
Short-Term Credit Facilities 9
Investment Risks 9

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

Investment Limitations 13
Tax-Free Fund 14
Investment Limitations 14
U.S. Treasury Fund 14

Investment Limitation 14

- ---------------------------------------------------
THE BILTMORE FUNDS INFORMATION 14
Management of the Trust 14
Board of Trustees 14
Investment Adviser 14
Advisory Fees 14
Adviser's Background 14
Distribution of Investment Shares 15
Distribution Plan 15
Administrative Arrangements 15
Administration of the Funds 16
Administrative Services 16
- ---------------------------------------------------
NET ASSET VALUE 16
- ---------------------------------------------------
INVESTING IN INVESTMENT SHARES 16
Share Purchases 16
Through Wachovia Investments, Inc. 16
By Mail 16
Through the Wachovia Banks or
Other Service Organizations 17

Minimum Investment Required 17
What Shares Cost 17
Certificates and Confirmations 17
Dividends 18
Capital Gains 18
- ---------------------------------------------------
EXCHANGES 18
- ---------------------------------------------------
REDEEMING INVESTMENT SHARES 19
Through Wachovia Investments, Inc. 19
By Telephone 19
By Mail 20
Through the Wachovia Banks 20
By Telephone 20
Via Sweep Agreement 20
Through Service Organizations 20
By Telephone 20
Accounts With Low Balances 21
- ---------------------------------------------------
SHAREHOLDER INFORMATION 21
Voting Rights 21
- ---------------------------------------------------
EFFECT OF BANKING LAWS 21
- ---------------------------------------------------
TAX INFORMATION 22
Money Market and U.S. Treasury Funds 22
Tax-Free Fund 22
State and Local Taxes 23

- ---------------------------------------------------
PERFORMANCE INFORMATION 23
- ---------------------------------------------------
OTHER CLASSES OF SHARES 23
- ---------------------------------------------------
ADDRESSES BACK COVER

INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES

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

<TABLE>
<S> <C>
Management Fee (after waiver) (1) 0.18%
12b-1 Fees 0.40%
Other Expenses (after waiver) (2) 0.19%
Total Investment Shares Operating Expenses (after waiver) (3) 0.77%
</TABLE>

(2) Other expenses would have been 0.20% absent the voluntary waiver by the
portfolio accountant. The portfolio accountant can terminate this voluntary
waiver at any time at its sole discretion.

(3) The Annual Investment Shares Operating Expenses would have been 1.09%
absent the voluntary waivers described above in Notes 1 and 2.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of 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.

<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 $25 $43 $95
</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 TAX-FREE MONEY MARKET FUND
SUMMARY OF FUND EXPENSES

INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge 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) 0.06%
12b-1 Fees 0.40%
Other Expenses 0.18%
Total Investment Shares Operating Expenses (after waiver) (2) 0.64%
</TABLE>

(2) The Annual Investment Shares Operating Expenses and the Operating Expenses
absent the voluntary waiver were 0.69% and 112% for the fiscal year ended
November 30, 1996. The Annual Investment Shares Operating Expenses are
expected to be 1.08%, 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 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.

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
SUMMARY OF FUND EXPENSES

INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge 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) (1) 0.00%
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) (2) 0.08%
12b-1 Fees 0.40%
Other Expenses 0.16%
Total Investment Shares Operating Expenses (after waiver) (3) 0.64%
</TABLE>

(1) Shareholders who purchase Investment Shares of the Fund through exchange of
Class B Shares of another Biltmore Fund, may be charged a contingent
deferred sales charge by the Trust's distributor according to the following
schedule:

<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>

The contingent deferred sales charge is based upon terms and conditions
applicable to redemptions of the Class B Shares of the Biltmore Fund originally
purchased. See "Exchanges."

(3) The Annual Investment Shares Operating Expenses and the Operating Expenses
absent the voluntary waiver were 0.70% and 109% for the fiscal year ended
November 30, 1996. The Annual Investment Shares Operating Expenses are
expected to be 1.06%, absent the voluntary waiver described above in Note
2.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Investments 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 Investments 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.

<TABLE>
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. $57 $52 $59 $89
You would pay the following expenses on the same investment,
assuming no redemption: $7 $23 $40 $89
</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)

<TABLE>
<CAPTION>
Year Ended November 30, 1996 1995 1994 1993 1992(a)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.05 0.05 0.03 0.03 0.01
Less distributions
Distributions from net investment income (0.05) (0.05) (0.03) (0.03) (0.01)
--------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- -----------
Total Return (b) 4.83% 5.40% 3.46% 2.74% 1.48%
Ratios to Average Net Assets
Expenses 0.77% 0.72% 0.68% 0.55% 0.48%*
Net investment income 4.74% 5.27% 3.44% 2.70% 3.44%*
Expense waiver/reimbursement (c) 0.32% 0.40% 0.50% 0.66% 0.75%*
Supplemental Data
Net assets, end of period (000 omitted) $230,263 $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 charge 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, 1996, which can be obtained
free of charge.

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
Year Ended November 30, 1996 1995 1994 1993 1992(a)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.03 0.03 0.02 0.02 0.01
Less distributions
Distributions from net investment income (0.03) (0.03) (0.02) (0.02) (0.01)
--------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- -----------
Total Return (b) 2.83% 3.25% 2.11% 1.99% 1.29%
Ratios to Average Net Assets
Expenses 0.69% 0.66% 0.68% 0.59% 0.50%*
Net investment income 2.84% 3.19% 2.11% 1.98% 2.37%*
Expense waiver/reimbursement (c) 0.43% 0.52% 0.55% 0.70% 0.88%*
Supplemental Data
Net assets, end of period (000 omitted) $74,922 $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 charge 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, 1996, which can be obtained
free of charge.

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
Year Ended November 30, 1996 1995 1994 1993(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 0.05 0.03 0.01
Less distributions
Distributions from net investment income (0.04) (0.05) (0.03) (0.01)
--------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- -----------
Total Return (b) 4.77% 5.30% 3.39% 1.42%
Ratios to Average Net Assets
Expenses 0.70% 0.66% 0.66% 0.65%*
Net investment income 4.68% 5.21% 3.42% 2.50%*
Expense waiver/reimbursement (c) 0.39% 0.46% 0.61% 0.73%*
Supplemental Data
Net assets, end of period (000 omitted) $104,336 $81,739 $46,396 $16,941
</TABLE>

* 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 charge 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, 1996, which can be obtained
free of charge.

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

of Trustees (the "Trustees") has established two classes of shares of the Money
Market Fund, the Tax-Free Fund and the U.S. Treasury Fund: Investment Shares and
Institutional Shares. This prospectus relates only to Investment Shares of the
Funds.

Investment Shares of the Money Market and the U.S. Treasury Funds are designed
primarily for individual investors, corporations, or partnerships as a
convenient means of participating in a professionally-managed, 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, 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. 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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT INFORMATION

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.

Unless indicated otherwise, the investment policies discussed below may be
changed by the Trustees without the approval of shareholders. Shareholders will
be notified before any material changes in these policies become effecitve.

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.

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 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.

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
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.

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 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.

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 Standard & Poor's Ratings Group or Prime-1 by Moody's
Investors Services, Inc. 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.

ACCEPTABLE INVESTMENTS. The U.S. Treasury Fund invests only in U.S. Treasury
obligations maturing in 397 days or less or in repurchase agreements
collateralized by U.S. government securities. The average maturity of the U.S.
Treasury obligations in the U.S. Treasury Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less.

ALL FUNDS

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Funds may invest in
the securities of other investment companies, but, unless permitted otherwise by
action of the Securities and Exchange Commission, 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.

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 if 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.

VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term corporate
debt instruments or, in the case of the Tax-Free Fund, Municipal Securities,
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.

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, or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to a Fund.

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

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 may voluntarily choose to waive a portion of its fees or reimburse the
Funds for certain other expenses of the Funds, but reserves the right to
terminate such waiver or reimbursement at any time at its sole discretion.

ADVISER'S BACKGROUND. Wachovia Bank of North Carolina, N.A. is a direct,
wholly-owned subsidiary of Wachovia Corporation, a registered bank holding
company headquartered in Winston-Salem, North Carolina and Atlanta, Georgia.
Through offices in eight states, Wachovia Corporation and its subsidiaries
provide a broad range of financial services to individuals and businesses.

Wachovia Bank of North Carolina, N.A. is a national banking association, which
offers a broad range of financial services, including commercial and consumer
loans, corporate, institutional and personal trust services, demand and time
deposit accounts, letters of credit and international financial services.
Wachovia 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
$23 billion in managed assets as of December 31, 1996. 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.

Shareholders may exchange Class B Shares of another Biltmore Fund for Investment
Shares of the Biltmore U.S. Treasury Money Market Fund. Such an exchange will
not be subject to a contingent deferred sales charge. However, if the
shareholder redeems the exchanged-for shares within seven years of the original
purchase of Class B Shares, a contingent deferred sales charge will be imposed.
For purposes of computing

the contingent deferred sales charge, the length of time the shareholder has
owned Class B Shares will be measured from the date of original purchase
according to the following schedule and will not be affected by the exchange:

<TABLE>
<CAPTION>
Year of Redemption Contingent Deferred
After Purchase Sales Charge
<S> <C>
First.............................................................................. 5%
Second............................................................................. 4%
Third.............................................................................. 3%
Fourth............................................................................. 3%
Fifth.............................................................................. 2%
Sixth.............................................................................. 1%
Seventh and thereafter............................................................. 0%
</TABLE>

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, 1997, the Wachovia Banks and their
various affiliates and subsidiaries, acting in various capacities for numerous
accounts, together 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.

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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.

THIS PAGE INTENTIONALLY LEFT BLANK

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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 Federated Services Company
Agent, 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

Portfolios of The Biltmore Funds
Investment Shares

An Open-End Management Investment Company

Cusip 090297201
Cusip 090297409
Cusip 090297888

January 31, 1997 3042106A (1/97)

822-21 (1/97)

Prospectus
January 31, 1997

The Institutional Shares of Biltmore Prime Cash Management Fund (the "Prime
Cash Management 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 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).

The investment objective of the Prime Cash Management Fund is to provide
current income consistent with stability of principal and liquidity. The Prime
Cash Management 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 Funds. Keep this prospectus for future
reference.

Biltmore Prime Cash Management Fund
Biltmore Tax-Free Money Market Fund
Biltmore U.S. Treasury Money Market Fund
(Portfolios of The Biltmore Funds)

Institutional Shares

Each Fund has also filed a Statement of Additional Information for
Institutional Shares and Investment Shares dated January 31, 1997, with the
Securities and Exchange Commission ("SEC"). The information contained in the
Statements of Additional Information is incorporated by reference into this
prospectus. To request a copy of any Statement of Additional Information free
of charge, obtain other information, or make inquiries about the Funds, call
1-800-994-4414 or write to The Biltmore Service Center, 101 Greystone
Boulevard, SC-9215, Columbia, South Carolina 29226, or contact your Wachovia
Bank (as defined herein) account representative. The Statements of Additional
Information, material incorporated by reference into this document, and other
information regarding the Funds is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).

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

- ---------------------------------------------------
BILTMORE PRIME CASH MANAGEMENT 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 PRIME CASH MANAGEMENT FUND
FINANCIAL HIGHLIGHTS 4
- ---------------------------------------------------
BILTMORE TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS 5
- ---------------------------------------------------
BILTMORE U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS 6
- ---------------------------------------------------
GENERAL INFORMATION 7
- ---------------------------------------------------
INVESTMENT INFORMATION 7
Prime Cash Management Fund 7
Investment Objective 7
Investment Policies 7
Acceptable Investments 7
Bank Instruments 8
Short-Term Credit Facilities 8
Investment Risks 8
Tax-Free Fund 8
Investment Objective 8
Investment Policies 8
Acceptable Investments 8
Municipal Securities 9
Participation Interests 9
Municipal Leases 9
Temporary Investments 9
Investment Risks 10
U.S. Treasury Fund 10
Investment Objective 10
Investment Policies 10
Acceptable Investments 10
All Funds 10
Investing in Securities of Other
Investment Companies 10
Repurchase Agreements 10
When-Issued and Delayed Delivery
Transactions 10

Prime Cash Management and Tax-Free Fund 11
Restricted and Illiquid Securities 11
Concentration of Investments 11
Variable Rate Demand Notes 11
Demand Features 11
Credit Enhancement 12

Prime Cash Management and
U.S. Treasury Funds 12
Lending of Portfolio Securities 12
Prime Cash Management Fund 12
Investment Limitations 12
Tax-Free Fund 12
Investment Limitations 12
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 13
Distribution of Institutional Shares 13
Administration of the Fund 14
Administrative Services 14
- ---------------------------------------------------
NET ASSET VALUE 14
- ---------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 14
Share Purchases 14
Through the Wachovia Banks 14
Via a Sweep Account 14
Minimum Investment Required 15
What Shares Cost 15
Certificates and Confirmations 15
Dividends 15
Capital Gains 15
- ---------------------------------------------------
EXCHANGES 15
- ---------------------------------------------------
REDEEMING INSTITUTIONAL SHARES 16
By Telephone 16
- ---------------------------------------------------
SHAREHOLDER INFORMATION 16
Voting Rights 16
- ---------------------------------------------------
EFFECT OF BANKING LAWS 17
- ---------------------------------------------------
TAX INFORMATION 17
Prime Cash Management and
U.S. Treasury Funds 17
Tax-Free Fund 17
State and Local Taxes
(Tax-Free Fund Only) 18
- ---------------------------------------------------
PERFORMANCE INFORMATION 18
- ---------------------------------------------------
OTHER CLASSES OF SHARES 19
- ---------------------------------------------------
ADDRESSES BACK COVER
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BILTMORE PRIME CASH MANAGEMENT FUND
SUMMARY OF FUND EXPENSES

SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge 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 waivers by the
administrator, portfolio accountant and transfer and dividend disbursing
agent. The administrator, portfolio accountant and transfer and dividend
disbursing agent can terminate these voluntary waivers at their sole
discretion.

(3) The Annual Fund Operating Expenses would have been 0.45% absent the
voluntary waivers described above in Notes l and 2.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Fund will bear 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. $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.

INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge 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) 0.06%
12b-1 Fees None
Other Expenses 0.18%
Total Institutional Shares Operating Expenses (after waiver) (2) 0.24%
</TABLE>

(2) The Annual Institutional Shares Operating Expenses and the Operating
Expenses absent the voluntary waiver were 0.29% and 0.72% for the fiscal
year ended November 30, 1996. The Annual Institutional Shares Operating
Expenses are expected to be 0.68% 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. $2 $8 $14 $31
</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 U.S. TREASURY MONEY MARKET FUND

SUMMARY OF FUND EXPENSES

ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver) (1) 0.08%
12b-1 Fees None
Other Expenses 0.16%
Total Institutional Shares Operating Expenses (after waiver) (2) 0.24%
</TABLE>

(2) The Annual Institutional Shares Operating Expenses and the Operating
Expenses absent the voluntary waiver were 0.30% and 0.69% for the fiscal
year ended November 30, 1996. The Annual Institutional Shares Operating
Expenses are expected to be 0.66%, 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."
<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 Institutional Shares. $2 $8 $14 $31
</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 PRIME CASH MANAGEMENT FUND FINANCIAL HIGHLIGHTS

INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

* 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 charge 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, 1996, which can be obtained
free of charge.

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

BILTMORE TAX-FREE MONEY MARKET FUND FINANCIAL HIGHLIGHTS

INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

* 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 charge 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, 1996, which can be obtained
free of charge.

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

BILTMORE U.S. TREASURY MONEY MARKET FUND

FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

* 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 charge 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, 1996, 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. The shares in any one portfolio
may be offered in separate classes. As of the date of this prospectus, the Board
of Trustees (the "Trustees") has established one class of shares of the Prime
Cash Management Fund: Institutional Shares, and two classes of shares of the
Tax-Free Fund and the U.S. Treasury Fund: Investment Shares and Institutional
Shares. This prospectus relates only to Institutional Shares of the Funds.

The Prime Cash Management Fund offers a convenient means of accumulating an
interest in a professionally managed portfolio limited to money market
instruments maturing in 397 days or less. A minimum initial investment of $5
million is required. The Tax-Free Fund offers a convenient means of accumulating
an interest in a professionally managed portfolio limited to short-term
municipal securities. The U.S. Treasury Fund offers a convenient means of
participating in a professionally-managed portfolio limited to short-term U.S.
Treasury obligations. Investors should consult their account agreement with the
Wachovia Banks for any applicable minimum investment.

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, 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.

Each Fund attempts to stabilize the value of its shares at $1.00. Institutional
Shares are currently sold and redeemed at that price.

The other portfolios in the Trust are Biltmore Balanced Fund (Class A Shares,
Class B Shares, and Class Y Shares), Biltmore Emerging Markets Fund (Class A
Shares and Class Y Shares), Biltmore Equity Fund (Class A Shares, Class B
Shares,and Class Y Shares), Biltmore Equity Index Fund (Class A Shares and Class
Y Shares), Biltmore Fixed Income Fund (Class A Shares, Class B Shares, and Class
Y Shares), Biltmore Money Market Fund (Investment Shares and Institutional
Shares), Biltmore Quantitative Equity Fund (Class A Shares, Class B Shares, and
Class Y Shares), Biltmore Short-Term Fixed Income Fund (Class A Shares and Class
Y Shares), and Biltmore Special Values Fund (Class A Shares and Class Y Shares).

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT INFORMATION

While there is no assurance that the Funds will achieve their investment
objectives, they endeavor to do so by complying with the diversification and
other 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. Unless indicated otherwise, the investment
policies discussed below may be changed by the Trustees without the approval of
shareholders. Shareholders will be notified before any material changes in these
policies become effective.

PRIME CASH MANAGEMENT FUND

INVESTMENT OBJECTIVE
The investment objective of the Prime Cash Management 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 Prime Cash Management 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 Prime Cash Management Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.

ACCEPTABLE INVESTMENTS. The Prime Cash Management Fund invests in high quality
money market instruments that are rated in the highest short-term rating
categories by one or more nationally recognized statistical rating organizations
("NRSROs") or are of comparable quality to securities having such ratings.
Examples of these instruments include, but are not limited to:

obligations issued or guaranteed as to payment of principal and interest by the
U.S. government, its agencies and instrumentalities;

commercial paper (including U.S. dollar denominated Eurodollar commercial paper
("Europaper");

certificates of deposit, demand and time deposits, and bankers' acceptances
("Bank Instruments");

corporate debt obligations, including bonds, notes, and debentures; and
repurchase agreements.

The Prime Cash Management Fund invests only in instruments denominated and
payable in U.S. dollars.

For further discussion of the instruments described above, consult the Prime
Cash Management Fund's Statement of Additional Information.

Bank Instruments. The Prime Cash Management 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 Prime Cash Management
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 Prime Cash
Management 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 Prime Cash Management 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 Prime Cash Management Fund's investment
adviser in selecting investments for the Prime Cash Management 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
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.

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 Statement of Additional Information.

MUNICIPAL SECURITIES

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 Standard & Poor's Ratings Group or Prime-1 by Moody's
Investors Service, Inc. and other short-term credit instruments.

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

ALL FUNDS

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.

PRIME CASH MANAGEMENT AND TAX-FREE FUNDS

RESTRICTED AND ILLIQUID SECURITIES. The Prime Cash Management Fund and Tax-Free
Fund may invest in restricted securities. Restricted securities are any
securities in which a 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 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 Prime Cash Management 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 Prime Cash Management 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 Prime Cash
Management 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 Prime Cash Management 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 Prime Cash
Management 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 Prime Cash Management 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 Prime Cash Management Fund intends to not subject such
paper to the limitation applicable to restricted securities.

CONCENTRATION OF INVESTMENTS. The Prime Cash Management 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.

VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term corporate
debt instruments or, in the case of the Tax-Free Fund, Municipal Securities,
that have variable or floating interest rates and provide the Funds 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 Funds to demand the repurchase of the
security on not more than seven days prior notice. Other notes only permit the
Funds to tender the security at the time of each interest rate adjustment or at
other fixed intervals. See "Demand Features." The Funds treat variable rate
demand notes as maturing on the later of the date of the next interest rate
adjustment or the date on which the Funds may next tender the security for
repurchase.

DEMAND FEATURES. The Prime Cash Management 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 Prime Cash Management 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 Prime Cash Management and Tax-Free Funds'
acceptable investments may be credit-enhanced by a guaranty, letter of credit or
insurance. Any bankruptcy, receivership, default or change in the credit quality
of the party providing the credit enhancement will adversely affect the quality
and marketability of the underlying security and could cause losses to the
Funds.

PRIME CASH MANAGEMENT AND U.S. TREASURY FUNDS

LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Prime Cash Management 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 Prime Cash Management 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.

PRIME CASH MANAGEMENT FUND

INVESTMENT LIMITATIONS

The Prime Cash Management Fund will not:

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 Tax-Free Fund will not:

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.

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 the Prime Cash Management Fund's average daily net assets, and 0.50% of
the Tax-Free and U.S. Treasury Fund's respective average daily net assets. The
investment advisory contract provides that such fees shall be accrued and paid
daily. The Adviser may voluntarily choose to waive a portion of its fees or
reimburse the Funds for certain other expenses of the Funds but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.

Adviser's Background. Wachovia Bank of North Carolina, N.A., is a direct,
wholly-owned subsidiary of Wachovia Corporation, a registered bank holding
company headquartered in Winston-Salem, North Carolina and Atlanta, Georgia.
Through offices in eight states, Wachovia Corporation and its subsidiaries
provide a broad range of financial services to individuals and businesses.

Wachovia 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
$23 billion in managed assets as of December 31, 1996. 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 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 INSTITUTIONAL SHARES

Federated Securities Corp. is the distributor for 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.

ADMINISTRATION OF THE FUNDS

<S> <C>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year for the Funds 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 Funds attempt to stabilize the net asset value of Institutional Shares at
$1.00 by valuing their portfolio securities using the amortized cost method. The
net asset value per share of each Fund is determined by adding the interest of
the Institutional Shares in the value of all securities and other assets of that
Fund, subtracting the interest of the Institutional Shares in the liabilities of
that Fund and those attributable to Institutional Shares, and dividing the
remainder by the total number of that Fund's Institutional 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 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 Funds and the distributor reserve the right to reject any
purchase request.

THROUGH THE WACHOVIA BANKS. To place an order to purchase Institutional Shares
of a Fund, customers of the Wachovia Banks may telephone, send written
instructions, or place the order in person with their account officer in
accordance with the procedures established by the Wachovia Banks and as set
forth in the relevant account agreement.

Payment may be made to the Wachovia Banks by check, federal funds, or by
debiting a customer's account with the Wachovia Banks. Orders are considered
received after payment by check is converted into federal funds and received by
the Wachovia Banks, normally the next business day. When payment is made with
federal funds, the order is considered received when federal funds are received
by the Wachovia Banks or available in the customer's account. Purchase orders
must be communicated to the Wachovia Banks by 11:00 a.m. (Eastern time) and
payment by federal funds must be received by the Wachovia Banks before 4:00 p.m.
(Eastern time) on the same day as the purchase order to earn dividends for that
day. Institutional Shares cannot be purchased on days on which the Wachovia
Banks, the New York Stock Exchange and the Federal Reserve Wire System are not
open for business.

VIA A SWEEP ACCOUNT. If you are investing in a Fund as part of a Wachovia Bank
sweep account program, automatic purchases and redemptions will be made by the
Wachovia Banks on your behalf pursuant to the sweep agreement you signed as part
of your trust account with the Wachovia Banks.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in the Prime Cash Management Fund is $5 million.
This amount may be waived from time to time.

Investors in the Tax-Free and the U.S. Treasury Funds 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 Funds.

The net asset value of each Fund 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 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 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.

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 Funds 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
Funds realize net long-term capital gains, they 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 a 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 a 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.

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REDEEMING INSTITUTIONAL SHARES

Institutional Shares are redeemed 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 your account officer. If
at any time the Funds 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 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
Funds, they may be liable for losses due to unauthorized or fraudulent telephone
instructions.

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SHAREHOLDER INFORMATION

VOTING RIGHTS

Each Institutional 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 3, 1997, the Wachovia Banks and their
various affiliates and subsidiaries, acting in various capacities for numerous
accounts, together were the owner of record of in excess of 25% of the
outstanding Shares of the Funds, and therefore may for certain purposes, be
deemed to control the Funds and be able to affect the outcome of certain matters
presented for a vote of shareholders.

As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Funds' 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 affiliate thereof from sponsoring, organizing, controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such laws and regulations do not prohibit such a holding company or affiliate
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.
Some entities providing services to the Funds are subject to such banking laws
and regulations. They believe, based on the advice of their counsel, that they
may perform those services for the Funds contemplated by any agreement entered
into with the Trust without violating those 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 these entities from continuing to
perform all or a part of the above services. If this happens, the Trustees would
consider alternative means of continuing available services. It is not expected
that shareholders would suffer any adverse financial consequences as a result of
any of these occurrences.

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TAX INFORMATION

PRIME CASH MANAGEMENT AND U.S. TREASURY FUNDS

Unless otherwise exempt, shareholders of the Prime Cash Management 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 Prime Cash
Management 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.

Dividends of the U. S. Treasury 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.

TAX-FREE FUND

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.

Dividends of the Tax-Free 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 (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 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 Tax-Free Fund's Institutional
Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that the Tax-Free Fund's 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 (for the Tax-Free Fund only)
will be calculated separately for Investment Shares and Institutional Shares.

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

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OTHER CLASSES OF SHARES

The Tax-Free and U.S. Treasury Funds also offer 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 the Investment Shares' average daily net assets.
Institutional Shares are distributed without a 12b-1 Plan.

Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares than from
another class of shares.

The amount of dividends payable to Investment Shares of the Tax-Free and the
U.S. Treasury Funds will be less than those payable to Institutional 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 Investment Shares, investors may
call 1-800-994-4414.

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Addresses
<TABLE>
<S> <C>
Biltmore Prime Cash Management Fund Federated Investors Tower
Biltmore Tax-Free Money Market Fund Pittsburgh, Pennsylvania 15222-3779
Biltmore U.S. Treasury Money Market Fund
Institutional 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 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

</TABLE>

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Biltmore Prime Cash Management Fund
Biltmore Tax-Free Money Market Fund
Biltmore U.S. Treasury Money Market Fund
Portfolios of The Biltmore Funds
Institutional Shares

An Open-End Management Investment Company

Cusip 090297300
Cusip 090297706
January 31, 1997 Cusip 090297805
822-30 (1/97) G01947-01 (1/97)

BILTMORE MONEY MARKET FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
INVESTMENT SHARES
STATEMENT OF ADDITIONAL INFORMATION
This 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, 1997 This 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, 1997

FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Types of Investments 1
Ratings 2
When-Issued and Delayed
Delivery Transactions 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
Investment Limitations 2
Regulatory Compliance 4
THE BILTMORE FUNDS MANAGEMENT 4

Officers and Trustees 4
Fund Ownership 6
Trustees Compensation 6
Trustee Liability 6
INVESTMENT ADVISORY SERVICES 6

Adviser to the Fund 6
Advisory Fees 7
BROKERAGE TRANSACTIONS 7

OTHER SERVICES 7

Fund Administration 7
Custodian and Portfolio Recordkeeper 7
Transfer Agent 8
Legal Services 8
Independent Auditors 8
PURCHASING SHARES 8

Distribution Plan (Investment Shares Only)8

Conversion to Federal Funds 8
EXCHANGING SECURITIES FOR FUND SHARES 8

DETERMINING NET ASSET VALUE 9

Use of the Amortized Cost Method 9
REDEEMING SHARES 10

Redemption in Kind 10
MASSACHUSETTS BUSINESS TRUSTS 10

TAX STATUS 10

The Fund's Tax Status 10
Shareholders' Tax Status 11
YIELD 11

EFFECTIVE YIELD 11

PERFORMANCE COMPARISONS 11

FINANCIAL STATEMENTS 12

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio in the Trust. The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated November
19, 1991.
Shares of the Fund are offered in two classes, Institutional Shares and
Investment Shares (individually and collectively referred to as `Shares,''
as the context may require). This 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 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
commercial paper and variable amount master demand notes, bank instruments,
and U.S. government obligations.
The instruments of banks whose deposits are insured by the Bank Insurance
Fund (`BIF''), which is administered by the Federal Deposit Insurance
Corporation, such as certificates of deposit, demand and time deposits, and
bankers' acceptances, are not necessarily guaranteed by that organization.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as
U.S. Treasury bills, notes, and bonds) and obligations issued or
guaranteed by U.S. government agencies or instrumentalities. These
securities are backed by:
the full faith and credit of the U.S. Treasury;
-

the issuer's right to borrow from the U.S. Treasury;
-
the discretionary authority of the U.S. government to purchase
-
certain obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the
-
obligations.
Examples of agencies and instrumentalities which may not always
receive financial support from the U.S. government are:
Farm Credit System, including the National Bank for Cooperatives,
-
Farm Credit Banks, and Banks for Cooperatives;
Federal Home Loan Banks;
-
Federal Home Loan Mortgage Corporation;
-
Fannie Mae;
-
Government National Mortgage Association; and
-
Student Loan Marketing Association.
-
BANK INSTRUMENTS
In addition to domestic bank obligations, such as certificates of
deposit, demand and time deposits, and bankers' acceptances, the Fund
may invest in:
Eurodollar Certificates of Deposit issued by foreign branches of
-
U.S. or foreign banks;
Eurodollar Time Deposits, which are U.S. dollar-denominated
-
deposits in foreign branches of U.S. or foreign banks; and
Yankee Certificates of Deposit, which are U.S. dollar-denominated
-
certificates of deposit issued by U.S. branches of foreign banks
and held in the United States.
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'')or Prime-1 by Moody's Investors
Service, Inc. (`Moody's''), 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.''
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund`s records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These assets are marked to
market daily and are maintained until the transaction has been settled.

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 in 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 ISSUES
The Fund will not invest in 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 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, unless it is permitted to exceed

these limitations by action of the SEC. 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. 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

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

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*
2835 Greenbriar
Harbor Springs, 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

Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA

Birthdate: March 23, 1960

Vice President and Assistant Treasurer
Vice President, Federated Services Company.

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

Secretary
Senior Corporate Counsel, Federated Investors.

*All Trustees ate independent of the Trust.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding Shares.
As of January 3, 1997 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 147,333,688 Shares (100%).
As of January 3. 1997, the following shareholders of record owned 5% or
more of the outstanding Investment Shares of the Fund: Wachovia
Investments, Inc., Winston-Salem, North Carolina, owned approximately
109,212,609 Shares (45.43%); Wachovia Bank of North Carolina, Winston-
Salem, North Carolina, on behalf of certain underlying accounts, owned
approximately 82,011,134 Shares (34.12%); and Wachovia Bank of Georgia,
Atlanta, Georgia, on behalf of certain underlying accounts, owned
approximately 32,783,807 Shares (13.64%).

TRUSTEES COMPENSATION

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

James A. Hanley, $24,600
Trustee and one other investment company in
the Complex

Samuel E. Hudgins, $24,600
Trustee and one other investment company in
the Complex

J. Berkley Ingram, Jr., $22,500
Trustee and one other investment company in
the Complex

D. Dean Kaylor, $22,500
Trustee and one other investment company in
the Complex

Charles S. Way, Jr., $22,500
Trustee and one other investment company in
the Complex

*Information is furnished for the fiscal year ended November 30, 1996.

+The total compensation is paid by The Biltmore Funds, which is comprised
of twelve portfolios and The Biltmore Municipal Funds, which is comprised
of three portfolios.
# The Fund Complex is comprised of 15 portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment adviser is Wachovia 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, 1996, 1995, and 1994 , the Adviser
earned $1,682,976, $1,299,430, and $859,936, respectively, of which
$1,066,801, $894,267, and $587,479, 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, 1996, 1995, and 1994, 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, 1996, 1995, 1994 , the Fund
incurred administrative service costs of
$291,826, $233,146, and $170,963, respectively, of which $0, $0, and
$46,534, respectively, were voluntarily waived. In addition, for the
fiscal years ended November 30, 1996, 1995, and 1994 , Federated
Administrative Services reimbursed$0, $0, and $52,852, 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, 1996, 1995, and 1994 , brokers and
administrators (financial institutions) received fees in the amount of
$813,049, $475,563, and $127,921, respectively, pursuant to the Plan, of
which $0, $66,795, and $31,980, respectively, were voluntarily waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds. The Wachovia Banks (as
defined in the prospectus) act as the shareholder's agent in depositing
checks and converting them to federal funds.

EXCHANGING SECURITIES FOR FUND SHARES

The Fund has no present intention of accepting securities in exchange for
Shares. However, if the Fund should allow such exchanges, it will do so
only upon the prior approval of the Fund and only upon a determination by
the Fund and 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

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

shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the
two methods of determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
that, if rated, meet minimum rating standards set forth in the Rule.
If the instruments are not rated, the Trustees must determine that
they are of comparable quality. The Rule also requires the Fund to
maintain a dollar-weighted average portfolio maturity (not more than
90 days) appropriate to the objective of maintaining a stable net
asset value of $1.00 per share. In addition, no instrument with a
remaining maturity of more than 397 days can be purchased by the Fund.
Should the disposition of a portfolio security result in a dollar-
weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90
days or less as soon as possible. Shares of investment companies
purchased by the Fund will meet these same criteria and will have
investment policies consistent with the Rule.
The Fund may attempt to increase yield by trading portfolio securities
to take advantage of short-term market variations. This policy may,
from time to time, result in high portfolio turnover. Under the
amortized cost method of valuation, neither the amount of daily income
nor the net asset value is affected by any unrealized appreciation or
depreciation of the portfolio. In periods of declining interest rates,
the indicated daily yield on Shares of the Fund computed by dividing
the annualized daily income on the Fund's portfolio by the net asset
value computed as above, may tend to be higher than a similar
computation made by using a method of valuation based upon market
prices and estimates. In periods of rising interest rates, the
indicated daily yield on shares of the Fund computed the same way may

tend to be lower than a similar computation made by using a method of
calculation based upon market prices and estimates.
REDEEMING SHARES

The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectus under `Redeeming Institutional Shares'' and
`Redeeming Investment Shares.''
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the Fund's portfolio. To the extent
available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
Redemption in kind is not as liquid as cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur transaction costs.
The Trust has elected to be governed by Rule 18f-1 of the 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

obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument the Trust or the
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations on behalf of the Fund, the Trust is required by the
Declaration of Trust to use the property of the Fund to protect or
compensate the shareholder. On request, the Trust will defend any claim
made and pay any judgment against a shareholder of the Fund for any act or
obligation of the Trust on behalf of the Fund. Therefore, financial loss
resulting from liability as a shareholder of the Fund will occur only if
the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from the assets of the Fund.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
derive at least 90% of its gross income from dividends, interest, and
- -
gains from the sale of securities;
derive less than 30% of its gross income from the sale of securities
- -
held less than three months;
invest in securities within certain statutory limits; and
- -
distribute to its shareholders at least 90% of its net income earned
- -
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and any short-
term capital gains received as cash or additional Shares. No portion of any
income dividend paid by the Fund is eligible for the dividends received

deduction available to corporations. These dividends and any short-term
capital gains are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If,
for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
YIELD

The Fund's yield for the seven-day period ended November 30, 1996, was
5.20% for Institutional Shares. The yield for Investment Shares was 4.80%
for the same period.
The Fund calculates the yield for both classes of Shares daily, based upon
the seven days ending on the day of the calculation, called the `base
period.''This yield is computed by:
determining the net change in the value of a hypothetical account with a
balance of one Share at the beginning of the base period, with the net
change excluding capital changes but including the value of any
additional Shares purchased with dividends earned from the original one
Share and all dividends declared on the original and any purchased
Shares;
dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base period
return; and
multiplying the base period return by 365/7.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in
either class of Shares, the performance will be reduced for those
shareholders paying those fees.

EFFECTIVE YIELD

The Fund's effective yield for the seven-day period ended November 30,
1996, was 5.34% for Institutional Shares. The effective yield for
Investment Shares was 4.92% for the same period.
The Fund's effective yield for both classes of Shares is computed by
compounding the unannualized base period return by:
adding 1 to the base period return;
- -
raising the sum to the 365/7th power; and
- -
subtracting 1 from the result.
- -
PERFORMANCE COMPARISONS

The performance of both classes of Shares depends upon such variables as:
portfolio quality;
- -
average portfolio maturity;
- -
type of instruments in which the portfolio is invested; .
- -
changes in interest rates on money market instruments;
- -
changes in the expenses of the Fund or of either class of Shares; and
- -
the relative amount of Fund cash flow.
- -
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors, such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
- -
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its Lipper
ranking in the ``institutional money market instruments funds'' and

``money market instruments funds'' categories in advertising and sales
literature.
BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
- -
reporting service which publishes weekly average rates of 50 leading
bank and thrift institution money market deposit accounts. The rates
published in the index are averages of the personal account rates
offered on the Wednesday prior to the date of publication by ten of the
largest banks and thrifts in each of the five largest Standard
Metropolitan Statistical Areas. Account minimums range upward from
$2,500 in each institution and compounding methods vary. If more than
one rate is offered, the lowest rate is used. Rates are subject to
change at any time specified by the institution.
IBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds
- -
of money market funds on a weekly basis and, through its Money Market
Insight publication, reports monthly and 12-month-to-date investment
results for the same money funds.
MONEY, a monthly magazine, regularly ranks money market funds in various
- -
categories based on the latest available seven-day compound (effective)
yield. From time to time, the Fund will quote its Money ranking in
advertising and sales literature.
Advertisements and other sales literature for either class of Shares may
quote total returns, which are calculated on standardized base periods.
These total returns also represent the historic change in the value of an
investment in either class of Shares based on the monthly reinvestment of
dividends over a specified period of time.
FINANCIAL STATEMENTS

The financial statements for Biltmore Money Market Fund for the fiscal year
ended November 30, 1996, are incorporated herein by reference to the Annual
Report to Shareholders of Biltmore Money Market Fund dated November 30,
1996 (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 (1/97)

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, 1997. 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, 1997
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Officers and Trustees 5
Fund Ownership 6
Trustees Compensation 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 7

Adviser to the Fund 7
Advisory Fees 7
BROKERAGE TRANSACTIONS 8

OTHER SERVICES 8

Fund Administration 8
Custodian and Portfolio Recordkeeper8
Transfer Agent 8
Legal Services 8
Independent Auditors 9

PURCHASING INSTITUTIONAL SHARES 9

Conversion to Federal Funds 9
EXCHANGING SECURITIES FOR FUND SHARES9

DETERMINING NET ASSET VALUE 9

Use of the Amortized Cost Method 9
REDEEMING INSTITUTIONAL SHARES 10

Redemption in Kind 10
MASSACHUSETTS BUSINESS TRUSTS 11

TAX STATUS 11

The Fund's Tax Status 11
Shareholders' Tax Status 11
YIELD 11

EFFECTIVE YIELD 12

PERFORMANCE COMPARISONS 12

FINANCIAL STATEMENTS 13

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio in the Trust. The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated November
19, 1991.
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:
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;
Federal Home Loan Banks;
-
Federal Home Loan Mortgage Corporation;
-
Federal National Mortgage Association;
-
Government National Mortgage Association; and
-
Student Loan Marketing Association.
-
BANK INSTRUMENTS
In addition to domestic bank obligations, such as certificates of
deposit, demand and time deposits, and bankers' acceptances, the Fund
may invest in:
Eurodollar Certificates of Deposit issued by foreign branches of
-
U.S. or foreign banks;
Eurodollar Time Deposits, which are U.S. dollar-denominated
-
deposits in foreign branches of U.S. or foreign banks; and
Yankee Certificates of Deposit, which are U.S. dollar-denominated
-
certificates of deposit issued by U.S. branches of foreign banks
and held in the United States.

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'') or Prime-1 by Moody's Investors
Service, Inc. (`Moody's'') , 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.''
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund`s records at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
settled. The Fund does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of
more than 20% of the total value of its assets.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase
the portfolio instrument by remitting the original consideration plus

interest at an agreed upon rate. The use of reverse repurchase agreements
may enable the Fund to avoid selling portfolio instruments at a time when
a sale may be deemed to be disadvantageous, but the ability to enter into
reverse repurchase agreements does not ensure that the Fund will be able
to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These assets are marked to
market daily and are maintained until the transaction has been settled.
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.

government securities) if as a result more than 5% of the value of
its total assets would be invested in the securities of that issuer.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets
in any one industry. The Fund may invest 25% or more of the value of
its total assets in cash or certain money market instruments
(including instruments issued by a U.S. branch of a domestic bank
having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment), securities issued or
guaranteed by the U.S. government, its agencies, or
instrumentalities, or instruments secured by these money market
instruments, such as repurchase agreements.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of 1933
in connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
Except as noted, the above limitations cannot be changed without
shareholder approval. The Fund does not consider the issuance of separate
classes of shares to involve the issuance of `senior securities'' within
the meaning of the investment limitation set forth above. The following
investment limitations, however, may be changed by the Board of Trustees
(the `Trustees'') without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as are
necessary for clearance of transactions.

INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in
securities subject to restrictions on resale under federal securities
law, except for Section 4(2) commercial paper and other restricted
securities determined to be liquid under criteria established by the
Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets
in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
income time deposits with maturities over seven days, and restricted
securities which have not been determined to be liquid under criteria
established by the Trustees.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total
assets in securities of issuers which have records of less than three
years of continuous operations, including the operation of any
predecessor.
INVESTING IN 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, unless it is permitted to exceed
these limitations by action of the SEC. 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. 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

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

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*

2835 Greenbriar
Harbor Springs, 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.

Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960

Vice President and Assistant Treasurer
Vice President, Federated Services Company.

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

Secretary
Senior Corporate Counsel, Federated Investors.

* All Trustees are independent of the Trust.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.

As of January 3, 1997, the following shareholder of record owned 5% or
more of the outstanding Institutional Shares of the Fund: Wachovia Bank
of North Carolina, Winston-Salem, North Carolina, owned approximately
1,153,683,563 Shares (100%).

TRUSTEES COMPENSATION

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

James A. Hanley, $24,600
Trustee and one other investment company
in the Complex

Samuel E. Hudgins, $24,600
Trustee and one other investment company
in the Complex

J. Berkley Ingram, Jr., $22,500
Trustee and one other investment company
in the Complex

D. Dean Kaylor, $22,500
Trustee and one other investment company
in the Complex

Charles S. Way, Jr., $22,500
Trustee and one other investment company
in the Complex

*Information is furnished for the fiscal year ended November 30, 1996.
+The total compensation is paid by The Biltmore Funds, which is comprised
of twelve portfolios and The Biltmore Municipal Funds, which is comprised
of three 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

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 years ended November 30, 1996, 1995, and for the period
from December 2, 1993 (date of initial public investment) through November
30, 1994, the Adviser earned $3,161,728, $2,614,827 and $1,748,930,
respectively, of which $2,374,109, $2,008,188 and $1,288,670,
respectively, were voluntarily waived.

BROKERAGE TRANSACTIONS

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, 1996, 1995, and 1994, 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, 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 years ended November 30, 1996, 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 $913,490,
$782,722 and $556,490, respectively, of which $310,436, $346,917 and
$264,629, respectively, were voluntarily waived. In addition, for the
fiscal years ended November 30, 1996, 1995, and for the period from
December 2, 1993 (date of initial public investment) through November 30,
1994, Federated Administrative Services reimbursed $0, $0 and $45,911,
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 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

Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for acts or obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument the
Trust or the Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations on behalf of the Fund, the Trust is required by the
Declaration of Trust to use the property of the Fund to protect or
compensate the shareholder. On request, the Trust will defend any claim
made and pay any judgment against a shareholder of the Fund for any act or
obligation of the Trust on behalf of the Fund. Therefore, financial loss
resulting from liability as a shareholder of the Fund will occur only if
the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from the assets of the Fund.
TAX STATUS

derive less than 30% of its gross income from the sale of securities
- -
held less than three months;
invest in securities within certain statutory limits; and
- -
distribute to its shareholders at least 90% of its net income earned
- -
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and any short-
term capital gains received as cash or additional shares. No portion of
any income dividend paid by the Fund is eligible for the dividends
received deduction available to corporations. These dividends and any
short-term capital gains are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends.
If, for some extraordinary reason, the Fund realizes net long-term
capital gains, it will distribute them at least once every 12 months.
YIELD

The Fund's yield for the seven-day period ended November 30, 1996, was
5.33%.
The Fund calculates the yield for Institutional Shares daily, based upon
the seven days ending on the day of the calculation, called the `base
period.''This yield is computed by:
determining the net change in the value of a hypothetical account with
- -
a balance of one Institutional Share at the beginning of the base
period, with the net change excluding capital changes but including the
value of any additional Institutional Shares purchased with dividends
earned from the original one Institutional Share and all dividends
declared on the original and any purchased Institutional Shares;

dividing the net change in the account's value by the value of the
- -
account at the beginning of the base period to determine the base
period return; and
multiplying the base period return by 365/7.
- -
To the extent that financial institutions and broker/dealers charge fees
in connection with services provided in conjunction with an investment in
Institutional Shares, the performance will be reduced for those
shareholders paying those fees.
EFFECTIVE YIELD

The Fund's effective yield for the seven-day period ended November 30,
1996, was 5.48%.
The Fund's effective yield for Institutional Shares is computed by
compounding the unannualized base period return by:
adding 1 to the base period return;
- -
raising the sum to the 365/7th power; and
- -
subtracting 1 from the result.
- -
PERFORMANCE COMPARISONS

The performance of Institutional Shares depends upon such variables as:
portfolio quality;
- -
average portfolio maturity;
- -
type of instruments in which the portfolio is invested;
- -
changes in interest rates on money market instruments;
- -
changes in the expenses of the Fund or of Institutional Shares; and
- -
the relative amount of Fund cash flow.
- -
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors, such as the composition of

any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price . The financial publications and/or indices which the Fund
uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
- -
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its
Lipper ranking in the ``institutional money market instruments funds''
category in advertising and sales literature.
BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
- -
reporting service which publishes weekly average rates of 50 leading
bank and thrift institution money market deposit accounts. The rates
published in the index are averages of the personal account rates
offered on the Wednesday prior to the date of publication by ten of the
largest banks and thrifts in each of the five largest Standard
Metropolitan Statistical Areas. Account minimums range upward from
$2,500 in each institution and compounding methods vary. If more than
one rate is offered, the lowest rate is used. Rates are subject to
change at any time specified by the institution.
IBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of
- -
hundreds of money market funds on a weekly basis and, through its Money
Market Insight publication, reports monthly and 12-month-to-date
investment results for the same money funds.
MONEY, a monthly magazine, regularly ranks money market funds in
- -
various categories based on the latest available seven-day compound
(effective) yield. From time to time, the Fund will quote its Money
ranking in advertising and sales literature.

Advertisements and other sales literature for Institutional Shares may
quote total returns which are calculated on standardized base periods.
These total returns also represent the historic change in the value of an
investment in Institutional Shares based on the monthly reinvestment of
dividends over a specified period of time.
FINANCIAL STATEMENTS

The financial statements for Biltmore Prime Cash Management Fund for the
fiscal year ended November 30, 1996, are incorporated herein by reference
to the Annual Report to Shareholders of Biltmore Prime Cash Management
Fund dated November 30, 1996 (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 090297-80-5
2051406B (1/97)

BILTMORE TAX-FREE MONEY MARKET FUND
(A PORTFOLIO OF THE BILTMORE FUNDS)
INSTITUTIONAL SHARES
INVESTMENT SHARES
STATEMENT OF ADDITIONAL INFORMATION
This 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, 1997. This 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, 1997

FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Acceptable Investments 1
Ratings 1
When-Issued and Delayed
Delivery Transactions 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
Temporary Investments 2
Investment Risks 3
Investment Limitations 3
Regulatory Compliance 5
THE BILTMORE FUNDS MANAGEMENT 5

Officers and Trustees 5
Fund Ownership 7
Trustees Compensation 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 8

Adviser to the Fund 8
Advisory Fees 8
BROKERAGE TRANSACTIONS 8

OTHER SERVICES 9

Fund Administration 9
Custodian and Portfolio Recordkeeper 9
Transfer Agent 9

Legal Services 9
Independent Auditors 9
PURCHASING SHARES 9

Distribution Plan (Investment Shares
Only) 9
Conversion to Federal Funds 10
EXCHANGING SECURITIES FOR FUND SHARES10

DETERMINING NET ASSET VALUE 10

Use of the Amortized Cost Method 10
REDEEMING SHARES 11

Redemption in Kind 11
MASSACHUSETTS BUSINESS TRUSTS 12

TAX STATUS 12

The Fund's Tax Status 12
YIELD 12

TAX-EQUIVALENT YIELD 12

Tax-Equivalency Table 13
EFFECTIVE YIELD 13

PERFORMANCE COMPARISONS 14

FINANCIAL STATEMENTS 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.
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 Statement of Additional Information
relates to both classes of the above-mentioned Shares. Capitalized terms
not otherwise defined in this Statement have the same meaning assigned in
the prospectus.
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide current income 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, Inc.,
(`Moody's'') or Standard & Poor's Ratings Group (``S&P'') 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.
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 S&P
orPrime-1 by Moody's 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.''
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund`s records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the

portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These assets are marked to
market daily and are maintained until the transaction has been settled.
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.
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, unless it is permitted to exceed
these limitations by action of the SEC. 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. 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 NEW ISSUES
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 operations of any
predecessor.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

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

J. Berkley Ingram, Jr.*

114-L Reynolda Village
Winston-Salem, NC
April 17, 1924