2
1933 Act File No. 33-44590
1940 Act File No. 811-6504
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X__
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Pre-Effective Amendment No. ___ ...........................
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Post-Effective Amendment No. 32 ......................... X__
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _ X__
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Amendment No. 33 ............................................ _ X__
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THE WACHOVIA FUNDS
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b) _ _on ___________pursuant
to paragraph (b)(1)(v)
_ 60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
___ 75 days after filing pursuant to paragraph (a)(ii) on _________________
pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
__This post-effective amendment designates a new effective date for a previously
filed post-effective amendment.
Copies to:
Donald W. Smith, Esquire Alan C. Porter, Esquire
Kirkpatrick & Lockhart L.L.P. Piper & Marbury L.L.P.
1800 Massachusetts Avenue, N.W. 1200 Nineteenth Street, N.W.
Washington, D.C. 20036-1800 Washington, D.C. 20036-2430
THE WACHOVIA FUNDS
Wachovia Executive Equity Fund
Institutional Shares
Prospectus
November 15, 1999
The Fund is a suitable investment for institutions seeking to fund non-qualified
deferred compensation plans.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Fund Goal, Strategies and Risk
What are the Fund's Fees and Expenses?
What are the Fund's Main Investment Techniques?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How are the Fund's Shares Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
<PAGE>
16
3
FUND GOAL, STRATEGIES AND RISK
What are the Fund's Investment Goals?
The Fund's primary goal is to seek high total returns from a portfolio of equity
securities that provides diversification across market sectors. The Fund's
secondary goal is to seek to increase the after-tax returns of shareholders that
are taxable corporations by using various tax reduction strategies.
What is the Main Investment Strategy of the Fund?
The Fund pursues its investment goal by investing primarily in a diversified
portfolio of common stocks. Under normal market conditions, the Fund intends to
invest at least 65% of its assets in stocks. The Fund's investment adviser,
Wachovia Asset Management (Wachovia), establishes market sectors and manages the
allocation of the Fund's assets among those market sectors. From time to time,
Wachovia may add or remove market sectors and reallocate among sectors. The
criteria the Adviser will use in doing the reallocation among market sectors may
include, but is not limited to: the expected rate of return of each sector
relative to other sectors, the perceived riskiness of each sector, and the
correlation of returns among the sectors. Wachovia intends to employ multiple
investment sub-advisers to manage assets allocated to specific market sectors
and may add or remove sub-advisers to or from the management of the Fund.
Wachovia and the sub-advisers are sometimes called "managers."
Wachovia has initially established the following domestic market sectors - core
equity, large-cap value, large-cap growth, small-cap value and small-cap growth,
and an international equity market sector. Wachovia has selected, and the Fund's
Board has approved, sub-advisers for the segments of the Fund's portfolio
invested in the large-cap value, large-cap growth, small-cap growth and
international market sectors. Once the Fund has sufficient assets for it to be
economically viable, assets will be allocated to sub-advisers as discussed
below.
Wachovia will manage the remainder of the Fund's portfolio.
Wachovia uses various strategies to manage the composition of returns and
thereby seek to increase the after-tax returns of shareholders that are taxable
corporations. Successful application of these strategies will result in
shareholders incurring capital gains when they ultimately sell their Fund
shares.
Core Equity Strategy
Wachovia manages the segment of the Fund's portfolio allocated to core equity
investments comprised of a mix of equity securities from issuers in all economic
sectors (basic materials, capital goods, etc.) with a market capitalization in
excess of $1 billion. Under normal conditions, such securities will comprise
from 25% to 55% of the Fund's portfolio. Wachovia selects securities based on a
number of factors, incorporating both growth and value measures. A combination
of fundamental analysis, quantitative modeling, strategic outlook, and relative
price performance trends are used to select stocks perceived to be undervalued
with prospects for improving fundamentals.
Wachovia's universe of approximately 1,000 stocks is created by screening stocks
traded on U.S. exchanges for investment grade debt ratings or equivalent quality
ratings and market capitalization of one billion dollars or more. Sorted by
economic sector for team management, the stocks are then evaluated for selection
through disciplined consideration of investment criteria:
Valuation Wachovia's appraisal of company's intrinsic
value incorporating measures of free cash
flow, expected growth, business quality and
financial strength;
Forecast Alpha A forecast of stock performance based
on a dynamic multi-factor model that
considers both value and growth measures;
Strategic Outlook A top-down perspective that
identified economic, political and social
trends influencing prospects for growth; and
Price Trends Analysis of stock price performance
relative to the market and other stocks in
the same sector and industry.
Large-Cap Growth Strategy
Alliance Capital Management L.P. (Alliance) sub-advises the segment of the
Fund's portfolio allocated to large-cap growth stocks, which under normal
conditions will comprise from 0% to 30% of the Fund's portfolio. Large cap
equities are defined as securities of any company with assets in excess of $5
billion. Alliance applies a "disciplined growth" strategy that uses its
fundamental and quantitative security scoring system for stock selection. With
this approach, Alliance attempts to consistently outperform growth benchmarks
and to significantly outperform the Standard & Poor's 500 Composite Stock Price
Index (Standard & Poor's 500 Index) over time. Alliance seeks to identify and
invest in companies with relative earnings strength at an early stage and at a
reasonable price. To achieve this goal, Alliance applies a disciplined approach
which relies on original fundamental research.
The emphasis of the "disciplined growth" process is on stock selection. Alliance
strives to identify and invest in companies which offer the best available
combination of strong relative earnings growth (its primary focus) and
attractive valuation. It attempts to control style and industry risks relative
to growth stock benchmarks. Alliance's internal fundamental research team
employs a quantitative methodology to rank the relative attractiveness of each
stock in its primary research universe, which consists of 500 stocks. The
portfolio is concentrated in the highest ranking stocks, and individual holdings
and position sizes are determined by the management team after debating their
respective investment merits and contribution to portfolio risk.
Large-Cap Value Strategy
Federated Investment Management Company (Federated) sub-advises the segment of
the Fund's portfolio allocated to large-cap value stocks, which under normal
conditions will comprise from 0% to 30% of the Fund's portfolio. Federated
invests primarily in equity securities of companies that are typically leaders
in their industries, characterized by sound management and the ability to
finance expected growth. It attempts to identify good long-term values through
disciplined investing and careful fundamental research. Stocks selected will
typically be in large capitalization companies that are in the top 25% of their
industries with regard to revenues.
Federated ranks the future performance potential of companies, based on
valuation models which attempt to identify companies trading at low valuation
relative to their history, to the market and to their expected future growth. To
determine the timing of purchases and sales of portfolio securities, Federated
looks at recent stock price performance and the direction of current fiscal year
earning estimates. In addition, Federated performs traditional fundamental
analysis to select the most promising companies.
Companies with similar characteristics may be grouped together in broad
categories called sectors. Federated attempts to diversify its segment of the
Fund's investments, limiting its segment's risk exposure with respect to
individual securities and industry sectors. In determining the amount to invest
in a security, and in order to manage sector risk, Federated attempts to limit
the exposure of its segment of the Fund's portfolio to each major sector in the
Standard & Poor's 500 Index. As a general matter, sector allocation will be not
less than 50% nor more than 200% of the Index's allocation to that sector.
Small-Cap Growth Strategy
Loomis, Sayles & Company, L.P. (Loomis Sayles) sub-advises the segment of the
Fund's portfolio allocated to small-cap growth stocks, which under normal
conditions will comprise from 0% to 30% of the Fund's portfolio. Loomis Sayles
primarily invests at least 65% of its segment in equity securities of companies
with market capitalizations that fall within the capitalization range of the
Russell 2000 Index and may invest up to 35% of its total segment in larger
companies. The Russell 2000 Index currently is comprised of companies with
market capitalizations between $1.78 million and $1.35 billion. Loomis Sayles
may invest any portion of the segment's assets in Canadian securities and up to
20% of the segment's assets in the securities of issuers headquartered outside
the United States and Canada. Loomis Sayles selects stocks with a bottom-up,
fundamental research driven process. Emphasis is placed on visiting portfolio
candidates prior to purchase with continuing contact during the investment
holding period. Candidates for investment generally have the following
characteristics:
o The company offers new or distinctive products, services or technologies;
o Market share leaders or gaining share rapidly due to their product
positioning;
o The company is typically expected to generate earnings growth of at
least 20% per annum driven by both strong sales and improving
profitability; and
o A strong, experienced management team with the vision and capability to
grow into a large, profitable organization.
After a purchase candidate is identified, a determination of current valuation
and appreciation potential is made based upon estimates of future earnings and
earnings growth as well as the consistency of earnings growth. A price-earnings
to growth rate analysis is utilized to determine the attractiveness of a
company's current valuation. In addition to these earnings momentum tests, the
team considers other factors, such as earnings surprises, cash flows, return on
equity and assets and the quality of the company's management when determining
whether a company should be included in the portfolio. Securities are eliminated
when signs of slowing growth become apparent.
Small-Cap Value Strategy
Wachovia manages the segment of the Fund's portfolio allocated to small-cap
value stocks, which under normal conditions will comprise from 0% to 30% of the
Fund's portfolio. Wachovia looks for significantly undervalued companies that it
believes have the potential for above-average growth, commensurate with
increased risk. Investments are typically made in stocks of companies 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, Wachovia
intends to invest at least 65% of this segment of Fund assets in stocks of
companies that have a market value capitalization of $1 billion or less.
Wachovia may invest up to 20% of this segment in foreign securities.
International Strategy
INVESCO Global Asset Management (N.A.), Inc. (INVESCO) sub-advises the segment
of the Fund's portfolio allocated to international securities, which under
normal conditions will comprise from 0% to 30% of the Fund's portfolio. There
are four cornerstones of INVESCO's investment approach. First, securities are
selected on a "bottom-up" basis; INVESCO selects individual companies rather
than countries, themes, or industry groups.
Second, INVESCO conducts financial analysis on a broad universe of over 2,200
non-U.S. companies located in over 30 countries whose key financial data INVESCO
has adjusted to be comparable across borders and currencies. INVESCO believes
that it is only through the use of such comparable data that the relative
attractiveness of companies around the world can be assessed in an unbiased way.
This comparable financial data is used in a financial screening process which
results in a relative valuation ranking of the universe of stocks.
Third, INVESCO believes that fundamental company research is enhanced by using
local investment professionals. INVESCO's truly global presence allows it to use
over 100 of INVESCO's own international specialists, located in Asia and Europe,
to conduct such fundamental corporate research. This fundamental research is
conducted on the 350-400 most attractive stocks from its universe.
Finally, INVESCO considers the overall diversification and risk of the portfolio
relative to the clients' benchmarks through a broad quantitative approach rather
than resorting to less sophisticated geographical or industry constraints. The
benchmark for the Fund is Morgan Stanley Capital International Europe,
Australia, Far East Index (MSCI EAFE), an unmanaged market
capitalization-weighted equity index comprising 20 of the 48 countries in the
MSCI universe and representing the developed world outside of North America.
Each MSCI country index is created separately, then aggregated , without change,
into regional MSCI indices. EAFE performance data is calculated in U.S. dollars
and in local currency. It is expected that this risk management and
diversification approach will result in approximately 50-60 stocks in INVESCO's
segment of the Fund's portfolio.
What are the Main Risks of Investing in the Fund?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund.
The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual stocks or general changes
in stock valuations.
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States.
The Fund is also subject to the risk that its managers will not succeed in
attempting to minimize net realized capital gains or, conversely, that the Fund
will not have any realized or unrealized capital gains.
An investment in the Fund is not a deposit of a bank, is not insured or
guaranteed by Wachovia Bank, N.A., and is not insured or guaranteed by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other government agency.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
This table describes the fees and expenses that you may pay when you buy, hold
and redeem shares of the Fund's Institutional Shares.
Shareholder Fees
Fees Paid Directly From Your Investment
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage
of offering None
price)
- -------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase
price or redemption proceeds, as None
applicable)
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Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions (as a percentage of None
offering price)
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Redemption Fee (as a percentage of amount redeemed, None
if applicable
- -------------------------------------------------------------------------------
Exchange Fee None
- -------------------------------------------------------------------------------
Annual Fund Operating Expenses1
Expenses That are Deducted from Fund Assets (as a percentage of average
net assets)
- -------------------------------------------------------------------------------
Management Fee 0.95%
- -------------------------------------------------------------------------------
Distribution (12b-1) Fee None
- -------------------------------------------------------------------------------
Shareholder Services Fee None
- -------------------------------------------------------------------------------
Other Expenses 0.69%
- -------------------------------------------------------------------------------
Total Annual Institutional Shares Operating Expenses (Before Waiver) 1.64%
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Waiver/Reimbursement of Fund 0.59%
Expenses
- -------------------------------------------------------------------------------
Total Actual Annual Fund Operating Expenses (After 1.05%
Waiver)
- -------------------------------------------------------------------------------
1 Pursuant to an agreement between the investment adviser and the Trust, the
investment adviser agrees during the period from September 1, 1999 through
October 31, 2000 to waive its fees, and/or make reimbursements to the
Fund, so that the Fund's net operating expenses do not exceed, in the
aggregate, the Fund's Total Actual Annual Operating Expenses listed above.
The investment adviser agrees that this obligation shall constitute a
contractual commitment enforceable by the Trust and that the investment
adviser shall not assert any right to reimbursement of amounts so waived
or reimbursed.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Institutional Shares with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund's Institutional
Shares for the time periods indicated an then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Institutional Shares operating expenses are
based upon the current expense limitation as shown above in the table. Although
your actual costs may be higher or lower, based on these assumptions, your costs
would be:
1 Year 3 Years
- -----------------------------------------------------------------------
Executive Equity Fund $107 $517
- -----------------------------------------------------------------------
<PAGE>
WHAT ARE THE FUND'S MAIN INVESTMENTS AND INVESTMENT TECHNIQUES?
Equity Securities
Equity securities are the fundamental unit of ownership in a company. They
represent a share of the issuer's earnings and assets, after the issuer pays its
liabilities. Generally, issuers have discretion as to the payment of any
dividends or other distributions. As a result, investors cannot predict the
income they will receive from equity securities. However, equity securities
offer greater potential for appreciation than many other types of securities
because their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Fund
invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at
a specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
o it is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o it (or its subsidiaries) derived in its most current fiscal year at
least 50% of its total assets, capitalization, gross revenue or profit
from goods produced, services performed, or sales made in another
country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Tax Management Techniques
Wachovia is solely responsible for attempting to achieve the Fund's secondary
objective. Wachovia will seek to enhance the Fund's after-tax return by
allocating portfolio assets among the Fund's managers. The managers may utilize
one or more of the following tax reduction techniques: minimizing portfolio
turnover consistent with the Fund's primary objective; seeking to increase
capital appreciation while minimizing realized capital gains, offsetting
realized capital gains with realized capital losses, employing
highest-in-first-out (HIFO) tax lot accounting (i.e., selling first the shares
that have the highest cost basis), and selling any security that has not met its
expectations for total return (so as to realize a relatively small capital
gain). However, the Fund and its managers are not obligated to use any of these
particular techniques at any time.
Temporary Defensive Investments
The Fund may temporarily depart from its principal investment strategy by
investing assets in cash, cash items, and shorter-term debt securities. The Fund
may do this to minimize potential losses and maintain liquidity to meet
shareholder redemptions during adverse market conditions. This may cause the
Fund to forego investment returns for the safety of principal.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Multi-Manager Risks
Each segment of the Fund is managed independently of the others. Consequently,
it is possible for the same security to be held simultaneously in different
segments. It is also possible for the same security to be acquired by one
sub-adviser while it is simultaneously being disposed of by another. Such trades
will not be aggregated; this could result in the Fund incurring higher brokerage
costs than a fund that is similarly managed with a single adviser.
Equity Securities Risks
The Fund is subject to fluctuations in the stock market which has periods of
increasing and decreasing values. These fluctuations can be caused by many
events, including changes to domestic or international economic conditions.
Because the Fund invests primarily in stocks it is more subject to equity risks.
Stocks have greater volatility than debt securities. While greater volatility
increases risk, it offers the potential for greater reward.
Risks Related to Investing for Growth and Value
Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental developments, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks. This
means they depend more on price changes for returns than do value stocks. Growth
stocks may be more adversely affected in a down market compared to value stocks
that pay higher dividends and that may lag behind growth stocks in an up market.
Risks Related to Company Size
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of its
outstanding shares by the current market price per share. Companies with smaller
market capitalizations also tend to have unproven track records, a limited
product or service base and limited access to capital. These factors also
increase risks and make these companies more likely to fail than companies with
larger market capitalizations.
Risks of Foreign Investing
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Other risk
factors related to foreign securities include: rates of inflation, structure and
regulation of financial markets, liquidity and volatility of investments,
taxation policies, and accounting standards. In addition, a Fund may incur
higher costs and expenses when making foreign investments, which could impact
the Fund's performance. Exchange rates for currency fluctuate daily. The
combination of currency risk and market risks tends to make securities traded in
foreign markets more volatile than securities traded exclusively in the United
States.
Liquidity Risks
Trading opportunities are more limited for equity securities that are not widely
held. This may make it more difficult to sell or buy a security at a favorable
price or time. Consequently, the Fund may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
Leveraging Risks
Various investment strategies involve agreements to purchase or sell securities
or currencies in amounts that exceed the amount the Fund has invested in the
underlying securities or currencies. The excess exposure increases the risks
associated with the underlying securities or currencies on the Fund's investment
performance.
Securities Lending Risks
The Fund may lend securities. When the Fund lends its portfolio securities, it
may not be able to get them back from the borrower on a timely basis, thereby
exposing the Fund to a loss of investment opportunities.
Taxation Risks
Tax laws are subject to change. There is no assurance, for example, that the tax
laws applicable to capital gains will not be modified in the future.
Year 2000 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the investment adviser is
reviewing information regarding the Year 2000 readiness of issuers of securities
the Fund may purchase. However, this may be difficult with certain issuers. For
example, funds dealing with foreign service providers or investing in foreign
securities will have difficulty determining the Year 2000 readiness of those
entities. This is especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day on which Wachovia Bank, N.A. (Wachovia
Bank), the New York Stock Exchange (NYSE) and the Federal Reserve Wire System
are open for business. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV).
NAV is determined at the end of regular trading (normally 4 p.m. Eastern time)
each day the NYSE is open. The value of Shares is generally determined based
upon the market value of portfolio securities. However, the Fund's Board may
determine in good faith that another method of valuing an investment is
necessary to appraise its fair market value when a market price is unavailable.
The required minimum initial investment amount in the Fund is $50 million.
Subsequent investments must be at least $25,000.
Minimum initial investments may be waived from time to time for purchases by the
Trust Division of Wachovia Bank for its fiduciary or custodial accounts.
Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment professionals
may charge you fees for their services in connection with your Share
transactions.
HOW ARE THE FUND'S SHARES SOLD?
The Fund offers two share classes: Institutional Service Shares and
Institutional Shares, each representing interests in a single portfolio of
securities. This prospectus relates only to Institutional Shares. Each share
class has different expenses which affect their performance. Call 1-800-994-4414
or contact your investment professional for more information concerning the
other class.
The Fund's Distributor, Federated Securities Corp., markets Shares to
institutions or individuals, directly or through an investment professional that
has an agreement with the Distributor (Authorized Dealer). The Distributor may
pay out of its assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.
HOW TO PURCHASE SHARES
You may purchase Shares through the Trust Division of Wachovia Bank or through
an Authorized Dealer.
The Fund and the Distributor reserve the right to reject any request to purchase
Shares.
Through the Trust Division of Wachovia Bank
Trust customers of Wachovia Bank may purchase Shares of the Fund in accordance
with the procedures set forth in the account agreement.
Orders must be received before 4:00 p.m. (Eastern time) in order to receive that
day's NAV. Orders received after 4:00 p.m. (Eastern time) will be purchased at
the next determined NAV.
Through an Authorized Dealer
Call your Authorized Dealer for specific instructions.
Purchase orders must be received before 3:00 p.m. (Eastern time) in order to
receive that day's NAV. Orders received after 3:00 p.m. (Eastern time) will be
purchased at the next determined NAV.
Systematic Investment Program
Once you have opened a Fund account, you may add to your investment on a regular
basis in amounts of at least $25,000. Under this program, funds may be
automatically withdrawn from your checking account and invested in Shares at the
NAV next determined after an order is received by the Fund. You may apply for
participation in this program through Wachovia Bank or through the Distributor.
HOW TO REDEEM SHARES
The Fund redeems Shares at their NAV next determined after the Fund receives the
redemption request in proper form. Shares may be redeemed by telephone or by
mail through the Trust Division of Wachovia Bank, through an Authorized Dealer,
or directly from the Fund.
All redemption requests must be received before 4:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's NAV.
Shareholders who have an Authorized Dealer should contact their Authorized
Dealer for specific instructions on how to redeem by telephone.
Signature Guarantees Signatures must be guaranteed if:
o your redemption is to be sent to an address other than the address of
record;
o your redemption is to be sent to an address of record that was changed within
the last thirty days; or o a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or credit union) or by a broker/dealer that is a domestic stock
exchange member, but not by a notary public.
Limitations on Redemption Proceeds
Redemption proceeds normally are mailed within one business day after receiving
a request in proper form. However, payment may be delayed up to seven days:
o to allow your purchase payment to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
Systematic Withdrawal Program
The Systematic Withdrawal Program allows you to automatically redeem Shares
monthly or quarterly at a minimum of $25,000. Your account value must be at
least $250,000 at the time the program is established. This program may reduce,
and eventually deplete, your account, and the payments should not be considered
yield or income. You may apply for participation in this program through your
financial institution.
Share Certificates
The Fund does not issue Share certificates.
ACCOUNT AND SHARE INFORMATION
Confirmations and Account Statements
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gain distributions paid.
Dividends and Capital Gain Distributions
The Fund declares and pays any dividends to shareholders quarterly. Dividends
consist of the Fund's investment income (dividends and interest) less operating
expenses. Fund dividends also include net realized short-term capital gains.
Dividends are declared and paid to shareholders invested in the Fund on the
record date for the dividend.
In addition, the Fund distributes any net capital gain at least annually. Net
capital gain is the excess of net long-term capital gains (realized long-term
capital gains over realized long-term capital losses) over net realized
short-term capital losses. Distributions of net capital gain are declared and
paid to shareholders invested in the Fund on the record date therefor.
Your dividends and capital gain distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before the Fund declares a dividend or capital gain
distribution, you will pay full price for the Shares and then receive a portion
of the price back in the form of a taxable distribution, whether or not you
reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain distribution. Contact your investment professional or the Fund for
more information concerning when dividends and capital gain distributions will
be paid.
Accounts With Low Balances
Non-retirement accounts may be closed if redemptions cause the account balance
to fall below $5,000. Before an account is closed, the shareholder will be
notified and given 30 days to purchase additional Shares to meet the minimum.
Tax Information
The Fund sends you an annual statement of your account activity to assist you in
completing your federal, state and local income tax returns. Fund distributions,
which are expected to be from dividends, interest and capital gains, are taxable
to you whether paid in cash or reinvested in the Fund. Capital gain
distributions qualify for treatment as long-term capital gains regardless of how
long you have held your Shares.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state and local income tax liability on redemptions.
Tax-Sensitive Approach to Investing
When possible, Wachovia manages the allocation of Fund assets among the managers
in an attempt to keep the Fund's net realized capital gains relatively low.
Whenever the Fund sells a security from its portfolio, the difference between
the price the Fund paid to acquire the security and the price at which it sells
the security will be a capital gain (if the security has risen in value) or a
capital loss (if the security has fallen in value). If the Fund has a net
realized capital gain from all its sales of securities, it generally must
distribute that amount to its shareholders to avoid having a tax liability.
Shareholders are taxable on those distributions.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
investment adviser, Wachovia Asset Management, a business unit of Wachovia Bank.
The investment adviser manages two segments of the Fund's assets, including
buying and selling portfolio securities. Subject to the Board's oversight, the
investment adviser is also responsible for selecting sub-advisers to manage
other segments of the Fund's assets, terminating agreements with sub-advisers,
and allocating assets among the sub-advisers. The investment adviser's address
is 100 North Main Street, Winston-Salem, NC 27101.
Wachovia Bank has been managing trust assets for over 100 years, with over $42
billion in managed assets as of December 31, 1998. Wachovia Bank also serves as
investment adviser to The Wachovia Municipal Funds, another investment company.
The investment adviser receives an annual investment advisory fee equal to .95%
of the Fund's average aggregate daily net assets. The investment adviser is
responsible for compensating sub-advisers who manage segments of the Fund's
assets.
Subject to the review of the Fund's Board, the investment adviser oversees each
sub-adviser to assure that it manages its segment in a manner consistent with
the Fund's goal, policies, restrictions and applicable law. Due to its
responsibility for overseeing the sub-advisers, the investment adviser has
ultimate responsibility for the investment performance of the Fund and is
responsible for recommending the hiring, termination and replacement of
sub-advisers. Although the sub-advisers' activities are subject to oversight by
the investment adviser, the Board and the Fund's officers, neither the
investment adviser, the Board, nor the officers evaluate the investment merits
of the sub-advisers' individual security selections.
The investment adviser selects sub-advisers based on its continuing quantitative
and qualitative evaluation of their skills and abilities in managing assets
pursuant to particular investment styles. While superior performance is regarded
as the ultimate goal, short-term performance by itself will not be a significant
factor in selecting or terminating sub-advisers.
The investment adviser has recommended, and the Fund's Board has approved, four
sub-advisers, each of which manage a segment of the Fund's portfolio. Wachovia
will begin to allocate assets among the sub-advisers when the Fund has
sufficient assets for allocation to be economically viable. The investment
adviser may, subject to review by the Board, reallocate assets among
sub-advisers. The criteria the Adviser will use in doing the reallocation may
include, but is not limited to, the expected after tax rate of return of each
sector (sub-adviser) relative to other sectors (sub-advisers), the perceived
riskiness of each sector, the liquidity inherent in each sector, the correlation
of returns among the sectors, the net gain/loss position of each sub-adviser,
and general market conditions. In addition, the Adviser will seek to allocate
funds in a manner that results in a highly diversified portfolio.
The Fund intends to seek an exemptive order from the Securities and Exchange
Commission that would permit it to add new sub-advisers, without shareholder
approval, and terminate or modify any sub-advisory agreement, subject to
approval by the Fund's Board, without shareholder approval. In the event of the
termination of a sub-advisory agreement, the investment adviser may either enter
into a new sub-advisory agreement with a new sub-adviser to manage the segment,
or reallocate the segment to existing sub-advisers. Within 90 days of the hiring
of a new sub-adviser, the Fund will notify shareholders and provide them with
information about the new sub-adviser.
Sub-Advisers
Alliance
Alliance Capital Management L.P. has been in the institutional money management
business since 1971. As of March 31, 1999, it had approximately $301.4 billion
in assets under management. Its address is 1345 Avenue of the Americas, New
York, NY 10105.
Federated
Federated Investment Management Company is a registered investment adviser. As
of December 31, 1998, it had over $111 billion in assets under management. Its
address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
15222-3779.
Loomis Sayles
Loomis, Sayles & Company, L.P. has provided investment counsel to institutional
and individual clients for over 73 years. As of June 30, 1999, it had over $69
billion in assets under management. Its address is One Financial Center, Boston,
MA 02111-2660.
INVESCO
INVESCO Global Asset Management (N.A.), Inc. is a division of AMVESCAP PLC,
which had over $280 billion in assets under management as of March 30, 1999. Its
address is One Midtown Plaza, 1360 Peachtree Street, Suite 100, Atlanta, GA
30305.
Portfolio Managers
Wachovia
Core Equity Segment
Wachovia manages the core equity segment using seven teams of investment
professionals.
Small- Cap Value Segment
Roger L. Glenski
Mr. Glenski is a Certified Public Accountant, Portfolio Manager and Assistant
Vice President of the investment adviser. Mr. Glenski joined Wachovia in 1996,
specializing in the valuation of closely-held businesses and small companies.
Previously, Mr. Glenski was a staff accountant employed by the accounting firms
of KPMG and Deloitte & Touche LLP in Chicago. Mr. Glenski received a bachelors
degree from the University of Missouri-Kansas City and an MBA from the
University of Chicago.
Alliance
Jane M. Gould
Jane M. Gould is a Senior Vice President and Portfolio Manager with Alliance.
Ms. Gould has been with Alliance since its inception in 1971. Ms. Gould is a
graduate of Duke University, and has approximately 38 years of experience as an
investment professional, 30 years of which have been devoted to managing equity
investments.
Federated
Michael P. Donnelly
Mr. Donnelly joined Federated in 1989 as an Investment Analyst and is a Senior
Portfolio Manager. He has been a Vice President of Federated since 1994. Mr.
Donnelly is a Chartered Financial Analyst and received his MBA from the
University of Virginia.
Arthur J. Barry
Mr. Barry joined Federated in 1994 as an Investment Analyst and became a
Portfolio Manager in 1997. He served as Assistant Vice President of Federated
from 1997 through June 1998 and has been a Vice President since July 1998. Mr.
Barry is a Chartered Financial Analyst. He earned his MSIA with concentrations
in finance and accounting from Carnegie Mellon University.
INVESCO
INVESCO manages its segment of the Fund's portfolio using a team of nine
investment professionals.
Loomis Sayles
Christopher R. Ely
Philip C. Fine
David L. Smith
Messrs. Ely, Fine and Smith joined Loomis Sayles in 1996 as Vice Presidents and
Portfolio Managers. Prior to joining Loomis Sayles, Mr. Ely was Senior Vice
President and Portfolio Manager and Messrs. Fine and Smith were Vice Presidents
and Portfolio Managers of Keystone Investment Management Company, Inc.
FINANCIAL INFORMATION
The Fund will have a fiscal year end of November 30. As this is the Fund's first
fiscal year, financial information is not yet available.
<PAGE>
18
WACHOVIA EXECUTIVE EQUITY FUND
Institutional Shares
A Portfolio of The Wachovia Funds
The Fund's Statement of Additional Information (SAI) is incorporated by
reference into this prospectus, making it legally a part of this prospectus. The
SAI includes additional information about the Fund.
To obtain a free copy of the SAI and other information, call your investment
professional or the Fund at 1-800-994-4414.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, DC
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
Product code G02308-05(11/99)
Cusip:929901585
SEC File Number: 811-6504
THE WACHOVIA FUNDS
Wachovia Executive Equity Fund
Institutional Service Shares
Prospectus
November 15, 1999
The Fund is a suitable investment for institutions seeking to fund non-qualified
deferred compensation plans.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Fund Goal, Strategies and Risk
What are the Fund's Fees and Expenses?
What are the Fund's Main Investment Techniques?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How are the Fund's Shares Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
<PAGE>
32
19
FUND GOAL, STRATEGIES AND RISK
What are the Fund's Investment Goals?
The Fund's primary goal is to seek high total returns from a portfolio of equity
securities that provides diversification across market sectors. The Fund's
secondary goal is to seek to increase the after-tax returns of shareholders that
are taxable corporations by using various tax reduction strategies.
What is the Main Investment Strategy of the Fund?
The Fund pursues its investment goal by investing primarily in a diversified
portfolio of common stocks. Under normal market conditions, the Fund intends to
invest at least 65% of its assets in stocks. The Fund's investment adviser,
Wachovia Asset Management (Wachovia), establishes market sectors and manages the
allocation of the Fund's assets among those market sectors. From time to time,
Wachovia may add or remove market sectors and reallocate among sectors. The
criteria the Adviser will use in doing the reallocation among market sectors may
include, but is not limited to: the expected rate of return of each sector
relative to other sectors, the perceived riskiness of each sector, and the
correlation of returns among the sectors. Wachovia intends to employ multiple
investment sub-advisers to manage assets allocated to specific market sectors
and may add or remove sub-advisers to or from the management of the Fund.
Wachovia and the sub-advisers are sometimes called "managers."
Wachovia has initially established the following domestic market sectors - core
equity, large-cap value, large-cap growth, small-cap value and small-cap growth,
and an international equity market sector. Wachovia has selected, and the Fund's
Board has approved, sub-advisers for the segments of the Fund's portfolio
invested in the large-cap value, large-cap growth, small-cap growth and
international market sectors. Once the Fund has sufficient assets for it to be
economically viable, assets will be allocated to sub-advisers as discussed
below.
Wachovia will manage the remainder of the Fund's portfolio.
Wachovia uses various strategies to manage the composition of returns and
thereby seek to increase the after-tax returns of shareholders that are taxable
corporations. Successful application of these strategies will result in
shareholders incurring capital gains when they ultimately sell their Fund
shares.
Core Equity Strategy
Wachovia manages the segment of the Fund's portfolio allocated to core equity
investments comprised of a mix of equity securities from issuers in all economic
sectors (basic materials, capital goods, etc.) with a market capitalization in
excess of $1 billion. Under normal conditions, such securities will comprise
from 25% to 55% of the Fund's portfolio. Wachovia selects securities based on a
number of factors, incorporating both growth and value measures. A combination
of fundamental analysis, quantitative modeling, strategic outlook, and relative
price performance trends are used to select stocks perceived to be undervalued
with prospects for improving fundamentals.
Wachovia's universe of approximately 1,000 stocks is created by screening stocks
traded on U.S. exchanges for investment grade debt ratings or equivalent quality
ratings and market capitalization of one billion dollars or more. Sorted by
economic sector for team management, the stocks are then evaluated for selection
through disciplined consideration of investment criteria:
Valuation Wachovia's appraisal of company's intrinsic
value incorporating measures of free cash
flow, expected growth, business quality and
financial strength;
Forecast Alpha A forecast of stock performance based
on a dynamic multi-factor model that
considers both value and growth measures;
Strategic Outlook A top-down perspective that
identified economic, political and social
trends influencing prospects for growth; and
Price Trends Analysis of stock price performance
relative to the market and other stocks in
the same sector and industry.
Large-Cap Growth Strategy
Alliance Capital Management L.P. (Alliance) sub-advises the segment of the
Fund's portfolio allocated to large-cap growth stocks, which under normal
conditions will comprise from 0% to 30% of the Fund's portfolio. Large cap
equities are defined as securities of any company with assets in excess of $5
billion. Alliance applies a "disciplined growth" strategy that uses its
fundamental and quantitative security scoring system for stock selection. With
this approach, Alliance attempts to consistently outperform growth benchmarks
and to significantly outperform the Standard & Poor's 500 Composite Stock Price
Index (Standard & Poor's 500 Index) over time. Alliance seeks to identify and
invest in companies with relative earnings strength at an early stage and at a
reasonable price. To achieve this goal, Alliance applies a disciplined approach
which relies on original fundamental research.
The emphasis of the "disciplined growth" process is on stock selection. Alliance
strives to identify and invest in companies which offer the best available
combination of strong relative earnings growth (its primary focus) and
attractive valuation. It attempts to control style and industry risks relative
to growth stock benchmarks. Alliance's internal fundamental research team
employs a quantitative methodology to rank the relative attractiveness of each
stock in its primary research universe, which consists of 500 stocks. The
portfolio is concentrated in the highest ranking stocks, and individual holdings
and position sizes are determined by the management team after debating their
respective investment merits and contribution to portfolio risk.
Large-Cap Value Strategy
Federated Investment Management Company (Federated) sub-advises the segment of
the Fund's portfolio allocated to large-cap value stocks, which under normal
conditions will comprise from 0% to 30% of the Fund's portfolio. Federated
invests primarily in equity securities of companies that are typically leaders
in their industries, characterized by sound management and the ability to
finance expected growth. It attempts to identify good long-term values through
disciplined investing and careful fundamental research. Stocks selected will
typically be in large capitalization companies that are in the top 25% of their
industries with regard to revenues.
Federated ranks the future performance potential of companies, based on
valuation models which attempt to identify companies trading at low valuation
relative to their history, to the market and to their expected future growth. To
determine the timing of purchases and sales of portfolio securities, Federated
looks at recent stock price performance and the direction of current fiscal year
earning estimates. In addition, Federated performs traditional fundamental
analysis to select the most promising companies.
Companies with similar characteristics may be grouped together in broad
categories called sectors. Federated attempts to diversify its segment of the
Fund's investments, limiting its segment's risk exposure with respect to
individual securities and industry sectors. In determining the amount to invest
in a security, and in order to manage sector risk, Federated attempts to limit
the exposure of its segment of the Fund's portfolio to each major sector in the
Standard & Poor's 500 Index. As a general matter, sector allocation will be not
less than 50% nor more than 200% of the Index's allocation to that sector.
Small-Cap Growth Strategy
Loomis, Sayles & Company, L.P. (Loomis Sayles) sub-advises the segment of the
Fund's portfolio allocated to small-cap growth stocks, which under normal
conditions will comprise from 0% to 30% of the Fund's portfolio. Loomis Sayles
primarily invests at least 65% of its segment in equity securities of companies
with market capitalizations that fall within the capitalization range of the
Russell 2000 Index and may invest up to 35% of its total segment in larger
companies. The Russell 2000 Index currently is comprised of companies with
market capitalizations between $1.78 million and $1.35 billion. Loomis Sayles
may invest any portion of the segment's assets in Canadian securities and up to
20% of the segment's assets in the securities of issuers headquartered outside
the United States and Canada. Loomis Sayles selects stocks with a bottom-up,
fundamental research driven process. Emphasis is placed on visiting portfolio
candidates prior to purchase with continuing contact during the investment
holding period. Candidates for investment generally have the following
characteristics:
o The company offers new or distinctive products, services or technologies;
o Market share leaders or gaining share rapidly due to their product
positioning;
o The company is typically expected to generate earnings growth of at
least 20% per annum driven by both strong sales and improving
profitability; and
o A strong, experienced management team with the vision and capability to
grow into a large, profitable organization.
After a purchase candidate is identified, a determination of current valuation
and appreciation potential is made based upon estimates of future earnings and
earnings growth as well as the consistency of earnings growth. A price-earnings
to growth rate analysis is utilized to determine the attractiveness of a
company's current valuation. In addition to these earnings momentum tests, the
team considers other factors, such as earnings surprises, cash flows, return on
equity and assets and the quality of the company's management when determining
whether a company should be included in the portfolio. Securities are eliminated
when signs of slowing growth become apparent.
Small-Cap Value Strategy
Wachovia manages the segment of the Fund's portfolio allocated to small-cap
value stocks, which under normal conditions will comprise from 0% to 30% of the
Fund's portfolio. Wachovia looks for significantly undervalued companies that it
believes have the potential for above-average growth, commensurate with
increased risk. Investments are typically made in stocks of companies 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, Wachovia
intends to invest at least 65% of this segment of Fund assets in stocks of
companies that have a market value capitalization of $1 billion or less.
Wachovia may invest up to 20% of this segment in foreign securities.
International Strategy
INVESCO Global Asset Management (N.A.), Inc. (INVESCO) sub-advises the segment
of the Fund's portfolio allocated to international securities, which under
normal conditions will comprise from 0% to 30% of the Fund's portfolio. There
are four cornerstones of INVESCO's investment approach. First, securities are
selected on a "bottom-up" basis; INVESCO selects individual companies rather
than countries, themes, or industry groups.
Second, INVESCO conducts financial analysis on a broad universe of over 2,200
non-U.S. companies located in over 30 countries whose key financial data INVESCO
has adjusted to be comparable across borders and currencies. INVESCO believes
that it is only through the use of such comparable data that the relative
attractiveness of companies around the world can be assessed in an unbiased way.
This comparable financial data is used in a financial screening process which
results in a relative valuation ranking of the universe of stocks.
Third, INVESCO believes that fundamental company research is enhanced by using
local investment professionals. INVESCO's truly global presence allows it to use
over 100 of INVESCO's own international specialists, located in Asia and Europe,
to conduct such fundamental corporate research. This fundamental research is
conducted on the 350-400 most attractive stocks from its universe.
Finally, INVESCO considers the overall diversification and risk of the portfolio
relative to the clients' benchmarks through a broad quantitative approach rather
than resorting to less sophisticated geographical or industry constraints. The
benchmark for the Fund is Morgan Stanley Capital International Europe,
Australia, Far East Index (MSCI EAFE), an unmanaged market
capitalization-weighted equity index comprising 20 of the 48 countries in the
MSCI universe and representing the developed world outside of North America.
Each MSCI country index is created separately, then aggregated , without change,
into regional MSCI indices. EAFE performance data is calculated in U.S. dollars
and in local currency. It is expected that this risk management and
diversification approach will result in approximately 50-60 stocks in INVESCO's
segment of the Fund's portfolio.
What are the Main Risks of Investing in the Fund?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund.
The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual stocks or general changes
in stock valuations.
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States.
The Fund is also subject to the risk that its managers will not succeed in
attempting to minimize net realized capital gains or, conversely, that the Fund
will not have any realized or unrealized capital gains.
An investment in the Fund is not a deposit of a bank, is not insured or
guaranteed by Wachovia Bank, N.A., and is not insured or guaranteed by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other government agency.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
This table describes the fees and expenses that you may pay when you buy, hold
and redeem shares of the Fund's
Institutional Service Shares (Shares).
Shareholder Fees
Fees Paid Directly From Your Investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage
of offering None
price)
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase
price or redemption proceeds, as None
applicable)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions (as a percentage of None
offering price)
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, None
if applicable
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses1
Expenses That are Deducted from Fund Assets (as a percentage of average
net assets)
- --------------------------------------------------------------------------------
Management Fee 0.95%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None
- --------------------------------------------------------------------------------
Shareholder Services Fee 0.25%
- --------------------------------------------------------------------------------
Other Expenses 0.69%
- --------------------------------------------------------------------------------
Total Annual Institutional Services Shares Operating Expenses (Before 1.89%
Waiver)
- --------------------------------------------------------------------------------
Waiver of Fund Expenses 0.59%
- --------------------------------------------------------------------------------
Total Actual Annual Fund Operating Expenses (After 1.30%
Waiver)
- --------------------------------------------------------------------------------
1
Pursuant to an agreement between the investment adviser and the Trust, the
investment adviser agrees during the period from September 1, 1999 through
October 31, 2000 to waive its fees, and/or make reimbursements to the Fund, so
that the Fund's net operating expenses do not exceed, in the aggregate, the
Fund's Total Actual Annual Operating Expenses listed above. The investment
adviser agrees that this obligation shall constitute a contractual commitment
enforceable by the Trust and that the investment adviser shall not assert any
right to reimbursement of amounts so waived or reimbursed.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Institutional Service Shares with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in the Fund's
Institutional Service Shares for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's Institutional Service
Shares operating expenses are based upon the current expense limitation as shown
above in the table. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
1 Year 3 Years
- --------------------------------------------------------------------
Executive Equity Fund $132 $594
- --------------------------------------------------------------------
<PAGE>
WHAT ARE THE FUND'S MAIN INVESTMENTS AND INVESTMENT TECHNIQUES?
Equity Securities
Equity securities are the fundamental unit of ownership in a company. They
represent a share of the issuer's earnings and assets, after the issuer pays its
liabilities. Generally, issuers have discretion as to the payment of any
dividends or other distributions. As a result, investors cannot predict the
income they will receive from equity securities. However, equity securities
offer greater potential for appreciation than many other types of securities
because their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Fund
invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at
a specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
o it is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o it (or its subsidiaries) derived in its most current fiscal year at
least 50% of its total assets, capitalization, gross revenue or profit
from goods produced, services performed, or sales made in another
country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Tax Management Techniques
Wachovia is solely responsible for attempting to achieve the Fund's secondary
objective. Wachovia will seek to enhance the Fund's after-tax return by
allocating portfolio assets among the Fund's managers. The managers may utilize
one or more of the following tax reduction techniques: minimizing portfolio
turnover consistent with the Fund's primary objective; seeking to increase
capital appreciation while minimizing realized capital gains, offsetting
realized capital gains with realized capital losses, employing
highest-in-first-out (HIFO) tax lot accounting (i.e., selling first the shares
that have the highest cost basis), and selling any security that has not met its
expectations for total return (so as to realize a relatively small capital
gain). However, the Fund and its managers are not obligated to use any of these
particular techniques at any time.
Temporary Defensive Investments
The Fund may temporarily depart from its principal investment strategy by
investing assets in cash, cash items, and shorter-term debt securities. The Fund
may do this to minimize potential losses and maintain liquidity to meet
shareholder redemptions during adverse market conditions. This may cause the
Fund to forego investment returns for the safety of principal.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Multi-Manager Risks
Each segment of the Fund is managed independently of the others. Consequently,
it is possible for the same security to be held simultaneously in different
segments. It is also possible for the same security to be acquired by one
sub-adviser while it is simultaneously being disposed of by another. Such trades
will not be aggregated; this could result in the Fund incurring higher brokerage
costs than a fund that is similarly managed with a single adviser.
Equity Securities Risks
The Fund is subject to fluctuations in the stock market which has periods of
increasing and decreasing values. These fluctuations can be caused by many
events, including changes to domestic or international economic conditions.
Because the Fund invests primarily in stocks it is more subject to equity risks.
Stocks have greater volatility than debt securities. While greater volatility
increases risk, it offers the potential for greater reward.
Risks Related to Investing for Growth and Value
Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental developments, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks. This
means they depend more on price changes for returns than do value stocks. Growth
stocks may be more adversely affected in a down market compared to value stocks
that pay higher dividends and that may lag behind growth stocks in an up market.
Risks Related to Company Size
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of its
outstanding shares by the current market price per share. Companies with smaller
market capitalizations also tend to have unproven track records, a limited
product or service base and limited access to capital. These factors also
increase risks and make these companies more likely to fail than companies with
larger market capitalizations.
Risks of Foreign Investing
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Other risk
factors related to foreign securities include: rates of inflation, structure and
regulation of financial markets, liquidity and volatility of investments,
taxation policies, and accounting standards. In addition, a Fund may incur
higher costs and expenses when making foreign investments, which could impact
the Fund's performance. Exchange rates for currency fluctuate daily. The
combination of currency risk and market risks tends to make securities traded in
foreign markets more volatile than securities traded exclusively in the United
States.
Liquidity Risks
Trading opportunities are more limited for equity securities that are not widely
held. This may make it more difficult to sell or buy a security at a favorable
price or time. Consequently, the Fund may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
Leveraging Risks
Various investment strategies involve agreements to purchase or sell securities
or currencies in amounts that exceed the amount the Fund has invested in the
underlying securities or currencies. The excess exposure increases the risks
associated with the underlying securities or currencies on the Fund's investment
performance.
Securities Lending Risks
The Fund may lend securities. When the Fund lends its portfolio securities, it
may not be able to get them back from the borrower on a timely basis, thereby
exposing the Fund to a loss of investment opportunities.
Taxation Risks
Tax laws are subject to change. There is no assurance, for example, that the tax
laws applicable to capital gains will not be modified in the future.
Year 2000 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the investment adviser is
reviewing information regarding the Year 2000 readiness of issuers of securities
the Fund may purchase. However, this may be difficult with certain issuers. For
example, funds dealing with foreign service providers or investing in foreign
securities will have difficulty determining the Year 2000 readiness of those
entities. This is especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day on which Wachovia Bank, N.A. (Wachovia
Bank), the New York Stock Exchange (NYSE) and the Federal Reserve Wire System
are open for business. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV).
NAV is determined at the end of regular trading (normally 4 p.m. Eastern time)
each day the NYSE is open. The value of Shares is generally determined based
upon the market value of portfolio securities. However, the Fund's Board may
determine in good faith that another method of valuing an investment is
necessary to appraise its fair market value when a market price is unavailable.
The required minimum initial investment amount in the Fund is $50 million.
Subsequent investments must be at least $25,000.
Minimum initial investments may be waived from time to time for purchases by the
Trust Division of Wachovia Bank for its fiduciary or custodial accounts.
Accounts established through investment professionals may be subject to a
smaller minimum investment amount. Keep in mind that investment professionals
may charge you fees for their services in connection with your Share
transactions.
HOW ARE THE FUND'S SHARES SOLD?
The Fund offers two share classes: Institutional Service Shares and
Institutional Shares, each representing interests in a single portfolio of
securities. This prospectus relates only to Institutional Service Shares. Each
share class has different expenses which affect their performance. Call
1-800-994-4414 or contact your investment professional for more information
concerning the other class.
The Fund's Distributor, Federated Securities Corp., markets Shares to
institutions or individuals, directly or through an investment professional that
has an agreement with the Distributor (Authorized Dealer). The Distributor may
pay out of its assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.
HOW TO PURCHASE SHARES
You may purchase Shares through the Trust Division of Wachovia Bank or through
an Authorized Dealer.
The Fund and the Distributor reserve the right to reject any request to purchase
Shares.
Through the Trust Division of Wachovia Bank
Trust customers of Wachovia Bank may purchase Shares of the Fund in accordance
with the procedures set forth in the account agreement.
Orders must be received before 4:00 p.m. (Eastern time) in order to receive that
day's NAV. Orders received after 4:00 p.m. (Eastern time) will be purchased at
the next determined NAV.
Through an Authorized Dealer
Call your Authorized Dealer for specific instructions.
Purchase orders must be received before 3:00 p.m. (Eastern time) in order to
receive that day's NAV. Orders received after 3:00 p.m. (Eastern time) will be
purchased at the next determined NAV.
Systematic Investment Program
Once you have opened a Fund account, you may add to your investment on a regular
basis in amounts of at least $25,000. Under this program, funds may be
automatically withdrawn from your checking account and invested in Shares at the
NAV next determined after an order is received by the Fund. You may apply for
participation in this program through Wachovia Bank or through the Distributor.
HOW TO REDEEM SHARES
The Fund redeems Shares at their NAV next determined after the Fund receives the
redemption request in proper form. Shares may be redeemed by telephone or by
mail through the Trust Division of Wachovia Bank, through an Authorized Dealer,
or directly from the Fund.
All redemption requests must be received before 4:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's NAV.
Shareholders who have an Authorized Dealer should contact their Authorized
Dealer for specific instructions on how to redeem by telephone.
Signature Guarantees Signatures must be guaranteed if:
o your redemption is to be sent to an address other than the address of
record;
o your redemption is to be sent to an address of record that was changed within
the last thirty days; or o a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or credit union) or by a broker/dealer that is a domestic stock
exchange member, but not by a notary public.
Limitations on Redemption Proceeds
Redemption proceeds normally are mailed within one business day after receiving
a request in proper form. However, payment may be delayed up to seven days:
o to allow your purchase payment to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
Systematic Withdrawal Program
The Systematic Withdrawal Program allows you to automatically redeem Shares
monthly or quarterly at a minimum of $25,000. Your account value must be at
least $250,000 at the time the program is established. This program may reduce,
and eventually deplete, your account, and the payments should not be considered
yield or income. You may apply for participation in this program through your
financial institution.
Share Certificates
The Fund does not issue Share certificates.
ACCOUNT AND SHARE INFORMATION
Confirmations and Account Statements
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gain distributions paid.
Dividends and Capital Gain Distributions
The Fund declares and pays any dividends to shareholders quarterly. Dividends
consist of the Fund's investment income (dividends and interest) less operating
expenses. Fund dividends also include net realized short-term capital gains.
Dividends are declared and paid to shareholders invested in the Fund on the
record date for the dividend.
In addition, the Fund distributes any net capital gain at least annually. Net
capital gain is the excess of net long-term capital gains (realized long-term
capital gains over realized long-term capital losses) over net realized
short-term capital losses. Distributions of net capital gain are declared and
paid to shareholders invested in the Fund on the record date therefor.
Your dividends and capital gain distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before the Fund declares a dividend or capital gain
distribution, you will pay full price for the Shares and then receive a portion
of the price back in the form of a taxable distribution, whether or not you
reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain distribution. Contact your investment professional or the Fund for
more information concerning when dividends and capital gain distributions will
be paid.
Accounts With Low Balances
Non-retirement accounts may be closed if redemptions cause the account balance
to fall below $5,000. Before an account is closed, the shareholder will be
notified and given 30 days to purchase additional Shares to meet the minimum.
Tax Information
The Fund sends you an annual statement of your account activity to assist you in
completing your federal, state and local income tax returns. Fund distributions,
which are expected to be from dividends, interest and capital gains, are taxable
to you whether paid in cash or reinvested in the Fund. Capital gain
distributions qualify for treatment as long-term capital gains regardless of how
long you have held your Shares.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state and local income tax liability on redemptions.
Tax-Sensitive Approach to Investing
When possible, Wachovia manages the allocation of Fund assets among the managers
in an attempt to keep the Fund's net realized capital gains relatively low.
Whenever the Fund sells a security from its portfolio, the difference between
the price the Fund paid to acquire the security and the price at which it sells
the security will be a capital gain (if the security has risen in value) or a
capital loss (if the security has fallen in value). If the Fund has a net
realized capital gain from all its sales of securities, it generally must
distribute that amount to its shareholders to avoid having a tax liability.
Shareholders are taxable on those distributions.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
investment adviser, Wachovia Asset Management, a business unit of Wachovia Bank.
The investment adviser manages two segments of the Fund's assets, including
buying and selling portfolio securities. Subject to the Board's oversight, the
investment adviser is also responsible for selecting sub-advisers to manage
other segments of the Fund's assets, terminating agreements with sub-advisers,
and allocating assets among the sub-advisers. The investment adviser's address
is 100 North Main Street, Winston-Salem, NC 27101.
Wachovia Bank has been managing trust assets for over 100 years, with over $42
billion in managed assets as of December 31, 1998. Wachovia Bank also serves as
investment adviser to The Wachovia Municipal Funds, another investment company.
The investment adviser receives an annual investment advisory fee equal to .95%
of the Fund's average aggregate daily net assets. The investment adviser is
responsible for compensating sub-advisers who manage segments of the Fund's
assets.
Subject to the review of the Fund's Board, the investment adviser oversees each
sub-adviser to assure that it manages its segment in a manner consistent with
the Fund's goal, policies, restrictions and applicable law. Due to its
responsibility for overseeing the sub-advisers, the investment adviser has
ultimate responsibility for the investment performance of the Fund and is
responsible for recommending the hiring, termination and replacement of
sub-advisers. Although the sub-advisers' activities are subject to oversight by
the investment adviser, the Board and the Fund's officers, neither the
investment adviser, the Board, nor the officers evaluate the investment merits
of the sub-advisers' individual security selections.
The investment adviser selects sub-advisers based on its continuing quantitative
and qualitative evaluation of their skills and abilities in managing assets
pursuant to particular investment styles. While superior performance is regarded
as the ultimate goal, short-term performance by itself will not be a significant
factor in selecting or terminating sub-advisers.
The investment adviser has recommended, and the Fund's Board has approved, four
sub-advisers, each of which manage a segment of the Fund's portfolio. Wachovia
will begin to allocate assets among the sub-advisers when the Fund has
sufficient assets for allocation to be economically viable. The investment
adviser may, subject to review by the Board, reallocate assets among
sub-advisers. The criteria the Adviser will use in doing the reallocation may
include, but is not limited to, the expected after tax rate of return of each
sector (sub-adviser) relative to other sectors (sub-advisers), the perceived
riskiness of each sector, the liquidity inherent in each sector, the correlation
of returns among the sectors, the net gain/loss position of each sub-adviser,
and general market conditions. In addition, the Adviser will seek to allocate
funds in a manner that results in a highly diversified portfolio.
The Fund intends to seek an exemptive order from the Securities and Exchange
Commission that would permit it to add new sub-advisers, without shareholder
approval, and terminate or modify any sub-advisory agreement, subject to
approval by the Fund's Board, without shareholder approval. In the event of the
termination of a sub-advisory agreement, the investment adviser may either enter
into a new sub-advisory agreement with a new sub-adviser to manage the segment,
or reallocate the segment to existing sub-advisers. Within 90 days of the hiring
of a new sub-adviser, the Fund will notify shareholders and provide them with
information about the new sub-adviser.
Sub-Advisers
Alliance
Alliance Capital Management L.P. has been in the institutional money management
business since 1971. As of March 31, 1999, it had approximately $301.4 billion
in assets under management. Its address is 1345 Avenue of the Americas, New
York, NY 10105.
Federated
Federated Investment Management Company is a registered investment adviser. As
of December 31, 1998, it had over $111 billion in assets under management. Its
address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA
15222-3779.
Loomis Sayles
Loomis, Sayles & Company, L.P. has provided investment counsel to institutional
and individual clients for over 73 years. As of June 30, 1999, it had over $69
billion in assets under management. Its address is One Financial Center, Boston,
MA 02111-2660.
INVESCO
INVESCO Global Asset Management (N.A.), Inc. is a division of AMVESCAP PLC,
which had over $280 billion in assets under management as of March 30, 1999. Its
address is One Midtown Plaza, 1360 Peachtree Street, Suite 100, Atlanta, GA
30305.
Portfolio Managers
Wachovia
Core Equity Segment
Wachovia manages the core equity segment using seven teams of investment
professionals.
Small- Cap Value Segment
Roger L. Glenski
Mr. Glenski is a Certified Public Accountant, Portfolio Manager and Assistant
Vice President of the investment adviser. Mr. Glenski joined Wachovia in 1996,
specializing in the valuation of closely-held businesses and small companies.
Previously, Mr. Glenski was a staff accountant employed by the accounting firms
of KPMG and Deloitte & Touche LLP in Chicago. Mr. Glenski received a bachelors
degree from the University of Missouri-Kansas City and an MBA from the
University of Chicago.
Alliance
Jane M. Gould
Jane M. Gould is a Senior Vice President and Portfolio Manager with Alliance.
Ms. Gould has been with Alliance since its inception in 1971. Ms. Gould is a
graduate of Duke University, and has approximately 38 years of experience as an
investment professional, 30 years of which have been devoted to managing equity
investments.
Federated
Michael P. Donnelly
Mr. Donnelly joined Federated in 1989 as an Investment Analyst and is a Senior
Portfolio Manager. He has been a Vice President of Federated since 1994. Mr.
Donnelly is a Chartered Financial Analyst and received his MBA from the
University of Virginia.
Arthur J. Barry
Mr. Barry joined Federated in 1994 as an Investment Analyst and became a
Portfolio Manager in 1997. He served as Assistant Vice President of Federated
from 1997 through June 1998 and has been a Vice President since July 1998. Mr.
Barry is a Chartered Financial Analyst. He earned his MSIA with concentrations
in finance and accounting from Carnegie Mellon University.
INVESCO
INVESCO manages its segment of the Fund's portfolio using a team of nine
investment professionals.
Loomis Sayles
Christopher R. Ely
Philip C. Fine
David L. Smith
Messrs. Ely, Fine and Smith joined Loomis Sayles in 1996 as Vice Presidents and
Portfolio Managers. Prior to joining Loomis Sayles, Mr. Ely was Senior Vice
President and Portfolio Manager and Messrs. Fine and Smith were Vice Presidents
and Portfolio Managers of Keystone Investment Management Company, Inc.
FINANCIAL INFORMATION
The Fund will have a fiscal year end of November 30. As this is the Fund's first
fiscal year, financial information is not yet available.
<PAGE>
WACHOVIA EXECUTIVE EQUITY FUND
Institutional Service Shares
A Portfolio of The Wachovia Funds
The Fund's Statement of Additional Information (SAI) is incorporated by
reference into this prospectus, making it legally a part of this prospectus. The
SAI includes additional information about the Fund.
To obtain a free copy of the SAI and other information, call your investment
professional or the Fund at 1-800-994-4414.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, DC
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
Product code G02308-05(11/99)
Cusip:929901593
SEC File Number: 811-6504
THE WACHOVIA FUNDS
Wachovia Executive Equity Fund
Institutional Service Shares
Institutional Shares
Statement of Additional Information
November 15, 1999
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectuses of the Wachovia Executive
Equity Fund, dated November 15, 1999. You may obtain the prospectuses
without charge by calling 1-800-994-4414.
Contents
How is the Fund Organized? 1
Securities Descriptions and Techniques
1
What do Shares Cost? 9
How are the Fund's Shares Sold? 9
How to Buy Shares 9
How to Redeem Shares 10
Redemption in Kind
10
Account and Share Information 10
Tax Information 10
Who Manages and Provides Services to the Fund?
12
How Does the Fund Measure Performance? 14
Investment Ratings
17
Addresses Back Cover
Federated Securities Corp., Distributor,
A subsidiary of Federated Investors, Inc.
G02308-08(7/99)
Cusip 929901593
Cusip 929901585
<PAGE>
23
HOW IS THE FUND ORGANIZED?
The Wachovia Funds (Trust) is an open-end, management investment company
established under the laws of the Commonwealth of Massachusetts on November 19,
1991. The Trust offers separate series of shares representing interests in
separate portfolios of securities. The Trust changed its name from The Biltmore
Funds on July 31, 1997. The Wachovia Executive Equity Fund (Fund) is a
professionally managed, diversified series of the Trust. The Board of Trustees
(Board) has established two classes of shares of the Fund, known as
Institutional Service Shares and Institutional Shares (Shares). This SAI relates
to both classes of Shares.
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
Following is a table that indicates which types of securities are a:
P = Principal investment of the Fund; or A = Acceptable (but not principal)
investment of the Fund.
- ------------------------------------------------------ --------------------
Securities Executive Equity
Fund
- ------------------------------------------------------
- ------------------------------------------------------ --------------------
American Depositary Receipts (ADRs) A
- ------------------------------------------------------
- ------------------------------------------------------ --------------------
Banking Instruments A
- ------------------------------------------------------
- ------------------------------------------------------ --------------------
Commercial Paper A
- ------------------------------------------------------
- ------------------------------------------------------ --------------------
Common Stocks P
- ------------------------------------------------------ --------------------
- ------------------------------------------------------
Convertible Securities A
- ------------------------------------------------------
- ------------------------------------------------------ --------------------
Corporate Debt Securities A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
European Depositary Receipts (EDRs)1 A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
Foreign Securities P
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
Futures and Options Transactions A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------
Global Depositary Receipts (GDRs)1 A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
Lending of Portfolio Securities A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
Money Market Instruments A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
Options on Financial Futures A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
Over the Counter (OTC) Options A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
Preferred Stocks A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
Repurchase Agreements A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
Restricted and Illiquid Securities A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
Reverse Repurchase Agreements A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
Securities of Other Investment Companies A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
Stock Index Futures and Options A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
Temporary Investments A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------ --------------------
U.S. Government Obligations A
- ------------------------------------------------------
- ------------------------------------------------------ --------------------
Variable Rate Demand Notes A
- ------------------------------------------------------ --------------------
- ------------------------------------------------------
Warrants A
- ------------------------------------------------------ --------------------
When-Issued Transactions A
- ------------------------------------------------------ --------------------
Securities Descriptions and Techniques
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund may invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings
directly influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends before the
issuer makes payments on its common stock. Some preferred stocks also
participate in dividends paid on common stock. Preferred stocks may also
permit the issuer to redeem the stock. Warrants Warrants give the Fund the
option to buy the issuer's equity securities at a specified price (the
exercise price) at a specified future date (the expiration date). The Fund
may buy the designated securities by paying the exercise price before the
expiration date. Warrants may become worthless if the price of the stock
does not rise above the exercise price by the expiration date. This
increases the market risks of warrants as compared to the underlying
security. Rights are the same as warrants, except companies typically issue
rights to existing stockholders.
Fixed Income Securities
Fixed income securities pay interest or dividends at a specified rate. The rate
may be a fixed percentage of the principal or adjusted periodically. In
addition, the issuer of a debt security must repay the principal amount of the
security, normally within a specified time. Fixed income securities provide more
regular income than equity securities. However, the returns on fixed income
securities are limited and normally do not increase with the issuer's earnings.
This limits the potential appreciation of fixed income securities as compared to
common equity securities. A security's yield measures the annual income earned
on a security as a percentage of its price. A security's yield will increase or
decrease depending upon whether its price is less (a discount) or more (a
premium) than the principal amount. If the issuer may redeem the security before
its scheduled maturity, the price and yield on a discount or premium security
may change based upon the probability of an early redemption. Securities with
higher risks generally have higher yields. The following describes the types of
fixed income securities in which the Fund may invest.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Investors regard Treasury securities as having the lowest
credit risks. Agency Securities Agency securities are issued or guaranteed
by a federal agency or other government-sponsored entity acting under
federal authority (a GSE). The United States supports some GSEs with its
full, faith and credit. Other GSEs receive support through federal
subsidies, loans or other benefits. A few GSEs have no explicit financial
support, but are regarded as having implied support because the federal
government sponsors their activities. Investors regard agency securities as
having low credit risks, but not as low as treasury securities. The Fund
treats mortgage backed securities guaranteed by GSEs as agency securities.
Although a GSE guarantee protects against credit risks, it does not reduce
the market and prepayment risks of these mortgage backed securities.
Corporate Debt Securities Corporate debt securities are fixed income
securities issued by businesses. Notes, bonds, debentures and commercial
paper are the most prevalent types of corporate debt securities. The Fund
may also purchase interests in bank loans to companies. The credit risks of
corporate debt securities vary widely among issuers. The credit risk of an
issuer's debt security may also vary based on its priority for repayment.
For example, higher ranking (senior) debt securities have a higher priority
than lower ranking (subordinated) securities. This means that the issuer
might not make payments on subordinated securities while continuing to make
payments on senior securities. In addition, in the event of bankruptcy,
holders of senior securities may receive amounts otherwise payable to the
holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to
defer payments under certain circumstances. For example, insurance
companies issue securities known as surplus notes that permit the insurance
company to defer any payment that would reduce its capital below regulatory
requirements.
Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for
current expenditures. Most issuers constantly reissue their commercial
paper and use the proceeds (or borrowings from bank loans) to repay
maturing paper. If the issuer cannot continue to obtain liquidity in
this fashion, its commercial paper may default. The short maturity of
commercial paper reduces both the market and credit risks as compared
to other debt securities of the same issuer.
Demand Instruments
Demand instruments are corporate debt securities that the issuer must
repay upon demand. Other demand instruments require a third party, such
as a dealer or bank, to repurchase the security for its face value upon
demand. The Fund treats demand instruments as short-term securities,
even though their stated maturity may extend beyond one year.
Bank Instruments
Bank instruments are unsecured interest-bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Yankee instruments are denominated in U.S.
dollars and issued by U.S. branches of foreign banks. Eurodollar
instruments are denominated in U.S. dollars and issued by non-U.S. branches
of U.S. or foreign banks.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for or may be required to convert into common equity securities of
the issuer at a specified conversion price. The option allows the Fund to
realize additional returns if the market price of the equity securities exceeds
the conversion price. For example, the Fund may hold fixed income securities
that are convertible into shares of common stock at a conversion price of $10
per share. If the market value of the shares of common stock reached $12, the
Fund could realize an additional $2 per share by converting its fixed income
securities. Convertible securities typically have lower yields than comparable
non-convertible fixed income securities. In addition, at the time a convertible
security is issued, the effective conversion price typically exceeds the market
value of the underlying equity securities. Thus, convertible securities may
provide lower returns than non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity
securities. However, convertible securities permit the Fund to realize some of
the potential appreciation of the underlying equity securities with less risk of
losing its initial investment. The Fund may treat convertible securities as both
fixed income and equity securities for purposes of its investment policies and
limitations, because of their unique characteristics. Foreign Securities Foreign
securities are securities of issuers based outside the United States. The Fund
considers an issuer to be based outside the United States if: o it is organized
under the laws of, or has a principal office located in, another country; o the
principal trading market for its securities is in another country; or o it (or
its subsidiaries) derived in its most current fiscal year at least 50% of its
total assets,
capitalization, gross revenue or profit from goods produced, services
performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by
a foreign company. Depositary receipts are not traded in the same market as
the underlying security. The foreign securities underlying American
Depositary Receipts (ADRs) are traded in the United States. ADRs provide a
way to buy shares of foreign-based companies in the United States rather
than in overseas markets. ADRs are also traded in U.S. dollars, eliminating
the need for foreign exchange transactions. The foreign securities
underlying European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs), are traded globally or outside the United States.
Depositary Receipts involve many of the same risks of investing directly in
foreign securities, including currency risks and risks of foreign
investing.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty. Many
derivative contracts are traded on securities or commodities exchanges. In this
case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting transactions.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract. The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract. The Fund may trade in the following types
of derivative contracts:
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date and time. Entering into a contract to buy an underlying asset
is commonly referred to as buying a contract or holding a long position in
the asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures
contracts traded OTC are frequently referred to as forward contracts.
Options Options are rights to buy or sell an underlying asset for a
specified price (the exercise price) during, or at the end of, a specified
period. A call option gives the holder (buyer) the right to buy the
underlying asset from the seller (writer) of the option. A put option gives
the holder the right to sell the underlying asset to the writer of the
option. The writer of the option receives a payment, or premium, from the
buyer, which the writer keeps regardless of whether the buyer uses (or
exercises) the option. The Fund may do one or more of the following: Buy
call options on securities, securities indices and futures contracts in
anticipation of an increase in the value of the underlying asset or to
adjust portfolio volatility to more closely match the objectives of that
sector of the fund.. Buy put options on securities, securities indices and
futures contracts in anticipation of a decrease in the value of the
underlying asset or to adjust portfolio volatility to more closely match
the objectives of that sector of the fund.. Write call options on
securities, securities indices and futures contracts to generate income
from premiums, and in anticipation of a decrease or only limited increase
in the value of the underlying asset. If a call written by the Fund is
exercised, the Fund foregoes any possible profit from an increase in the
market price of the underlying asset over the exercise price plus the
premium received. Write put options on securities, securities indices and
futures contracts (to generate income from premiums, and in anticipation of
an increase or only limited decrease in the value of the underlying asset).
In writing puts, there is a risk that the Fund may be required to take
delivery of the underlying asset when its current market price is lower
than the exercise price. When the Fund writes options on futures contracts,
it will be subject to margin requirements similar to those applied to
futures contracts. Buy or write options to close out existing options
positions. Forward Currency Contracts A foreign currency exchange contract
is a contract to purchase or sell a currency at a future date. The two
parties to the contract set the number of days and the price. Forward
contracts are used as a hedge against future movements in foreign exchange
rates. The Fund may enter into forward contracts to purchase or sell
foreign currencies for a fixed amount of U.S. dollars or a foreign
currency. Hybrid Instruments Hybrid instruments combine elements of
derivative contracts with those of another security (typically a fixed
income security). All or a portion of the interest or principal payable on
a hybrid security is determined by reference to changes in the price of an
underlying asset or by reference to another benchmark (such as interest
rates, currency exchange rates or indices). Hybrid instruments also include
convertible securities with conversion terms related to an underlying asset
or benchmark. The risks of investing in hybrid instruments reflect a
combination of the risks of investing in securities, options, futures and
currencies, and depend upon the terms of the instrument. Thus, an
investment in a hybrid instrument may entail significant risks in addition
to those associated with traditional fixed income or convertible
securities. Hybrid instruments are also potentially more volatile and carry
greater market risks than traditional instruments. Moreover, depending on
the structure of the particular hybrid, it may expose the Fund to leverage
risks or carry liquidity risks.
Special Transactions
Repurchase Agreements
A repurchase agreement is a transaction in which the Fund buys a security
from a dealer or bank and agrees to sell the security back at a mutually
agreed upon time and price. The repurchase price exceeds the sale price,
reflecting the Fund's return on the transaction. This return is unrelated
to the interest rate on the underlying security. The Fund will enter into
repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the
investment managers. The Fund's custodian or subcustodian will take
possession of the securities subject to repurchase agreements. The
investment managers or subcustodian will monitor the value of the
underlying security each day to ensure that the value of the security
always equals or exceeds the repurchase price. Repurchase agreements are
subject to credit risks. Reverse Repurchase Agreements Reverse repurchase
agreements are repurchase agreements in which the Fund is the seller
(rather than the buyer) of the securities, and agrees to repurchase them at
an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at
a higher price, regardless of the market value of the security at the time
of repurchase. When Issued Transactions When issued transactions are
arrangements in which the Fund buys securities for a set price, with
payment and delivery of the securities scheduled for a future time. During
the period between purchase and settlement, no payment is made by the Fund
to the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to buy the securities and reflects their value
in determining the price of its shares. Settlement dates may be a month or
more after entering into these transactions so that the market values of
the securities bought may vary from the purchase prices. Therefore, when
issued transactions create market risks for the Fund. When issued
transactions also involve credit risks in the event of a counterparty
default.
To Be Announced Securities (TBAs)
As with other when issued transactions, a seller agrees to issue a TBA
security at a future date. However, the seller does not specify the
particular securities to be delivered. Instead, the Fund agrees to
accept any security that meets specified terms. For example, in a TBA
mortgage backed transaction, the Fund and the seller would agree upon
the issuer, interest rate and terms of the underlying mortgages.
However, the seller would not identify the specific underlying
mortgages until it issues the security. TBA mortgage backed securities
increase market risks because the underlying mortgages may be less
favorable than anticipated by the Fund.
Securities Lending
The Fund may lend portfolio securities to borrowers that the investment
adviser deems creditworthy. In return, the Fund receives cash or liquid
securities from the borrower as collateral. The borrower must furnish
additional collateral if the market value of the loaned securities
increases. Also, the borrower must pay the Fund the equivalent of any
dividends or interest received on the loaned securities. The Fund will
reinvest cash collateral in securities that qualify as an acceptable
investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral. Loans are subject to termination
at the option of the Fund or the borrower. The Fund will not have the right
to vote on securities while they are on loan, but it will terminate a loan
in anticipation of any important vote. The Fund may pay administrative and
custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash collateral to a securities lending agent
or broker.
Securities lending activities are subject to market risks and credit risks.
Asset Coverage
In order to secure its obligations in connection with certain derivatives
contracts or special transactions, the Fund will either own the underlying
assets, enter into an offsetting transaction or set aside readily marketable
securities with a value that equals or exceeds the Fund's obligations. Unless
the Fund has other readily marketable assets to set aside, it cannot trade
assets used to secure such obligations entering into an offsetting derivative
contract or terminating a special transaction. This may cause the Fund to miss
favorable trading opportunities or to realize losses on derivative contracts or
special transactions. Investment Risks Stock Market Risks o The value of equity
securities in the Fund's portfolio will rise and fall. These fluctuations could
be a
sustained trend or a drastic movement. The Fund's portfolio will reflect
changes in prices of individual portfolio stocks or general changes in
stock valuations. Consequently, the Fund's share price may decline and you
could lose money.
o The investment managers attempt to manage market risk by limiting the
amount the Fund invests in each company's equity securities. However,
diversification will not protect the Fund against widespread or prolonged
declines in the stock market.
Sector Risks
o Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. As the
investment managers allocate more of the Fund's portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that
sector.
Liquidity Risks
o Trading opportunities are more limited for equity securities that are not
widely held and for fixed income securities that have not received any
credit ratings, have received ratings below investment grade or are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
o Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.
o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts. Currency Risks
o Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the U.S.
o The investment managers attempt to manage currency risk by limiting the
amount the Fund invests in securities denominated in a particular currency.
However, diversification will not protect the Fund against a general
increase in the value of the U.S. dollar relative to other currencies.
Risks of Foreign Investing
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
o Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the United States.
Leverage Risks
o Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security or other benchmark.
Bond Market Risks
o Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.
o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity
of a fixed income or preferred security relative to changes in interest
rates.
Credit Risks
o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.
o Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Service. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the investment
adviser's credit assessment.
o Fixed income securities generally compensate for greater credit risk by
offering a higher yield. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the
spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security's rating is lowered, or
the security is perceived to have an increased credit risk. An increase in
the spread will cause the price of the security to decline.
o Credit risk includes the possibility that a party to a transaction
involving the Fund will fail to meet its obligations. This could cause the
Fund to lose the benefit of the transaction or prevent the Fund from
selling or buying other securities to implement its investment strategy.
Investment Limitations
Issuing Senior Securities and Borrowing Money
The Fund may borrow money, directly or indirectly, and issue senior
securities, to the maximum extent permitted under the 1940 Act, any
rule or order thereunder, or any SEC staff interpretation thereof.
Investing in Real Estate The Fund may not purchase or sell real estate,
provided that this restriction does not prevent the Fund from investing
in issuers which invest, deal, or otherwise engage in transactions in
real estate or interests therein, or investing in securities that are
secured by real estate or interests therein. The Fund may exercise its
rights under agreements relating to such securities, including the
right to enforce security interests and to hold real estate acquired by
reason of such enforcement until that real estate can be liquidated in
an orderly manner. Investing in Commodities The Fund may not purchase
or sell physical commodities, provided that the Fund may purchase
securities of companies that deal in commodities. For purposes of this
restriction, investments in transactions involving futures contracts
and options, forward currency contracts, swap transactions and other
financial contracts that settle by payment of cash are not deemed to be
investments in commodities. Underwriting The Fund may not underwrite
the securities of other issuers, except that the Fund may engage in
transactions involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933. 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, securities issued or guaranteed by
the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by such
securities, and securities of other investment companies) if, as a
result, more than 5% of the value of its total assets would be invested
in the securities of that issuer or the Fund would own more than 10% of
the outstanding voting securities of that issuer. Concentration of
Investments The Fund will not make investments that will result in the
concentration of its investments in the securities of issuers primarily
engaged in the same industry. For purposes of this restriction, the
term concentration has the meaning set forth in the 1940 Act, any rule
or order thereunder, or any SEC staff interpretation thereof.
Government securities and municipal securities will not be deemed to
constitute an industry. The Fund has adopted a related non-fundamental
policy which provides that in applying the concentration restriction:
(a) utility companies will be divided according to their services, for
example, gas, gas transmission, electric and telephone will each be
considered a separate industry; (b) financial service companies will be
classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (c) asset-backed securities will be
classified according to the underlying assets securing such securities.
Lending Cash or Securities The Fund may not make loans, provided that
this restriction does not prevent the Fund from purchasing debt
obligations, entering into repurchase agreements, lending its assets to
broker/dealers or institutional investors and investing in loans,
including assignments and participation interests.
The above investment limitations cannot be changed without shareholder approval
of a majority of the Fund's outstanding Shares as defined in the 1940 Act. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
Investing in Securities of Other Investment Companies
The Fund may invest its assets in securities of other investment
companies as an efficient means of carrying out its investment
policies. It should be noted that investment companies incur certain
expenses, such as management fees, and, therefore, any investment by
the Fund in shares of other investment companies may be subject to such
duplicate expenses. The Fund may invest in the securities of affiliated
money market funds as an efficient means of managing the Fund's
uninvested cash. Purchases on Margin The Fund will not purchase
securities on margin, provided that the Fund may obtain short-term
credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits
in connection with its use financial options and futures, forward and
spot currency contracts, and other financial contracts or derivative
instruments. Pledging Assets The Fund will not mortgage, pledge, or
hypothecate any of its assets, provided that this shall not apply to
the transfer of securities in connection with any permissible borrowing
or to collateral arrangements in connection with permissible
activities. Writing Covered Call Options The Fund will not write call
options on securities, futures contracts or forward contracts unless
the securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment or unless the
Fund has segregated cash equal to the current market value of the
underlying instrument or the exercise price, whichever is applicable.
Investing in Illiquid Securities
The Fund will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time
deposits maturing in more than seven days, if immediately after and as
a result, the value of such securities would exceed, in the aggregate
15% of the Fund's net assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings association, having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of deposit, to be "cash items."
The Fund does not intend to borrow money in excess of 5% of the value of its
total assets during the coming fiscal year.
Determining Market Value of Securities
Market values of the Fund's portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or
the OTC market), if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that
short-term obligations with remaining maturities of less than 60 days at
the time of purchase may be valued at amortized cost or at fair market
value as determined in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics and other market data or
factors. When prices cannot be obtained from an independent pricing service,
securities may be valued based on quotes from broker-dealers or other financial
institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the OTC market are valued according to the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option. The
Board may determine in good faith that another method of valuing such
investments is necessary to appraise their fair market value.
Trading in Foreign Securities. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its net asset value (NAV), the Fund values foreign securities at the
latest closing price on the exchange on which they are traded immediately prior
to the closing of the NYSE. Certain foreign currency exchange rates may also be
determined at the latest rate prior to the closing of the NYSE. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
NYSE. If such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others. WHAT DO
SHARES COST?
The Fund's NAV per Share fluctuates and is based on the market value of all
securities and other assets of the Fund. The NAV for each class of Shares may
differ due to the variance in expenses incurred by each class. Such variance
will reflect only accrued net income to which the shareholders of a particular
class are entitled.
HOW ARE THE FUND'S SHARES SOLD?
Under the Distributor's contract with the Fund, the Distributor, Federated
Securities Corp., offers Shares on a continuous, best-efforts basis.
HOW TO BUY SHARES
Exchanging Securities for Shares
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
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. Wachovia Bank acts as the
shareholders' agent in depositing checks and converting them to federal funds.
HOW TO REDEEM SHARES
Redemption In Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the 1940 Act,
the Fund is obligated to pay Share redemptions to any one shareholder in cash
only up to the lesser of $250,000 or 1% of the net assets represented by such
Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Board determines that payment should be in kind. In such a case, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
securities, valued in the same way as the Fund determines its NAV. The portfolio
securities will be selected in a manner that the Fund's Board deems fair and
equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
ACCOUNT AND SHARE INFORMATION
Voting Rights
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All classes of each series of
the Trust have equal voting rights, except that in matters affecting only the
Fund or a particular class, only Shares of the 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 shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of each Trust's outstanding
shares of all series entitled to vote.
TAX INFORMATION
Federal Income Tax - Distributions and Redemptions
The Fund will be treated as a separate entity for federal income tax purposes so
that income earned and capital gains and losses realized by the Trust's other
portfolios will be separate from those realized by the Fund.
The Fund intends to qualify for treatment as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986 (Code), as amended. As
long as the Fund distributes each year all of its net investment income and all
of its net realized capital gains, the Fund is treated as a tax-free,
pass-through entity. The Fund's shareholders are taxable on those distributions.
If the foregoing requirements are not met, the Fund will not receive special tax
treatment and will pay federal income tax.
From the viewpoint of a Fund shareholder, there are three possible types of Fund
income: o ordinary dividends, o capital gains dividends, and o undistributed
capital gains. In addition, a Fund shareholder may experience unrealized price
appreciation or depreciation. Each year, the Fund will provide each shareholder
with a statement (Form 1099-DIV) that breaks down the total income into each of
these categories. "Ordinary dividends" are taxed to shareholders as ordinary
income. They include dividends earned on Fund assets, plus net short-term
capital gains realized on the Fund's sale of securities.
Generally, ordinary dividends received by a Fund shareholder that is taxed under
Subchapter C of the Code (a taxable corporation) qualify for the 70% DRD to the
extent the Fund designates the amount distributed as qualifying for the DRD (a
DRD dividend). The Fund may designate as DRD dividends only the dividends it
receives from domestic corporations. Certain restrictions, however, can reduce
DRD dividends. For example, o If the aggregate dividends received by the Fund
from domestic corporations is less than 75% of its gross
income (computed without regard to realized capital gains), then the Fund's
expenses must be apportioned ratably and the Fund can designate as DRD
dividends only the amount of dividends received less a ratable portion of
its expenses.
o If the Fund does not meet certain holding period requirements with respect
to the underlying stock, the Fund cannot designate dividends received on
that stock as a DRD dividend.
o If the Fund is obligated to make a payment in lieu of a dividend on a
security sold short or corresponding payment with respect to a position in
substantially similar or related property, the Fund cannot designate the
dividend received as a qualifying DRD dividend.
o If the Fund receives a dividend on "debt-financed portfolio stock," as
defined by the Code, the amount of the DRD may be reduced.
As noted above, ordinary dividends paid by the Fund from sources other than the
dividends it receives from domestic corporations will not qualify for the DRD.
Thus, any interest income, net short-term capital gain, and dividends received
from foreign corporations included in the Fund's taxable income and distributed
by it as an ordinary dividend will not qualify for the DRD. You should also note
that availability of the DRD is subject to certain restrictions. For example,
the deduction is eliminated unless you have held (or are deemed to have held)
your Shares for at least 46 days in a substantially unhedged manner. The DRD may
also be reduced to the extent interest paid or accrued by you is directly
attributable to your investment in Fund shares. If your investment in the Fund
is "debt financed" for these tax purposes, you should consult with your tax
advisor concerning the availability of the DRD. "Capital gain dividends" are
distributions of the Fund's net capital gain (the excess of net realized
long-term capital gains over net realized short-term capital losses). Currently,
capital gain dividends received by a taxable corporation are taxed at ordinary
income tax rates. Pursuant to the Code, certain distributions that are declared
in October, November or December but that, for operational reasons, may not be
paid to Fund shareholders until the following January, will be treated for tax
purposes as if paid by the Fund and received by you on December 31 of the
calendar year in which they are declared. The Fund will be subject to a
nondeductible 4% excise tax to the extent it fails to distribute by the end of
any calendar year substantially all of its ordinary income for that year and
capital gain net income for the one-year period ending on October 31 of that
year, plus certain other amounts. Redemptions of Fund shares are taxable events
on which you may realize a gain or a loss. The Fund will inform you of the
source of your dividends at the time they are paid and will, promptly after the
close of each calendar year, advise you of the tax status thereof for federal
income tax purposes. Certain futures and foreign currency contracts in which the
Fund may invest will be subject to section 1256 of the Code ("section 1256
contracts"). Any section 1256 contracts the Fund holds at the end of each
taxable year generally must be "marked-to-market" (that is, treated as having
been sold at that time for their fair market value) for federal income tax
purposes, with the result that unrealized gains or losses will be treated as
though they were realized. Sixty percent of any net gain or loss recognized on
these deemed sales, and 60% of any net realized gain or loss from any actual
sales of section 1256 contracts, will be treated as long-term capital gain or
loss, and the balance will be treated as short-term capital gain or loss.
Section 1256 contracts also may be marked-to-market for purposes of the Excise
Tax. These rules may operate to increase the amount that the Fund must
distribute to satisfy the distribution requirement (i.e., with respect to the
portion treated as short-term capital gain), which will be taxable to the
shareholders as ordinary income, and to increase the net capital gain the Fund
recognizes, without in either case increasing the cash available to the Fund.
The Fund may elect not to have the foregoing rules apply to any "mixed straddle"
(that is, a straddle, clearly identified by the Fund in accordance with the
regulations under the Code, at least one (but not all) of the positions of which
are section 1256 contracts), although doing so may have the effect of increasing
the relative proportion of net short-term capital gain (taxable as ordinary
income) and thus increasing the amount of dividends that must be distributed. If
you are not a U.S. person for purposes of federal income taxation, you should
consult with your financial or tax advisors regarding the applicability of U.S.
withholding or other taxes on dividends received from the Fund and the
application of foreign tax laws to these dividends. You should consult your tax
advisor with respect to the applicability of state and local intangible property
or income taxes to your Shares and to dividends and redemption proceeds received
from the Fund. Foreign Investments If the Fund purchases foreign securities, its
investment income and gains from these securities may be subject to foreign
withholding or other taxes that could reduce the return on these securities. Tax
treaties between the United States and foreign countries, however, may reduce or
eliminate the amount of foreign taxes to which the Fund would be subject. The
effective rate of foreign tax cannot be predicted since the amount of Fund
assets to be invested within various countries is uncertain. However, the Fund
intends to operate so as to qualify for treaty-reduced tax rates when
applicable.
The Fund may invest in the stock of certain foreign corporations that constitute
passive foreign investment companies (PFICs). If so, it may be subject to
Federal income tax upon disposition of PFIC investments.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
Board of Trustees
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for the Trust's most recent fiscal year. Each of the
Trustees and officers listed below holds an identical position with The Wachovia
Municipal Funds, another investment company. The Wachovia Funds are comprised of
fifteen Funds and The Wachovia Municipal Funds are comprised of four funds,
together they form the Fund Complex.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Name Occupations for past 5 Years Aggregate
Birthdate Compensation from
Address Fund Complex
Position with Trust
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
James A. Hanley Retired; Vice President and Treasurer, Abbott Laboratories (health $26,400
August 13, 1931 care products) (until 1992).
4272 Sanctuary Way
Bonita Springs, FL
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Samuel E. Hudgins Hudgins Consulting, LLC (independent consultant); President, $26,400
March 4, 1929 Percival Hudgins & Company, LLC (investment bankers/financial
715 Whitemere Court, N.W. consultants) (until September 1997); Director, Atlantic American
Atlanta, GA Corporation (insurance holding company).
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
J. Berkely Ingram, Jr. Real estate investor and partner; formerly, Vice Chairman, $24,000
April 17, 1924 Massachusetts Mutual Life Insurance Company.
114-L Reynolda Village
Winston-Salem, NC
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
D. Dean Kaylor Retired; Executive Vice President and Chief Financial Officer, NBD $24,000
June 29, 1930 Bank, N.A. and NBD Bancorp, Inc. (bank and bank holding company)
2835 Greenbriar (until 1990).
Harbor Springs, MI
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Alvin J. Schexnider, Ph.D. Chancellor, Winston-Salem State University. $12,000
May 26, 1945
5005 Marble Arch Road
Winston-Salem, NC 27104
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Charles S. Way, Jr.* President, Chairman and CEO, The Beach Company and its various $24,000
December 18, 1937 affiliated companies and partnerships.
211 King Street
Suite 300
Charleston, SC
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
John W. McGonigle President and Chief Executive Officer, Federated Investors $0
October 26, 1938 Management Company; Executive Vice President, Secretary, General
Federated Investors Tower Counsel, and Trustee, Federated Investors; Trustee, Federated
Pittsburgh, PA Services Company; and Director, Federated Securities Corp.
President and Treasurer
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Charles L. Davis, Jr. Vice President, Federated Services Company. $0
March 23, 1960
Federated Investors Tower
Pittsburgh, PA
Vice President and Assistant
Treasurer
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Peter J. Germain Senior Vice President and Director of Proprietary Funds Services, $0
September 3, 1959 Federated Services Company; formerly, Senior Corporate Counsel,
Federated Investors Tower Federated Services Company.
Pittsburgh, PA
Secretary
- ---------------------------------- ---------------------------------------------------------------------- -------------------
</TABLE>
Investment Managers
The investment managers shall not be liable to the Trust, the Fund, or any Fund
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by them, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard their duties.
The Fund intends to seek an exemptive order from the SEC to permit the
investment adviser, subject to certain conditions, to enter into new
sub-advisory agreements, terminate existing sub-advisory agreements and amend
the terms of any sub-advisory agreement, subject to Board approval, but without
shareholder approval. The order would also permit the Fund to disclose the
aggregate advisory fee paid by the investment adviser to unaffiliated
sub-advisers.
The Adviser will monitor the diversification and concentration of the Fund by
reviewing daily reports provided by the Fund's portfolio recordkeeper which
aggregate the investments of all of the sub-advisers. The Adviser will take
appropriate action, which may include directing sub-advisers to reduce their
positions in a specific security, if it feels that the Fund is in danger of
violating diversification requirements.
Alliance Capital Management L.P. is an indirect, majority-owned subsidiary of
The Equitable Life Assurance Society of the United States.
Federated Investment Management Company is an indirect, wholly-owned subsidiary
of Federated Investors.
Loomis, Sayles & Company, L.P. is a Delaware limited partnership. The general
partner of Loomis Sayles is a special purpose corporation that is an indirect
wholly owned subsidiary of Nvest Companies, L.P. Nvest Companies' managing
general partner, Nvest Corporation, is a direct wholly-owned subsidiary of
Metropolitan Life Insurance Company (Met Life), a mutual life insurance company.
Nvest Companies' advising general partner, Nvest, L.P., is a publicly-traded
company listed on the NYSE. Nvest Corporation is the sole general partner of
Nvest L.P.
INVESCO Global Asset Management (N.A.) is a division of AMVESCAP PLC, a
publicly-owned company.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the investment managers look for prompt execution of the order at a
favorable price. The investment managers will generally use firms that are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The investment managers
may select brokers and dealers based on whether they also offer research
services (as described below). In selecting among firms believed to meet these
criteria, the investment managers may give consideration to those firms which
have sold or are selling Shares of the Fund and other funds distributed by the
Distributor and its affiliates. The investment managers make decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Fund's Board.
Research Services
Research services 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 may be used by the investment managers in advising other accounts. To
the extent that receipt of these services may replace services for which the
investment managers or their affiliates might otherwise have paid, it would tend
to reduce their expenses. The investment managers and their affiliates exercise
reasonable business judgment in selecting those 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. However, it is
possible for the Fund to pay a higher commission than another broker might have
charged for the same transaction in recognition of services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the investment managers. When the Fund and one or more of
those accounts invests in, or disposes of, the same security, available
investments or opportunities for sales will be allocated among the Fund and the
account(s) in a manner believed by the investment managers to be equitable.
While the coordination and ability to participate in volume transactions may
benefit the Fund, it is possible that this procedure could adversely impact the
price paid or received and/or the position obtained or disposed of by the Fund.
Administrator
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at the following annual rate of the average aggregate daily net
assets of the Fund as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Fund
.10 of 1% on the first $3.5 billion
.06 of 1% on assets in excess of $3.5 billion
Custodian
Wachovia Bank, N.A., is custodian (the Custodian) for the securities and cash of
the Fund. Under the Custodian Agreement, the Custodian holds the Fund's
portfolio securities in safekeeping and keeps all necessary records and
documents relating to its duties. For the services to be provided to the Trust
pursuant to the Custodian Agreement, the Trust pays the Custodian an annual fee
based upon the average daily net assets of the Fund and which is payable
monthly. The Custodian will also charge transaction fees and out-of-pocket
expenses.
Transfer Agent And Dividend Disbursing Agent
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, also provides certain accounting and
recordkeeping services with respect to the Fund's portfolio investments.
Independent Public Accountants
Ernst & Young LLP are the independent auditors for the Fund.
Shareholder Services
The Fund may pay Federated Administrative Services, a subsidiary of Federated,
for providing shareholder services and maintaining shareholder accounts.
Federated Administrative Services may select others to perform these services
for their customers and may pay them fees.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges which, if excluded, would increase the total return and
yield. The performance of Shares depends upon such variables as: portfolio
quality; average portfolio maturity; type and value of portfolio securities;
changes in interest rates; changes or differences in the Fund's or any class of
Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
Total Return
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of dividends
and capital gain distributions.
The average annual total return for Shares 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 NAV 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 adjusted over the period by any additional Shares,
assuming the annual reinvestment of all dividends and capital gain
distributions.
When Shares of the Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.
Yield
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number 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.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
Performance Comparisons
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to
certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
o information about the mutual fund industry from sources such as the Investment
Company Institute. The Fund may compare its performance, or performance for the
types of securities in which it invests, to a variety of other investments,
including federally insured bank products such as bank savings accounts,
certificates of deposit, and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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 capital gain distributions and income dividends and
takes into account any change in maximum offering price over a specific
period of time. From time to time, the Fund will quote its Lipper ranking
in advertising and sales literature.
Russell 2000 Index is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare the total returns of funds whose portfolios are invested primarily
in small capitalization common stocks. Europe, 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.
International 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.
Morgan 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 regard to their access to
foreign investors. The "Free" Index adjusts company and market weights to
reflect their accessibility 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).
Dow Jones Industrial Average ("DJIA") represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations in the United States, the DJIA index is a leading economic
indicator for the stock market as a whole. Standard & Poor's 500 Stock
Price Index (the "S&P Index"), is a composite index of common stocks in
industry, transportation, and financial and public utility companies. In
addition, the S&P Index assumes reinvestment of all dividends paid by
stocks listed on the S&P Index. Taxes due on any of these distributions are
not included, nor are brokerage or other fees calculated in the S&P Index
figures. Morningstar, Inc., an independent rating service, is the publisher
of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 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.
<PAGE>
INVESTMENT RATINGS
Standard & Poor's 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 Corporate Bond Ratings Aaa--Bonds
which are rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Aa--Bonds which are rated "Aa" are
judged to be of high quality by all standards. Together with the "Aaa" group
they comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than in "Aaa" securities. A--Bonds which are rated "A"
possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment some time in the future. 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.
<PAGE>
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 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 Commercial Paper Ratings
Prime-1--Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. "Prime-1"
repayment capacity will normally be evidenced by many of the following
characteristics: o Leading market positions in well-established industries; o
High rates of return on funds employed; o Conservative capitalization structure
with moderate reliance on debt and ample asset protection; o Broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
or o Well-established access to a range of financial markets and assured sources
of alternate liquidity. 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. Moody's Investors Service 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:
o Leading market positions in well established industries; o High rates of
return on funds employed; o Conservative capitalization structure with moderate
reliance on debt and ample asset protection; o Broad margins in earning coverage
of fixed financial charges and high internal cash generation; and o
Well-established access to a range of financial markets and assured sources of
alternate liquidity. Prime-2--Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained. 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 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.
<PAGE>
25
ADDRESSES
The Wachovia Executive Equity Fund
Institutional Service Shares and 101 Greystone Boulevard
Institutional Shares SC-9215
Columbia, SC 29226
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Wachovia Asset Management 100 North Main Street
Winston-Salem, NC 27101
Custodian
Wachovia Bank, N.A. 100 North Main Street
Winston-Salem, NC 27101
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Independent Auditors
Ernst & Young LLP 200 Clarendon Street
Boston, MA 02116
THE WACHOVIA FUNDS
Wachovia Executive Fixed Income Fund
Institutional Shares
Prospectus
November 15, 199
The Fund is a suitable investment for institutions seeking to fund non-qualified
deferred compensation plans.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Fund Goal, Strategies and Risk
What are the Fund's Fees and Expenses?
What are the Fund's Main Investment Techniques?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How are the Fund's Shares Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
<PAGE>
43
FUND GOAL, STRATEGIES AND RISK
What are the Fund's Investment Goals?
The Fund's primary goal is to seek high total returns from a portfolio of fixed
income securities that provides diversification across market sectors. The
Fund's secondary goal is to seek to increase the after-tax returns of
shareholders that are taxable corporations by using various tax reduction
strategies.
What is the Main Investment Strategy of the Fund?
The Fund pursues its investment goal by investing primarily in a diversified
portfolio of fixed income securities, including debt securities and preferred
securities, such as traditional preferred stock eligible for the intercorporate
dividends-received deduction (DRD), and related, fully taxable (or hybrid)
securities. Under normal market conditions, the Fund intends to invest at least
65% of its assets in fixed income securities. The Fund's investment adviser,
Wachovia Asset Management (Wachovia), establishes market sectors and manages the
allocation of the Fund's assets among those market sectors. From time to time,
Wachovia may add or remove market sectors and reallocate among sectors. The
criteria the Adviser will use in doing the reallocation among market sectors may
include, but is not limited to: the expected rate of return of each sector
relative to other sectors, the perceived riskiness of each sector, and the
correlation of returns among the sectors. Wachovia intends to employ multiple
investment sub-advisers to manage assets allocated to specific market sectors
and may add or remove sub-advisers to or from the management of the Fund.
Wachovia and the sub-advisers are sometimes called "managers."
Wachovia manages the allocation of the Fund's assets principally among domestic
fixed income (core debt), preferred securities and securities below investment
grade. Wachovia has selected, and the Fund's Board has approved, two
sub-advisers. One sub-adviser manages the segment of the Fund's portfolio
invested in preferred securities, which under normal conditions will comprise
from 0% to 50% of the Fund's portfolio.
The Fund uses various strategies to manage the composition of returns and
thereby seek to increase the after-tax returns of shareholders that are taxable
corporations. Successful application of these strategies will result in
shareholders incurring capital gains when they ultimately sell their shares.
Core Debt Strategy
Wachovia manages the segment of the portfolio allocated to core debt securities.
Wachovia selects primarily debt securities that, at the time of purchase, are
rated in the top four investment categories by a nationally recognized
statistical rating organization (NRSRO), such as Standard and Poor's 500 (S&P)
and Moody's Investors Services (Moody's) or, if unrated, are of comparable
quality to securities with such ratings. Wachovia selects corporate bonds,
asset- and mortgage-backed securities and U.S. government securities. Wachovia
changes segment weightings in these types of investments as it thinks
appropriate and uses fundamental macro-economic, credit and market analysis to
select securities. Normally, Wachovia will maintain an average dollar-weighted
maturity between 6 to 10 years in this segment.
Wachovia's fixed income process is a multi-disciplined approach that is built on
four critical activities -- duration management, yield curve positioning, sector
weighting, and security selection. The process begins by setting a duration
target for the portfolio that is dependent on a careful analysis of the factors
driving inflation and economic growth on both a domestic and global basis. Then,
after considering a variety of maturity structures to meet the duration target,
the portfolio is positioned to take advantage of locations on the yield curve
where our interest rate opinion differs from that currently priced into the
market. Portfolio sector weightings are determined through a careful analysis of
current versus historical spreads, the technical supply/demand position of the
market, and expected interest rate volatility. Sectors that are incorporated in
the portfolio include U.S. Treasuries, federal agencies, corporates, mortgages,
and asset-backed securities. Individual securities are analyzed and selected to
provide the intended quality and investment characteristics for the portfolio
strategy. Opportunities to take advantage of pricing disparities between similar
securities are evaluated on a continual basis.
Preferred Stocks and Related Securities Strategy
Flaherty & Crumrine Incorporated (F&C) manages the segment of the portfolio
allocated to preferred stock and related securities. F&C utilizes a combination
of quantitative models and opportunistic trading strategies. It seeks to attain
superior returns through combining fixed-rate and adjustable-rate preferred
securities with the mix changing over time in reflection of market conditions.
F&C's portfolio managers perform extensive quantitative analysis, providing the
basis of the security selection process and allowing the ranking of the various
market sectors and securities within the market for preferred stocks and related
preferred securities. F&C managers take several things into account in the
selection of securities for purchase and sale. Their approach combines
fundamental credit research on individual issuers; an analysis of supply/demand
conditions for preferred securities among dealer firms, institutional investors,
retail investors, and corporate securities issuers; an understanding of the
unique terms and characteristics of each individual security; historic and
prospective yield relationships between different issuers and market sectors;
and a quantitative modeling of the interest rate and risk characteristics of
each security. These quantitative modeling techniques are adapted from
well-known statistical and term structure models developed by academicians.
F&C's investments in preferred stocks and related securities will be primarily
focused in the top four investment categories ("AAA"' "AA"' "A", or "BBB" or
equivalent) of a nationally recognized statistical rating organization, such as
Moody's or S&P. In the absence of a formal rating, F&C may impute a rating using
its best judgment in good faith. F&C will limit its investments in those
securities where both Moody's and S&P rate the securities below their top four
categories to a maximum of 15% of the assets under F&C supervision at the time
of purchase
F&C also utilizes financial futures and options to modify the volatility and/or
duration characteristics of the preferred securities portfolio to more closely
match the objectives of that sector of the Fund. The objective of the
futures/options hedge in the portfolio is either to modify the effective
underlying duration of the preferred stock portfolio to make it more comparable
to that of the core debt strategy and/or to maintain a "safety net" hedge via
purchase of put options, in order to cushion against losses occasioned by large
increases in interest rates.
What are the Main Risks of Investing in the Fund?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund.
Prices of fixed income and preferred securities generally move in the opposite
direction of interest rates. The interest payments on fixed-rate debt
securities, and the dividends on fixed-rate preferred stocks and related
securities, do not change when interest rates change. Therefore, the price of
these securities can be expected to decrease when interest rates increase and
the Fund's net asset value may go down.
Debt securities rated below investment grade, also known as junk bonds, and
preferred stock and related securities rated below investment grade, generally
entail greater market, credit and liquidity risks than investment grade
securities with comparable terms.
Investments in developing or emerging markets securities are subject to higher
risks than those in developed market countries.
The Fund is also subject to the risk that its managers will not succeed in
attempting to minimize capital gains or, conversely, that the Fund will not have
any realized or unrealized capital gains.
An investment in the Fund is not a deposit of a bank, is not insured or
guaranteed by Wachovia Bank, N.A., and is not insured or guaranteed by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other government agency.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
This table describes the fees and expenses that you may pay when you buy, hold
and redeem shares of the Fund's Institutional Shares (Shares).
Shareholder Fees
Fees Paid Directly From Your Investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage
of offering None
price)
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase
price or redemption proceeds, as None
applicable)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions (as a percentage of None
offering price)
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, None
if applicable
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses 1
Expenses That are Deducted from Fund Assets (as a percentage of average
net assets)
- --------------------------------------------------------------------------------
Management Fee 0.70%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None
- --------------------------------------------------------------------------------
Shareholder Services Fee None
- --------------------------------------------------------------------------------
Other Expense 1.26%
- --------------------------------------------------------------------------------
Total Annual Institutional Service Shares Operating Expenses (Before 1.96%
Waiver)
- --------------------------------------------------------------------------------
Waiver/Reimbursement of Fund 1.16%
Expenses
- --------------------------------------------------------------------------------
Total Actual Annual Fund Operating Expenses (After 0.80%
Waiver)
- --------------------------------------------------------------------------------
1 Pursuant to an agreement between the investment adviser and the Trust, the
investment adviser agrees during the period from September 1, 1999 through
October 31, 2000 to waive its fees, and/or make reimbursements to the
Fund, so that the Fund's net operating expenses do not exceed, in the
aggregate, the Fund's Total Actual Annual Operating Expenses listed above.
The investment adviser agrees that this obligation shall constitute a
contractual commitment enforceable by the Trust and that the investment
adviser shall not assert any right to reimbursement of amounts so waived
or reimbursed
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Institutional Shares with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund's Institutional
Shares for the time periods indicated an then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Institutional Shares operating expenses are
based upon the current expense limitation as shown above in the table. Although
your actual costs may be higher or lower, based on these assumptions, your costs
would be:
1 Year 3 Years
- --------------------------------------------------------------------------
Executive Fixed Income Fund $82 $615
- --------------------------------------------------------------------------
<PAGE>
WHAT ARE THE FUND'S MAIN INVESTMENTS AND INVESTMENT TECHNIQUES?
Fixed Income Securities
The Fund invests primarily in fixed income securities. Fixed income securities
pay interest or dividends at a specified rate. The rate may be contractually
fixed or adjusted periodically with respect to interest rates or other economic
variables. For debt securities, the issuer must also repay the principal amount
of the security, normally within a specified time. Fixed income securities
provide more regular income than equity securities. However, the returns on
fixed income securities are generally limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
Preferred Stocks and Related Securities
Preferred securities have the right to receive specified dividends or interest
(or other possible payments such as sinking fund payments) before the issuer
makes payments on its common stock but after its senior securities are paid
interest. Dividends or interest payments for most preferred securities are
fixed, but the income from variable payment preferred stocks such as adjustable
rate or auction rate issues may vary over time and may be exposed to the risk of
value change. Generally, neither the suspension of dividend payments on
preferred stocks nor the deferral of interest payments on related fixed income
securities enables the holder of the security to invoke bankruptcy of the
issuer. Also, for some preferred securities the payment of dividends or interest
is non-cumulative. Some preferred securities may also participate in dividends
on the issuer's common stock and may be convertible or exchangeable into common
stock. Preferred securities may also permit the issuer to redeem the security.
The Fund treats preferred stock and related securities as fixed income
securities.
Hybrid preferred securities are those preferred securities which are fully
taxable to the investor, deductible for the issuer, and which receive
substantial equity credit from the rating services and banking regulators in the
determination of the issuer's credit ratings and equity capital ratios. Examples
include Monthly Income Preferred Securities, Quarterly Income Debt Securities,
Trust Originated Preferred Securities, and Capital Securities.
Mortgage Backed Securities
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and pre-payments from the underlying mortgages.
As a result, the holders assume all the prepayment risks of the underlying
mortgages.
Asset Backed Securities
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
o it is organized under the laws of, or has a principal office located
in, another country;
o the principal trading market for its securities is in another country; or
o it (or its subsidiaries) derived in its most current fiscal year at
least 50% of its total assets, capitalization, gross revenue or profit
from goods produced, services performed, or sales made in another
country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Securities of Other Investment Companies
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash. In
addition, subject to the receipt of an exemptive order from the Securities and
Exchange Commission, Wachovia may invest the segment of the Fund's portfolio
allocated to non-investment grade securities in an investment company advised by
OFFITBANK. Any such investment would be made only in accordance with the
conditions of the exemptive order, including any conditions relating to the
treatment of applicable fees and expenses. Investment in this investment company
would continue until the non-investment grade securities segment of the Fund's
portfolio is large enough to make direct investment in such securities
economically feasible as determined by Wachovia. OFFITBANK has been approved as
a sub-adviser of the Fund for purposes of managing any such direct investments
in non-investment grade securities.
Credit Quality and Investment Ratings
When the Fund invests in fixed income or preferred securities, most will be
rated BBB or better by S&P or Baa or better by Moody's at the time of purchase.
Unrated securities will be determined by the investment managers to be of like
quality and may have greater risk but a higher yield than comparable rated
securities. Securities rated BBB by S&P and Poor's or Baa by Moody's have
speculative characteristics.
Tax Management Techniques
Wachovia will seek to enhance the Fund's after-tax return by allocating
portfolio assets among the Fund's managers. The managers may utilize one or more
of the following tax reduction techniques: seeking to increase capital
appreciation while minimizing realized capital gains; offsetting realized
capital gains with realized capital losses by selling securities that have gone
down in value; employing highest-in-first-out (HIFO) tax lot accounting (i.e.,
selling first the shares that have the highest cost basis); and selling any
security that has not met its expectations for total return (so as to realize a
relatively small capital gain). After-tax returns for corporate shareholders
also will be increased to the extent the DRD is available. However, the Fund and
its managers are not obligated to use any of these particular techniques at any
time.
Temporary Defensive Investments
The Fund may temporarily depart from its principal investment strategy by
investing assets in cash, cash items, and shorter-term debt securities. The Fund
may do this to minimize potential losses and maintain liquidity to meet
shareholder redemptions during adverse market conditions. This may cause the
Fund to forego investment returns for the safety of principal.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Multi-Manager Risks
Each segment of the Fund is managed independently of the others. Consequently,
it is possible for the same security to be held simultaneously in different
segments. It is also possible for the same security to be acquired by one
sub-adviser while it is simultaneously being disposed of by another. Such trades
will not be aggregated; this could result in the Fund incurring higher brokerage
costs than a fund that is similarly managed with a single adviser.
Market Risk
The market value of securities fluctuates daily.
Fixed Income and Preferred Securities Risks
Prices of fixed income and preferred securities generally move in the opposite
direction of interest rates. The interest payments on fixed-rate debt securities
and the dividend payments on fixed-rate preferred stock and related securities
do not change when interest rates change. Therefore, the price of these
securities can be expected to decrease when interest rates increase, causing the
yield on such securities to go up, and the Fund's net asset value may go down.
While the managers may attempt to anticipate interest rate movements, there is
no guarantee that they will be able to correctly predict them.
In addition, fixed income and preferred securities with longer maturities or
durations will typically experience greater price volatility than those with
shorter maturities or durations, and the Fund's net asset value can be expected
to fluctuate accordingly.
The credit quality of a fixed income or preferred security is based upon the
ability of the make timely payment of principal and interest. If the credit
quality of securities held by the Fund declines or if the marketplace demands a
greater yield for the existing portfolio, even absent a change in credit
ratings, the Fund's net asset value could go down.
Principal, interest or dividend payments on a fixed income or preferred security
may not be paid when due. An issuer may redeem a debt or preferred security held
in the portfolio prior to its maturity. If this occurs, the managers may have to
reinvest the proceeds in securities offering lower overall yields for the Fund.
Prepayment Risks
The Fund is subject to prepayment risks. Principal on a fixed income security
may be repaid before its scheduled maturity. This may reduce the security's
value and require the Fund to reinvest the prepayment at a lower yield. In
addition, the Fund may buy a fixed income security with an expectation of early
prepayment. If the prepayment does not occur, the security may decline in value.
This is known as Extension Risk.
Leveraging Risks
Various investment strategies involve agreements to purchase or sell securities
or currencies in amounts that exceed the amount the Fund has invested in the
underlying securities or currencies. The excess exposure increases the risks
associated with the underlying securities or currencies on the Fund's investment
performance.
Credit Risks
Credit risk is the possibility that an issuer will fail to pay interest,
preferred dividends or principal as promised. If an issuer defaults on its
obligations or fails to make payments when promised, the Fund will lose money.
Many fixed income and preferred securities receive credit ratings from NRSROs.
NRSROs assign ratings to securities by assessing the likelihood of issuer
default on debt or delay in payment of dividends, interest or principal to
shareholders. Lower credit ratings correspond to higher credit risk. If a
security has not received a rating, the Fund must rely entirely upon the
manager's credit assessment. Fixed income and preferred securities generally
compensate for greater credit risk by offering a higher yield. The difference
between the yield of a security and the yield of a U.S. Treasury security with a
comparable maturity (the spread) incorporates an adjustment to compensate for
risk of loss. Spreads may increase generally in response to adverse economic or
market conditions. A security's spread may also increase if the security's
rating is lowered, or the security is perceived to have an increased credit
risk. An increase in the spread will cause the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
Asset-Backed/Mortgage-Backed Securities Risks
Asset-backed and mortgage-backed securities are subject to risks of prepayment
that generally occur when interest rates fall. Reinvesting these prepayments in
a lower interest rate environment reduces the Fund's income. Asset-backed
securities may have a higher level of default and recovery risk than
mortgage-backed securities.
Securities Lending Risks
The Fund may lend securities. When the Fund lends its portfolio securities, it
may not be able to get them back from the borrower on a timely basis, thereby
exposing the Fund to a loss of investment opportunities. Lending of preferred
stocks eligible for the DRD over the issues' ex-dividend date may limit the DRD
for that dividend payment.
Risks of Foreign Investing
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Other risk
factors related to foreign securities include: rates of inflation, structure and
regulation of financial markets, liquidity and volatility of investments,
taxation policies, and accounting standards. In addition, a Fund may incur
higher costs and expenses when making foreign investments, which could impact
the Fund's performance. Exchange rates for currency fluctuate daily. The
combination of currency risk and market risks tends to make securities traded in
foreign markets more volatile than securities traded exclusively in the United
States.
Futures and Options Risks
The use of financial futures and options to modify the volatility and/or
duration characteristics of the preferred securities portfolio may or may not
result in the results more closely matching the objectives of that sector of the
Fund.
Emerging Market Securities Risks
Investments in developing or emerging markets securities are subject to higher
risks than those in developed market countries because there is greater
uncertainty in less established markets and economies. These risks include the
possibility of expropriation, nationalization or confiscatory taxation, unstable
political, social or economic systems, smaller securities markets, lower trading
volume, and substantial rates of inflation.
Taxation Risks
Tax laws are subject to change. There is no assurance, for example, that the tax
laws applicable to capital gains will not be modified in the future.
Year 2000 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Fund's managers are
reviewing information regarding the Year 2000 readiness of issuers of securities
the Fund may purchase. However, this may be difficult with certain issuers. For
example, funds dealing with foreign service providers or investing in foreign
securities will have difficulty determining the Year 2000 readiness of those
entities. This is especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day on which Wachovia Bank, N.A. (Wachovia
Bank), the New York Stock Exchange (NYSE) and the Federal Reserve Wire System
are open for business. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV).
NAV is determined at the end of regular trading (normally 4 p.m. Eastern time)
each day the NYSE is open. The value of Shares is generally determined based
upon the market value of portfolio securities. However, the Fund's Board may
determine in good faith that another method of valuing an investment is
necessary to appraise its fair market value when a market price is unavailable.
The required minimum initial investment amount in the Fund is $50 million.
Subsequent investments must be at least $25,000.
Minimum initial investments may be waived from time to time for purchases by the
Trust Division of Wachovia Bank for its fiduciary or custodial accounts. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW ARE THE FUND'S SHARES SOLD?
The Fund offers two share classes: Institutional Service Shares and
Institutional Shares, each representing interests in a single portfolio of
securities. This prospectus relates only to Institutional Shares. Each share
class has different expenses which affect their performance. Call 1-800-994-4414
or contact your investment professional for more information concerning the
other class.
The Fund's Distributor, Federated Securities Corp., markets Shares to
institutions or individuals, directly or through an investment professional that
has an agreement with the Distributor (Authorized Dealer). The Distributor may
pay out of its assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.
<PAGE>
HOW TO PURCHASE SHARES
You may purchase Shares through the Trust Division of Wachovia Bank or through
an Authorized Dealer.
The Fund and the Distributor reserve the right to reject any request to purchase
Shares.
Through the Trust Division of Wachovia Bank
Trust customers of Wachovia Bank may purchase Shares of the Fund in accordance
with the procedures set forth in the account agreement.
Orders must be received before 4:00 p.m. (Eastern time) in order to receive that
day's NAV. Orders received after 4:00 p.m. (Eastern time) will be purchased at
the next determined NAV.
Through an Authorized Dealer
Call your Authorized Dealer for specific instructions.
Purchase orders must be received before 3:00 p.m. (Eastern time) in order to
receive that day's NAV. Orders received after 3:00 p.m. (Eastern time) will be
purchased at the next determined NAV.
Systematic Investment Program
Once you have opened a Fund account, you may add to your investment on a regular
basis in amounts of at least $25,000. Under this program, funds may be
automatically withdrawn from your checking account and invested in Shares at the
NAV next determined after an order is received by the Fund. You may apply for
participation in this program through Wachovia Bank or through the Distributor.
HOW TO REDEEM SHARES
The Fund redeems Shares at their NAV next determined after the Fund receives the
redemption request in proper form. Shares may be redeemed by telephone or by
mail through the Trust Division of Wachovia Bank, through an Authorized Dealer,
or directly from the Fund.
All redemption requests must be received before 4:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's NAV.
Shareholders who have an Authorized Dealer should contact their Authorized
Dealer for specific instructions on how to redeem by telephone.
Signature Guarantees Signatures must be guaranteed if:
o your redemption is to be sent to an address other than the address of
record;
o your redemption is to be sent to an address of record that was changed within
the last thirty days; or o a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or credit union) or by a broker/dealer that is a domestic stock
exchange member, but not by a notary public.
Limitations on Redemption Proceeds
Redemption proceeds normally are mailed within one business day after receiving
a request in proper form. However, payment may be delayed up to seven days:
o to allow your purchase payment to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
Systematic Withdrawal Program
The Systematic Withdrawal Program allows you to automatically redeem Shares
monthly or quarterly at a minimum of $25,000. Your account value must be at
least $250,000 at the time the program is established. This program may reduce,
and eventually deplete, your account, and the payments should not be considered
yield or income. You may apply for participation in this program through your
financial institution.
Share Certificates
The Fund does not issue Share certificates.
ACCOUNT AND SHARE INFORMATION
Confirmations and Account Statements
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gain distributions paid.
Dividends and Capital Gain Distributions
The Fund declares and pays any dividends to shareholders monthly. Dividends
consist of the Fund's investment income (interest and dividends) less operating
expenses. Fund dividends also include net realized short-term capital gains.
Dividends are declared and paid to shareholders invested in the Fund on the
record date for the dividend.
In addition, the Fund distributes any net capital gain at least annually. Net
capital gain is the excess of net long-term capital gains (realized long-term
capital gains over realized long-term capital losses) over net realized
short-term capital losses. Distributions of net capital gain are declared and
paid to shareholders invested in the Fund on the record date therefor.
Your dividends and capital gain distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before the Fund declares a dividend or capital gain
distribution, you will pay full price for the Shares and then receive a portion
of the price back in the form of a taxable distribution, whether or not you
reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain distribution. Contact your investment professional or the Fund for
more information concerning when dividends and capital gain distributions will
be paid.
Accounts With Low Balances
Non-retirement accounts may be closed if redemptions cause the account balance
to fall below $5,000. Before an account is closed, the shareholder will be
notified and given 30 days to purchase additional Shares to meet the minimum.
Tax Information
The Fund sends you an annual statement of your account activity to assist you in
completing your federal, state and local income tax returns. The statement for
corporations will include information on the portion of dividends that qualify
for the DRD. Fund distributions, which are expected to be from dividends,
interest and capital gains, are taxable to you whether paid in cash or
reinvested in the Fund. Capital gain distributions qualify for treatment as
long-term capital gains regardless of how long you have held your Shares.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state and local income tax liability on redemptions.
Tax-Sensitive Approach to Investing
When possible, Wachovia allocates the Fund's assets among the managers in an
attempt to keep the Fund's net realized capital gains relatively low. Whenever
the Fund sells a security from its portfolio, the difference between the price
the Fund paid to acquire the security and the price at which it sells the
security will be a capital gain (if the security has risen in value) or a
capital loss (if the security has fallen in value). If the Fund has a net
realized capital gain from all its sales of securities, it generally must
distribute that amount to its shareholders to avoid having a tax liability.
Shareholders are taxable on those distributions.
The Fund will try to keep its net realized capital gains relatively low.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees Wachovia,
a business unit of Wachovia Bank. Wachovia manages a segment of the Fund's
assets, including buying and selling portfolio securities. Subject to the
Board's oversight, Wachovia is also responsible for selecting sub-advisers to
manage a portion of the Fund's assets, terminating agreements with sub-advisers,
and allocating assets among the sub-advisers.
Wachovia's address is 100 North Main Street, Winston-Salem, NC 27101.
Wachovia Bank has been managing trust assets for over 100 years, with over $42
billion in managed assets as of December 31, 1998. Wachovia Bank also serves as
investment adviser to The Wachovia Municipal Funds, another investment company.
Wachovia receives an annual investment advisory fee equal to .70% of the Fund's
average aggregate daily net assets. Wachovia is responsible for compensating
sub-advisers who manage a segment of the Fund's assets. Subject to the review of
the Fund's Board, Wachovia oversees each sub-adviser to assure that it manages
its segment in a manner consistent with the Fund's goals, policies, restrictions
and applicable law. Due to its responsibility for overseeing the sub-advisers,
Wachovia has ultimate responsibility for the investment performance of the Fund
and is responsible for recommending the hiring, termination and replacement of
the sub-advisers. Although the sub-advisers' activities are subject to oversight
by Wachovia, the Board and the Fund's officers, neither Wachovia, the Board, nor
the officers evaluate the investment merits of the sub-advisers' individual
security selections.
Wachovia selects sub-advisors based on its continuing quantitative and
qualitative evaluation of their skills and abilities in managing assets pursuant
to particular investment styles. While superior performance is regarded as the
ultimate goal, short-term performance by itself will not be a significant factor
in selecting or terminating sub-advisers. Wachovia does not anticipate frequent
changes in sub-advisers.
Wachovia and the Fund's Board have selected Flaherty & Crumrine Incorporated to
manage the segment of the Fund's portfolio invested in preferred stocks, related
securities and associated financial futures and options. Wachovia will manage
the remainder of the Fund's portfolio. However, Wachovia may, subject to review
by the Board, reallocate assets among sub-advisers. In addition, the Fund
intends to seek an exemptive order from the Securities and Exchange Commission
that would permit it to add new sub-advisers, without shareholder approval, and
terminate or modify any sub-advisory agreement, subject to approval by the
Fund's Board, without shareholder approval. In the event of the termination of a
sub-advisory agreement, Wachovia may either enter into a new sub-advisory
agreement with a new sub-adviser to manage the segment, or reallocate the
segment to existing sub-advisers.
Flaherty & Crumrine Incorporated has approximately $1 billion in assets under
management. It was founded in 1983 for the purpose of managing large portfolios
of preferred stocks and related securities. In addition to managing portfolios
of institutional clients, it manages two publicly-held, closed-end investment
companies. Its address is 301 E. Colorado Blvd., Suite 720, Pasadena, CA 91101.
OFFITBANK is a New York state chartered trust company with offices at 520
Madison Avenue, New York, NY 10022, which presently manages approximately $11
billion in assets. The parent company of Wachovia, Wachovia Corporation, has
entered into an agreement whereby OFFITBANK would become a subsidiary of
Wachovia Corporation and an affiliate of Wachovia. Portfolio Managers Wachovia
Asset Management
Samuel M. Gibbs, II
Mr. Gibbs is a Senior Vice President and Manager of Fixed Income Investments for
Wachovia. Mr. Gibbs joined Wachovia Bank 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.
Michael W. Holt
Mr. Holt is a Chartered Financial Analyst and Fixed Income Portfolio Manager of
Wachovia. Mr. Holt joined Wachovia Bank in 1991. He is a graduate of the
University of Tennessee where he majored in economics and received his MBA in
Finance.
Wayne F. Morgan
Mr. Morgan is a Chartered Financial Analyst and Senior Vice President of
Wachovia. Prior to joining Wachovia Bank in June 1997 as a senior fixed income
portfolio manager, Mr. Morgan served as the Director of Investments at the
University of North Carolina at Chapel Hill, where he oversaw the management of
the University's endowment fund. Mr. Morgan received both a bachelor degree and
his MBA from the University of North Carolina at Chapel Hill.
Harold (Rick) Nelson, III
Mr. Nelson is a Senior Vice President and Fixed Income Portfolio Manager of
Wachovia. Mr. Nelson joined Wachovia Bank in 1985 as a fixed income portfolio
manager. He received his Bachelor of Science degree in management from St.
Francis College and his MBA in Finance from Mercer University.
Michael G. Sebesta
Mr. Sebesta is a Vice President and Fixed Income Portfolio Manager for Wachovia.
Mr. Sebesta joined Wachovia Bank in 1989. Mr. Sebesta has a bachelor degree in
economics from Wake Forest University.
Flaherty & Crumrine Incorporated
Donald F. Crumrine
Mr. Crumrine is a Chartered Financial Analyst and Chairman of the Board and a
Portfolio Manager of Flaherty & Crumrine Incorporated. Prior to joining Flaherty
& Crumrine in 1983, Mr. Crumrine was Vice President of Investments at Scudder,
Stevens & Clark Incorporated. He received his Bachelor of Science degree in
Finance from the University of Southern California, and his MBA from the Wharton
School of the University of Pennsylvania.
Robert M. Ettinger
Mr. Ettinger is a Chartered Financial Analyst and President and a Portfolio
Manager/Trader of Flaherty & Crumrine Incorporated. Prior to joining Flaherty &
Crumrine in 1985, Mr. Ettinger was an analyst at Scudder, Stevens & Clark
Incorporated. He received his Bachelor of Arts in Economics from the University
of California, Los Angeles and his MBA from the Wharton School of the University
of Pennsylvania.
Robert T. Flaherty
Mr. Flaherty is a Chartered Financial Analyst and a Director and Portfolio
Manager of Flaherty & Crumrine Incorporated. Prior to founding Flaherty &
Crumrine in 1983, Mr. Flaherty was a Partner of Scudder, Stevens & Clark, and
President and a Director of Scudder, Stevens & Clark Incorporated, Los Angeles.
He received both his Bachelor of Arts in Economics and MBA degrees from Stanford
University.
Peter C. Stimes
Mr. Stimes is a Chartered Financial Analyst and Vice President and Portfolio
Manager/Analyst of Flaherty & Crumrine Incorporated. Prior to joining Flaherty &
Crumrine in 1990, Mr. Stimes was Vice President & Treasurer of Tucson Resources
Inc., as well as Assistant Treasurer, Director of Treasury Operations of Tucson
Electric Power Company. He received both his Bachelor of Arts in History and MBA
degrees from the University of Chicago.
Robert E. Chadwick
Mr. Chadwick is enrolled in the Chartered Financial Analyst program and is an
Analyst/Trader for Flaherty & Crumrine Incorporated. Prior to joining Flaherty &
Crumrine in 1999, Mr. Chadwick was a Portfolio Manager/Financial Associate at
Koch Industries, Inc. He received his Bachelor of Science degree in Business at
the University of Kansas.
FINANCIAL INFORMATION
The Fund will have a fiscal year end of November 30. As this is the Fund's first
fiscal year, financial information is not yet available.
<PAGE>
WACHOVIA EXECUTIVE FIXED INCOME FUND
Institutional Shares
A Portfolio of The Wachovia Funds
The Fund's Statement of Additional Information (SAI) is incorporated by
reference into this prospectus, making it legally a part of this prospectus. The
SAI includes additional information about the Fund.
To obtain a free copy of the SAI and other information, call your investment
professional or the Fund at 1-800-994-4414.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, DC
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
G02308-06 (11/99)
Cusip:929901569
SEC File Number: 811-6504
THE WACHOVIA FUNDS
Wachovia Executive Fixed Income Fund
Institutional Service Shares
Prospectus
November 15, 199
The Fund is a suitable investment for institutions seeking to fund non-qualified
deferred compensation plans.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
CONTENTS
Fund Goal, Strategies and Risk
What are the Fund's Fees and Expenses?
What are the Fund's Main Investment Techniques?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How are the Fund's Shares Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
<PAGE>
FUND GOAL, STRATEGIES AND RISK
What are the Fund's Investment Goals?
The Fund's primary goal is to seek high total returns from a portfolio of fixed
income securities that provides diversification across market sectors. The
Fund's secondary goal is to seek to increase the after-tax returns of
shareholders that are taxable corporations by using various tax reduction
strategies.
What is the Main Investment Strategy of the Fund?
The Fund pursues its investment goal by investing primarily in a diversified
portfolio of fixed income securities, including debt securities and preferred
securities, such as traditional preferred stock eligible for the intercorporate
dividends-received deduction (DRD), and related, fully taxable (or hybrid)
securities. Under normal market conditions, the Fund intends to invest at least
65% of its assets in fixed income securities. The Fund's investment adviser,
Wachovia Asset Management (Wachovia), establishes market sectors and manages the
allocation of the Fund's assets among those market sectors. From time to time,
Wachovia may add or remove market sectors and reallocate among sectors. The
criteria the Adviser will use in doing the reallocation among market sectors may
include, but is not limited to: the expected rate of return of each sector
relative to other sectors, the perceived riskiness of each sector, and the
correlation of returns among the sectors. Wachovia intends to employ multiple
investment sub-advisers to manage assets allocated to specific market sectors
and may add or remove sub-advisers to or from the management of the Fund.
Wachovia and the sub-advisers are sometimes called "managers."
Wachovia manages the allocation of the Fund's assets principally among domestic
fixed income (core debt), preferred securities and securities below investment
grade. Wachovia has selected, and the Fund's Board has approved, two
sub-advisers. One sub-adviser manages the segment of the Fund's portfolio
invested in preferred securities, which under normal conditions will comprise
from 0% to 50% of the Fund's portfolio.
The Fund uses various strategies to manage the composition of returns and
thereby seek to increase the after-tax returns of shareholders that are taxable
corporations. Successful application of these strategies will result in
shareholders incurring capital gains when they ultimately sell their shares.
Core Debt Strategy
Wachovia manages the segment of the portfolio allocated to core debt securities.
Wachovia selects primarily debt securities that, at the time of purchase, are
rated in the top four investment categories by a nationally recognized
statistical rating organization (NRSRO), such as Standard and Poor's 500 (S&P)
and Moody's Investors Services (Moody's) or, if unrated, are of comparable
quality to securities with such ratings. Wachovia selects corporate bonds,
asset- and mortgage-backed securities and U.S. government securities. Wachovia
changes segment weightings in these types of investments as it thinks
appropriate and uses fundamental macro-economic, credit and market analysis to
select securities. Normally, Wachovia will maintain an average dollar-weighted
maturity between 6 to 10 years in this segment.
Wachovia's fixed income process is a multi-disciplined approach that is built on
four critical activities -- duration management, yield curve positioning, sector
weighting, and security selection. The process begins by setting a duration
target for the portfolio that is dependent on a careful analysis of the factors
driving inflation and economic growth on both a domestic and global basis. Then,
after considering a variety of maturity structures to meet the duration target,
the portfolio is positioned to take advantage of locations on the yield curve
where our interest rate opinion differs from that currently priced into the
market. Portfolio sector weightings are determined through a careful analysis of
current versus historical spreads, the technical supply/demand position of the
market, and expected interest rate volatility. Sectors that are incorporated in
the portfolio include U.S. Treasuries, federal agencies, corporates, mortgages,
and asset-backed securities. Individual securities are analyzed and selected to
provide the intended quality and investment characteristics for the portfolio
strategy. Opportunities to take advantage of pricing disparities between similar
securities are evaluated on a continual basis.
Preferred Stocks and Related Securities Strategy
Flaherty & Crumrine Incorporated (F&C) manages the segment of the portfolio
allocated to preferred stock and related securities. F&C utilizes a combination
of quantitative models and opportunistic trading strategies. It seeks to attain
superior returns through combining fixed-rate and adjustable-rate preferred
securities with the mix changing over time in reflection of market conditions.
F&C's portfolio managers perform extensive quantitative analysis, providing the
basis of the security selection process and allowing the ranking of the various
market sectors and securities within the market for preferred stocks and related
preferred securities. F&C managers take several things into account in the
selection of securities for purchase and sale. Their approach combines
fundamental credit research on individual issuers; an analysis of supply/demand
conditions for preferred securities among dealer firms, institutional investors,
retail investors, and corporate securities issuers; an understanding of the
unique terms and characteristics of each individual security; historic and
prospective yield relationships between different issuers and market sectors;
and a quantitative modeling of the interest rate and risk characteristics of
each security. These quantitative modeling techniques are adapted from
well-known statistical and term structure models developed by academicians.
F&C's investments in preferred stocks and related securities will be primarily
focused in the top four investment categories ("AAA"' "AA"' "A", or "BBB" or
equivalent) of a nationally recognized statistical rating organization, such as
Moody's or S&P. In the absence of a formal rating, F&C may impute a rating using
its best judgment in good faith. F&C will limit its investments in those
securities where both Moody's and S&P rate the securities below their top four
categories to a maximum of 15% of the assets under F&C supervision at the time
of purchase
F&C also utilizes financial futures and options to modify the volatility and/or
duration characteristics of the preferred securities portfolio to more closely
match the objectives of that sector of the Fund. The objective of the
futures/options hedge in the portfolio is either to modify the effective
underlying duration of the preferred stock portfolio to make it more comparable
to that of the core debt strategy and/or to maintain a "safety net" hedge via
purchase of put options, in order to cushion against losses occasioned by large
increases in interest rates.
What are the Main Risks of Investing in the Fund?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund.
Prices of fixed income and preferred securities generally move in the opposite
direction of interest rates. The interest payments on fixed-rate debt
securities, and the dividends on fixed-rate preferred stocks and related
securities, do not change when interest rates change. Therefore, the price of
these securities can be expected to decrease when interest rates increase and
the Fund's net asset value may go down.
Debt securities rated below investment grade, also known as junk bonds, and
preferred stock and related securities rated below investment grade, generally
entail greater market, credit and liquidity risks than investment grade
securities with comparable terms.
Investments in developing or emerging markets securities are subject to higher
risks than those in developed market countries.
The Fund is also subject to the risk that its managers will not succeed in
attempting to minimize capital gains or, conversely, that the Fund will not have
any realized or unrealized capital gains.
An investment in the Fund is not a deposit of a bank, is not insured or
guaranteed by Wachovia Bank, N.A., and is not insured or guaranteed by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other government agency.
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
This table describes the fees and expenses that you may pay when you buy, hold
and redeem shares of the Fund's Institutional Service Shares (Shares).
Shareholder Fees
Fees Paid Directly From Your Investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage
of offering None
price)
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase
price or redemption proceeds, as None
applicable)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions (as a percentage of None
offering price)
- --------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount redeemed, None
if applicable
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses 1
Expenses That are Deducted from Fund Assets (as a percentage of average
net assets)
- -------------------------------------------------------------------------------
Management Fee 0.70%
- -------------------------------------------------------------------------------
Distribution (12b-1) Fee None
- -------------------------------------------------------------------------------
Shareholder Services Fee 0.25%
- -------------------------------------------------------------------------------
Other Expense 1.26%
- -------------------------------------------------------------------------------
Total Annual Institutional Service Shares Operating Expenses (Before 2.21%
Waiver)
- -------------------------------------------------------------------------------
Waiver/Reimbursement of Fund 1.16%
Expenses
- -------------------------------------------------------------------------------
Total Actual Annual Fund Operating Expenses (After 01.05%
Waiver)
- -------------------------------------------------------------------------------
1 Pursuant to an agreement between the investment adviser and the Trust, the
investment adviser agrees during the period from September 1, 1999 through
October 31, 2000 to waive its fees, and/or make reimbursements to the
Fund, so that the Fund's net operating expenses do not exceed, in the
aggregate, the Fund's Total Actual Annual Operating Expenses listed above.
The investment adviser agrees that this obligation shall constitute a
contractual commitment enforceable by the Trust and that the investment
adviser shall not assert any right to reimbursement of amounts so waived
or reimbursed
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund's Institutional Service Shares with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in the Fund's
Institutional Service Shares for the time periods indicated an then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's Institutional Service
Shares operating expenses are based upon the current expense limitation as shown
above in the table. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
1 Year 3 Years
- -----------------------------------------------------------------------------
Executive Fixed Income Fund $107 $691
- -----------------------------------------------------------------------------
<PAGE>
WHAT ARE THE FUND'S MAIN INVESTMENTS AND INVESTMENT TECHNIQUES?
Fixed Income Securities
The Fund invests primarily in fixed income securities. Fixed income securities
pay interest or dividends at a specified rate. The rate may be contractually
fixed or adjusted periodically with respect to interest rates or other economic
variables. For debt securities, the issuer must also repay the principal amount
of the security, normally within a specified time. Fixed income securities
provide more regular income than equity securities. However, the returns on
fixed income securities are generally limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
Preferred Stocks and Related Securities
Preferred securities have the right to receive specified dividends or interest
(or other possible payments such as sinking fund payments) before the issuer
makes payments on its common stock but after its senior securities are paid
interest. Dividends or interest payments for most preferred securities are
fixed, but the income from variable payment preferred stocks such as adjustable
rate or auction rate issues may vary over time and may be exposed to the risk of
value change. Generally, neither the suspension of dividend payments on
preferred stocks nor the deferral of interest payments on related fixed income
securities enables the holder of the security to invoke bankruptcy of the
issuer. Also, for some preferred securities the payment of dividends or interest
is non-cumulative. Some preferred securities may also participate in dividends
on the issuer's common stock and may be convertible or exchangeable into common
stock. Preferred securities may also permit the issuer to redeem the security.
The Fund treats preferred stock and related securities as fixed income
securities.
Hybrid preferred securities are those preferred securities which are fully
taxable to the investor, deductible for the issuer, and which receive
substantial equity credit from the rating services and banking regulators in the
determination of the issuer's credit ratings and equity capital ratios. Examples
include Monthly Income Preferred Securities, Quarterly Income Debt Securities,
Trust Originated Preferred Securities, and Capital Securities.
Mortgage Backed Securities
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and pre-payments from the underlying mortgages.
As a result, the holders assume all the prepayment risks of the underlying
mortgages.
Asset Backed Securities
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
o it is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o it (or its subsidiaries) derived in its most current fiscal year at
least 50% of its total assets, capitalization, gross revenue or profit
from goods produced, services performed, or sales made in another
country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Securities of Other Investment Companies
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash. In
addition, subject to the receipt of an exemptive order from the Securities and
Exchange Commission, Wachovia may invest the segment of the Fund's portfolio
allocated to non-investment grade securities in an investment company advised by
OFFITBANK. Any such investment would be made only in accordance with the
conditions of the exemptive order, including any conditions relating to the
treatment of applicable fees and expenses. Investment in this investment company
would continue until the non-investment grade securities segment of the Fund's
portfolio is large enough to make direct investment in such securities
economically feasible as determined by Wachovia. OFFITBANK has been approved as
a sub-adviser of the Fund for purposes of managing any such direct investments
in non-investment grade securities.
Credit Quality and Investment Ratings
When the Fund invests in fixed income or preferred securities, most will be
rated BBB or better by S&P or Baa or better by Moody's at the time of purchase.
Unrated securities will be determined by the investment managers to be of like
quality and may have greater risk but a higher yield than comparable rated
securities. Securities rated BBB by S&P and Poor's or Baa by Moody's have
speculative characteristics.
Tax Management Techniques
Wachovia will seek to enhance the Fund's after-tax return by allocating
portfolio assets among the Fund's managers. The managers may utilize one or more
of the following tax reduction techniques: seeking to increase capital
appreciation while minimizing realized capital gains; offsetting realized
capital gains with realized capital losses by selling securities that have gone
down in value; employing highest-in-first-out (HIFO) tax lot accounting (i.e.,
selling first the shares that have the highest cost basis); and selling any
security that has not met its expectations for total return (so as to realize a
relatively small capital gain). After-tax returns for corporate shareholders
also will be increased to the extent the DRD is available. However, the Fund and
its managers are not obligated to use any of these particular techniques at any
time.
Temporary Defensive Investments
The Fund may temporarily depart from its principal investment strategy by
investing assets in cash, cash items, and shorter-term debt securities. The Fund
may do this to minimize potential losses and maintain liquidity to meet
shareholder redemptions during adverse market conditions. This may cause the
Fund to forego investment returns for the safety of principal.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
Multi-Manager Risks
Each segment of the Fund is managed independently of the others. Consequently,
it is possible for the same security to be held simultaneously in different
segments. It is also possible for the same security to be acquired by one
sub-adviser while it is simultaneously being disposed of by another. Such trades
will not be aggregated; this could result in the Fund incurring higher brokerage
costs than a fund that is similarly managed with a single adviser.
Market Risk
The market value of securities fluctuates daily.
Fixed Income and Preferred Securities Risks
Prices of fixed income and preferred securities generally move in the opposite
direction of interest rates. The interest payments on fixed-rate debt securities
and the dividend payments on fixed-rate preferred stock and related securities
do not change when interest rates change. Therefore, the price of these
securities can be expected to decrease when interest rates increase, causing the
yield on such securities to go up, and the Fund's net asset value may go down.
While the managers may attempt to anticipate interest rate movements, there is
no guarantee that they will be able to correctly predict them.
In addition, fixed income and preferred securities with longer maturities or
durations will typically experience greater price volatility than those with
shorter maturities or durations, and the Fund's net asset value can be expected
to fluctuate accordingly.
The credit quality of a fixed income or preferred security is based upon the
ability of the make timely payment of principal and interest. If the credit
quality of securities held by the Fund declines or if the marketplace demands a
greater yield for the existing portfolio, even absent a change in credit
ratings, the Fund's net asset value could go down.
Principal, interest or dividend payments on a fixed income or preferred security
may not be paid when due. An issuer may redeem a debt or preferred security held
in the portfolio prior to its maturity. If this occurs, the managers may have to
reinvest the proceeds in securities offering lower overall yields for the Fund.
Prepayment Risks
The Fund is subject to prepayment risks. Principal on a fixed income security
may be repaid before its scheduled maturity. This may reduce the security's
value and require the Fund to reinvest the prepayment at a lower yield. In
addition, the Fund may buy a fixed income security with an expectation of early
prepayment. If the prepayment does not occur, the security may decline in value.
This is known as Extension Risk.
Leveraging Risks
Various investment strategies involve agreements to purchase or sell securities
or currencies in amounts that exceed the amount the Fund has invested in the
underlying securities or currencies. The excess exposure increases the risks
associated with the underlying securities or currencies on the Fund's investment
performance.
Credit Risks
Credit risk is the possibility that an issuer will fail to pay interest,
preferred dividends or principal as promised. If an issuer defaults on its
obligations or fails to make payments when promised, the Fund will lose money.
Many fixed income and preferred securities receive credit ratings from NRSROs.
NRSROs assign ratings to securities by assessing the likelihood of issuer
default on debt or delay in payment of dividends, interest or principal to
shareholders. Lower credit ratings correspond to higher credit risk. If a
security has not received a rating, the Fund must rely entirely upon the
manager's credit assessment. Fixed income and preferred securities generally
compensate for greater credit risk by offering a higher yield. The difference
between the yield of a security and the yield of a U.S. Treasury security with a
comparable maturity (the spread) incorporates an adjustment to compensate for
risk of loss. Spreads may increase generally in response to adverse economic or
market conditions. A security's spread may also increase if the security's
rating is lowered, or the security is perceived to have an increased credit
risk. An increase in the spread will cause the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
Asset-Backed/Mortgage-Backed Securities Risks
Asset-backed and mortgage-backed securities are subject to risks of prepayment
that generally occur when interest rates fall. Reinvesting these prepayments in
a lower interest rate environment reduces the Fund's income. Asset-backed
securities may have a higher level of default and recovery risk than
mortgage-backed securities.
Securities Lending Risks
The Fund may lend securities. When the Fund lends its portfolio securities, it
may not be able to get them back from the borrower on a timely basis, thereby
exposing the Fund to a loss of investment opportunities. Lending of preferred
stocks eligible for the DRD over the issues' ex-dividend date may limit the DRD
for that dividend payment.
Risks of Foreign Investing
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Other risk
factors related to foreign securities include: rates of inflation, structure and
regulation of financial markets, liquidity and volatility of investments,
taxation policies, and accounting standards. In addition, a Fund may incur
higher costs and expenses when making foreign investments, which could impact
the Fund's performance. Exchange rates for currency fluctuate daily. The
combination of currency risk and market risks tends to make securities traded in
foreign markets more volatile than securities traded exclusively in the United
States.
Futures and Options Risks
The use of financial futures and options to modify the volatility and/or
duration characteristics of the preferred securities portfolio may or may not
result in the results more closely matching the objectives of that sector of the
Fund.
Emerging Market Securities Risks
Investments in developing or emerging markets securities are subject to higher
risks than those in developed market countries because there is greater
uncertainty in less established markets and economies. These risks include the
possibility of expropriation, nationalization or confiscatory taxation, unstable
political, social or economic systems, smaller securities markets, lower trading
volume, and substantial rates of inflation.
Taxation Risks
Tax laws are subject to change. There is no assurance, for example, that the tax
laws applicable to capital gains will not be modified in the future.
Year 2000 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Fund's managers are
reviewing information regarding the Year 2000 readiness of issuers of securities
the Fund may purchase. However, this may be difficult with certain issuers. For
example, funds dealing with foreign service providers or investing in foreign
securities will have difficulty determining the Year 2000 readiness of those
entities. This is especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
WHAT DO SHARES COST?
You can purchase or redeem Shares any day on which Wachovia Bank, N.A. (Wachovia
Bank), the New York Stock Exchange (NYSE) and the Federal Reserve Wire System
are open for business. When the Fund receives your transaction request in proper
form, it is processed at the next determined net asset value (NAV).
NAV is determined at the end of regular trading (normally 4 p.m. Eastern time)
each day the NYSE is open. The value of Shares is generally determined based
upon the market value of portfolio securities. However, the Fund's Board may
determine in good faith that another method of valuing an investment is
necessary to appraise its fair market value when a market price is unavailable.
The required minimum initial investment amount in the Fund is $50 million.
Subsequent investments must be at least $25,000.
Minimum initial investments may be waived from time to time for purchases by the
Trust Division of Wachovia Bank for its fiduciary or custodial accounts. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.
HOW ARE THE FUND'S SHARES SOLD?
The Fund offers two share classes: Institutional Service Shares and
Institutional Shares, each representing interests in a single portfolio of
securities. This prospectus relates only to Institutional Service Shares. Each
share class has different expenses which affect their performance. Call
1-800-994-4414 or contact your investment professional for more information
concerning the other class.
The Fund's Distributor, Federated Securities Corp., markets Shares to
institutions or individuals, directly or through an investment professional that
has an agreement with the Distributor (Authorized Dealer). The Distributor may
pay out of its assets other amounts (including items of material value) to
investment professionals for marketing and servicing Shares. The Distributor is
a subsidiary of Federated Investors, Inc.
<PAGE>
HOW TO PURCHASE SHARES
You may purchase Shares through the Trust Division of Wachovia Bank or through
an Authorized Dealer.
The Fund and the Distributor reserve the right to reject any request to purchase
Shares.
Through the Trust Division of Wachovia Bank
Trust customers of Wachovia Bank may purchase Shares of the Fund in accordance
with the procedures set forth in the account agreement.
Orders must be received before 4:00 p.m. (Eastern time) in order to receive that
day's NAV. Orders received after 4:00 p.m. (Eastern time) will be purchased at
the next determined NAV.
Through an Authorized Dealer
Call your Authorized Dealer for specific instructions.
Purchase orders must be received before 3:00 p.m. (Eastern time) in order to
receive that day's NAV. Orders received after 3:00 p.m. (Eastern time) will be
purchased at the next determined NAV.
Systematic Investment Program
Once you have opened a Fund account, you may add to your investment on a regular
basis in amounts of at least $25,000. Under this program, funds may be
automatically withdrawn from your checking account and invested in Shares at the
NAV next determined after an order is received by the Fund. You may apply for
participation in this program through Wachovia Bank or through the Distributor.
HOW TO REDEEM SHARES
The Fund redeems Shares at their NAV next determined after the Fund receives the
redemption request in proper form. Shares may be redeemed by telephone or by
mail through the Trust Division of Wachovia Bank, through an Authorized Dealer,
or directly from the Fund.
All redemption requests must be received before 4:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's NAV.
Shareholders who have an Authorized Dealer should contact their Authorized
Dealer for specific instructions on how to redeem by telephone.
Signature Guarantees Signatures must be guaranteed if:
o your redemption is to be sent to an address other than the address of record;
o your redemption is to be sent to an address of record that was changed within
the last thirty days; or o a redemption is payable to someone other than the
shareholder(s) of record.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or credit union) or by a broker/dealer that is a domestic stock
exchange member, but not by a notary public.
Limitations on Redemption Proceeds
Redemption proceeds normally are mailed within one business day after receiving
a request in proper form. However, payment may be delayed up to seven days:
o to allow your purchase payment to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts the
Fund's ability to manage its assets.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
Systematic Withdrawal Program
The Systematic Withdrawal Program allows you to automatically redeem Shares
monthly or quarterly at a minimum of $25,000. Your account value must be at
least $250,000 at the time the program is established. This program may reduce,
and eventually deplete, your account, and the payments should not be considered
yield or income. You may apply for participation in this program through your
financial institution.
Share Certificates
The Fund does not issue Share certificates.
ACCOUNT AND SHARE INFORMATION
Confirmations and Account Statements
You will receive confirmation of purchases and redemptions (except for
systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gain distributions paid.
Dividends and Capital Gain Distributions
The Fund declares and pays any dividends to shareholders monthly. Dividends
consist of the Fund's investment income (interest and dividends) less operating
expenses. Fund dividends also include net realized short-term capital gains.
Dividends are declared and paid to shareholders invested in the Fund on the
record date for the dividend.
In addition, the Fund distributes any net capital gain at least annually. Net
capital gain is the excess of net long-term capital gains (realized long-term
capital gains over realized long-term capital losses) over net realized
short-term capital losses. Distributions of net capital gain are declared and
paid to shareholders invested in the Fund on the record date therefor.
Your dividends and capital gain distributions will be automatically reinvested
in additional Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before the Fund declares a dividend or capital gain
distribution, you will pay full price for the Shares and then receive a portion
of the price back in the form of a taxable distribution, whether or not you
reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain distribution. Contact your investment professional or the Fund for
more information concerning when dividends and capital gain distributions will
be paid.
Accounts With Low Balances
Non-retirement accounts may be closed if redemptions cause the account balance
to fall below $5,000. Before an account is closed, the shareholder will be
notified and given 30 days to purchase additional Shares to meet the minimum.
Tax Information
The Fund sends you an annual statement of your account activity to assist you in
completing your federal, state and local income tax returns. The statement for
corporations will include information on the portion of dividends that qualify
for the DRD. Fund distributions, which are expected to be from dividends,
interest and capital gains, are taxable to you whether paid in cash or
reinvested in the Fund. Capital gain distributions qualify for treatment as
long-term capital gains regardless of how long you have held your Shares.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state and local income tax liability on redemptions.
Tax-Sensitive Approach to Investing
When possible, Wachovia allocates the Fund's assets among the managers in an
attempt to keep the Fund's net realized capital gains relatively low. Whenever
the Fund sells a security from its portfolio, the difference between the price
the Fund paid to acquire the security and the price at which it sells the
security will be a capital gain (if the security has risen in value) or a
capital loss (if the security has fallen in value). If the Fund has a net
realized capital gain from all its sales of securities, it generally must
distribute that amount to its shareholders to avoid having a tax liability.
Shareholders are taxable on those distributions.
The Fund will try to keep its net realized capital gains relatively low.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees Wachovia,
a business unit of Wachovia Bank. Wachovia manages a segment of the Fund's
assets, including buying and selling portfolio securities. Subject to the
Board's oversight, Wachovia is also responsible for selecting sub-advisers to
manage a portion of the Fund's assets, terminating agreements with sub-advisers,
and allocating assets among the sub-advisers.
Wachovia's address is 100 North Main Street, Winston-Salem, NC 27101.
Wachovia Bank has been managing trust assets for over 100 years, with over $42
billion in managed assets as of December 31, 1998. Wachovia Bank also serves as
investment adviser to The Wachovia Municipal Funds, another investment company.
Wachovia receives an annual investment advisory fee equal to .70% of the Fund's
average aggregate daily net assets. Wachovia is responsible for compensating
sub-advisers who manage a segment of the Fund's assets. Subject to the review of
the Fund's Board, Wachovia oversees each sub-adviser to assure that it manages
its segment in a manner consistent with the Fund's goals, policies, restrictions
and applicable law. Due to its responsibility for overseeing the sub-advisers,
Wachovia has ultimate responsibility for the investment performance of the Fund
and is responsible for recommending the hiring, termination and replacement of
the sub-advisers. Although the sub-advisers' activities are subject to oversight
by Wachovia, the Board and the Fund's officers, neither Wachovia, the Board, nor
the officers evaluate the investment merits of the sub-advisers' individual
security selections.
Wachovia selects sub-advisors based on its continuing quantitative and
qualitative evaluation of their skills and abilities in managing assets pursuant
to particular investment styles. While superior performance is regarded as the
ultimate goal, short-term performance by itself will not be a significant factor
in selecting or terminating sub-advisers. Wachovia does not anticipate frequent
changes in sub-advisers.
Wachovia and the Fund's Board have selected Flaherty & Crumrine Incorporated to
manage the segment of the Fund's portfolio invested in preferred stocks, related
securities and associated financial futures and options. Wachovia will manage
the remainder of the Fund's portfolio. However, Wachovia may, subject to review
by the Board, reallocate assets among sub-advisers. In addition, the Fund
intends to seek an exemptive order from the Securities and Exchange Commission
that would permit it to add new sub-advisers, without shareholder approval, and
terminate or modify any sub-advisory agreement, subject to approval by the
Fund's Board, without shareholder approval. In the event of the termination of a
sub-advisory agreement, Wachovia may either enter into a new sub-advisory
agreement with a new sub-adviser to manage the segment, or reallocate the
segment to existing sub-advisers.
Flaherty & Crumrine Incorporated has approximately $1 billion in assets under
management. It was founded in 1983 for the purpose of managing large portfolios
of preferred stocks and related securities. In addition to managing portfolios
of institutional clients, it manages two publicly-held, closed-end investment
companies. Its address is 301 E. Colorado Blvd., Suite 720, Pasadena, CA 91101.
OFFITBANK is a New York state chartered trust company with offices at 520
Madison Avenue, New York, NY 10022, which presently manages approximately $11
billion in assets. The parent company of Wachovia, Wachovia Corporation, has
entered into an agreement whereby OFFITBANK would become a subsidiary of
Wachovia Corporation and an affiliate of Wachovia. Portfolio Managers Wachovia
Asset Management
Samuel M. Gibbs, II
Mr. Gibbs is a Senior Vice President and Manager of Fixed Income Investments for
Wachovia. Mr. Gibbs joined Wachovia Bank 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.
Michael W. Holt
Mr. Holt is a Chartered Financial Analyst and Fixed Income Portfolio Manager of
Wachovia. Mr. Holt joined Wachovia Bank in 1991. He is a graduate of the
University of Tennessee where he majored in economics and received his MBA in
Finance.
Wayne F. Morgan
Mr. Morgan is a Chartered Financial Analyst and Senior Vice President of
Wachovia. Prior to joining Wachovia Bank in June 1997 as a senior fixed income
portfolio manager, Mr. Morgan served as the Director of Investments at the
University of North Carolina at Chapel Hill, where he oversaw the management of
the University's endowment fund. Mr. Morgan received both a bachelor degree and
his MBA from the University of North Carolina at Chapel Hill.
Harold (Rick) Nelson, III
Mr. Nelson is a Senior Vice President and Fixed Income Portfolio Manager of
Wachovia. Mr. Nelson joined Wachovia Bank in 1985 as a fixed income portfolio
manager. He received his Bachelor of Science degree in management from St.
Francis College and his MBA in Finance from Mercer University.
Michael G. Sebesta
Mr. Sebesta is a Vice President and Fixed Income Portfolio Manager for Wachovia.
Mr. Sebesta joined Wachovia Bank in 1989. Mr. Sebesta has a bachelor degree in
economics from Wake Forest University.
Flaherty & Crumrine Incorporated
Donald F. Crumrine
Mr. Crumrine is a Chartered Financial Analyst and Chairman of the Board and a
Portfolio Manager of Flaherty & Crumrine Incorporated. Prior to joining Flaherty
& Crumrine in 1983, Mr. Crumrine was Vice President of Investments at Scudder,
Stevens & Clark Incorporated. He received his Bachelor of Science degree in
Finance from the University of Southern California, and his MBA from the Wharton
School of the University of Pennsylvania.
Robert M. Ettinger
Mr. Ettinger is a Chartered Financial Analyst and President and a Portfolio
Manager/Trader of Flaherty & Crumrine Incorporated. Prior to joining Flaherty &
Crumrine in 1985, Mr. Ettinger was an analyst at Scudder, Stevens & Clark
Incorporated. He received his Bachelor of Arts in Economics from the University
of California, Los Angeles and his MBA from the Wharton School of the University
of Pennsylvania.
Robert T. Flaherty
Mr. Flaherty is a Chartered Financial Analyst and a Director and Portfolio
Manager of Flaherty & Crumrine Incorporated. Prior to founding Flaherty &
Crumrine in 1983, Mr. Flaherty was a Partner of Scudder, Stevens & Clark, and
President and a Director of Scudder, Stevens & Clark Incorporated, Los Angeles.
He received both his Bachelor of Arts in Economics and MBA degrees from Stanford
University.
Peter C. Stimes
Mr. Stimes is a Chartered Financial Analyst and Vice President and Portfolio
Manager/Analyst of Flaherty & Crumrine Incorporated. Prior to joining Flaherty &
Crumrine in 1990, Mr. Stimes was Vice President & Treasurer of Tucson Resources
Inc., as well as Assistant Treasurer, Director of Treasury Operations of Tucson
Electric Power Company. He received both his Bachelor of Arts in History and MBA
degrees from the University of Chicago.
Robert E. Chadwick
Mr. Chadwick is enrolled in the Chartered Financial Analyst program and is an
Analyst/Trader for Flaherty & Crumrine Incorporated. Prior to joining Flaherty &
Crumrine in 1999, Mr. Chadwick was a Portfolio Manager/Financial Associate at
Koch Industries, Inc. He received his Bachelor of Science degree in Business at
the University of Kansas.
FINANCIAL INFORMATION
The Fund will have a fiscal year end of November 30. As this is the Fund's first
fiscal year, financial information is not yet available.
<PAGE>
WACHOVIA EXECUTIVE FIXED INCOME FUND
Institutional Service Shares
A Portfolio of The Wachovia Funds
The Fund's Statement of Additional Information (SAI) is incorporated by
reference into this prospectus, making it legally a part of this prospectus. The
SAI includes additional information about the Fund.
To obtain a free copy of the SAI and other information, call your investment
professional or the Fund at 1-800-994-4414.
You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, DC
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.
G02308-06 (11/99)
Cusip:929901577
SEC File Number: 811-6504
THE WACHOVIA FUNDS
Wachovia Executive Fixed Income Fund
Institutional Service Shares
Institutional Shares
Statement of Additional Information
November 15, 1999
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectuses of the Wachovia Executive
Fixed Income Fund, dated November 15, 1999. You may obtain the
prospectuses without charge by calling 1-800-994-4414.
Contents
How is the Fund Organized? 1
Securities Descriptions and Techniques
2
What do Shares Cost? 11
How are the Fund's Shares Sold? 11
How to Buy Shares 11
How to Redeem Shares 12
Redemption in Kind
12
Account and Share Information 12
Tax Information 12
Who Manages and Provides Services to the Fund?
14
How Does the Fund Measure Performance? 16
Investment Ratings
19
Addresses Back Cover
Federated Securities Corp., Distributor,
A subsidiary of Federated Investors, Inc.
G02308-09 (11/99)
Cusip 929901577
Cusip 929901569
<PAGE>
25
HOW IS THE FUND ORGANIZED?
The Wachovia Funds (Trust) is an open-end, management investment company
established under the laws of the Commonwealth of Massachusetts on November 19,
1991. The Trust offers separate series of shares representing interests in
separate portfolios of securities. The Trust changed its name from The Biltmore
Funds on July 31, 1997. The Wachovia Executive Fixed Income Fund (Fund) is a
professionally managed, diversified series of the Trust. The Board of Trustees
(Board) has established two classes of shares of the Fund, known as
Institutional Service Shares and Institutional Shares (Shares). This SAI relates
to both classes of Shares. In pursuing its investment strategy, the Fund may
invest in the following securities for any purpose that is consistent with its
investment objective. Following is a table that indicates which types of
securities are a:
P = Principal investment of the Fund; or A = Acceptable (but not principal)
investment of the Fund.
- ------------------------------------------------- --------------------
Securities Executive
Fixed Income Fund
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Asset-Backed Securities A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Bank Instruments A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Commercial Paper A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Convertible Securities A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Corporate Debt Obligations P
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Demand Master Notes A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Foreign Securities A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Futures and Options Transactions A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Futures on Foreign Government Debt Obligations A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
High Yield Debt Obligations P
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Over the Counter (OTC) Options A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Preferred Stocks and Related Securities P
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Repurchase Agreements A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Restricted and Illiquid Securities A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Reverse Repurchase Agreements A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Securities of Other Investment Companies P
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Stripped Mortgage-Backed Securities A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Temporary Investments A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
U.S. Government Obligations A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Variable Rate Demand Notes A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
Warrants A
- ------------------------------------------------- --------------------
- ------------------------------------------------- --------------------
When-Issued Transactions A
- ------------------------------------------------- --------------------
<PAGE>
Securities Descriptions and Techniques
Fixed Income Securities
Fixed income securities pay interest or dividends at a specified rate. The rate
may be a fixed percentage of the principal or adjusted periodically. In
addition, the issuer of a debt security must repay the principal amount of the
security, normally within a specified time. The issuer of a preferred security,
however, may be required to repay the principal amount of the security, but
generally is under no obligation to do so. Fixed income securities generally
provide more regular income than common equity securities. However, the returns
on fixed income securities are limited and normally do not increase with the
issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to common equity securities. A portion of the Fund's
portfolio may be allocated to below investment grade securities (including bonds
of domestic companies, sovereign debt, and the debt of emerging market
countries) once that segment is large enough to make direct investment in those
securities economically feasible. Convertible securities and preferred
securities rated below investment grade may be subject to the same risks as
those inherent in corporate debt obligations that are rated below investment
grade (junk bonds). A security's yield measures the annual income expected to be
earned on a security as a percentage of its price. A security's yield will
increase or decrease depending upon whether its price is less (a discount) or
more (a premium) than the principal amount. If the issuer may redeem the
security before its scheduled maturity, if any, the price and yield on a
discount or premium security may change based upon the probability of an early
redemption. Securities with higher risks generally have higher yields, as
compared to securities with comparable terms. The following describes the types
of fixed income securities in which the Fund may invest.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Investors regard Treasury securities as having the lowest
credit risks. Agency Securities Agency securities are issued or guaranteed
by a federal agency or other government-sponsored entity acting under
federal authority (a GSE). The United States supports some GSEs with its
full, faith and credit. Other GSEs receive support through federal
subsidies, loans or other benefits. A few GSEs have no explicit financial
support, but are regarded as having implied support because the federal
government sponsors their activities. Investors regard agency securities as
having low credit risks, but not as low as treasury securities. The Fund
treats mortgage backed securities (described below) by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does
not reduce the market and prepayment risks of these mortgage backed
securities. Corporate Debt Securities Corporate debt securities are fixed
income securities issued by businesses. Notes, bonds, debentures and
commercial paper are the most prevalent types of corporate debt securities.
The Fund may also purchase interests in bank loans to companies. The credit
risks of corporate debt securities vary widely among issuers. The credit
risk of an issuer's debt security may also vary based on its priority for
repayment. For example, higher ranking (senior) debt securities have a
higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event
of bankruptcy, holders of senior securities may receive amounts otherwise
payable to the holders of subordinated securities. Some subordinated
securities, such as trust preferred and capital securities notes, also
permit the issuer to defer payments under certain circumstances. For
example, insurance companies issue securities known as surplus notes that
permit the insurance company to defer any payment that would reduce its
capital below regulatory requirements.
Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for
current expenditures. Most issuers constantly reissue their commercial
paper and use the proceeds (or borrowings from bank loans) to repay
maturing paper. If the issuer cannot continue to obtain liquidity in
this fashion, its commercial paper may default. The short maturity of
commercial paper reduces both the market and credit risks as compared
to other debt securities of the same issuer. Demand Instruments Demand
instruments are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a
dealer or bank, to repurchase the security for its face value upon
demand. The Fund treats demand instruments as short-term securities,
even though their stated maturity may extend beyond one year.
Mortgage Backed Securities
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates,
maturities and other terms. Mortgages may have fixed or adjustable interest
rates. Interests in pools of adjustable rate mortgages are know as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer
deducts its fees and expenses and passes the balance of the payments onto
the certificate holders once a month. Holders of pass-through certificates
receive a pro rata share of all payments and pre-payments from the
underlying mortgages. As a result, the holders assume all the prepayment
risks of the underlying mortgages.
Collateralized Mortgage Obligations (CMOs)
CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying
pass-through certificate among holders of different classes of mortgage
backed securities. This creates different prepayment and market risks
for each CMO class. For example, in a sequential pay CMO, one class of
CMOs receives all principal payments and prepayments. The next class of
CMOs receives all principal payments after the first class is paid off.
This process repeats for each sequential class of CMO. As a result,
each class of sequential pay CMOs reduces the prepayment risks of
subsequent classes. More sophisticated CMOs include planned
amortization classes (PACs) and targeted amortization classes (TACs).
PACs and TACs are issued with companion classes. PACs and TACs receive
principal payments and prepayments at a specified rate. The companion
classes receive principal payments and prepayments in excess of the
specified rate. In addition, PACs will receive the companion classes'
share of principal payments, if necessary, to cover a shortfall in the
prepayment rate. This helps PACs and TACs to control prepayment risks
by increasing the risks to their companion classes. CMOs may allocate
interest payments to one class (Interest Only or IOs) and principal
payments to another class (Principal Only or POs). POs increase in
value when prepayment rates increase. In contrast, IOs decrease in
value when prepayments increase, because the underlying mortgages
generate less interest payments. However, IOs tend to increase in value
when interest rates rise (and prepayments decrease), making IOs a
useful hedge against market risks. Another variant allocates interest
payments between two classes of CMOs. One class (Floaters) receives a
share of interest payments based upon a market index such as LIBOR. The
other class (Inverse Floaters) receives any remaining interest payments
from the underlying mortgages. Floater classes receive more interest
(and Inverse Floater classes receive correspondingly less interest) as
interest rates rise. This shifts prepayment and market risks from the
Floater to the Inverse Floater class, reducing the price volatility of
the Floater class and increasing the price volatility of the Inverse
Floater class. CMOs must allocate all payments received from the
underlying mortgages to some class. To capture any unallocated
payments, CMOs generally have an accrual (Z) class. Z classes do not
receive any payments from the underlying mortgages until all other CMO
classes have been paid off. Once this happens, holders of Z class CMOs
receive all payments and prepayments. Similarly, REMICs have residual
interests that receive any mortgage payments not allocated to another
REMIC class. The degree of increased or decreased prepayment risks
depends upon the structure of the CMOs. IOs, POs, and Inverse Floaters
are among the most volatile investment grade fixed income securities
currently traded in the United States. However, the actual returns on
any type of mortgage backed security depend upon the performance of the
underlying pool of mortgages, which no one can predict and will vary
among pools.
Asset Backed Securities
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial
debts with maturities of less than ten years. However, almost any type of
fixed income assets (including other fixed income securities) may be used
to create an asset backed security. Asset backed securities may take the
form of commercial paper, notes, or pass through certificates. Asset backed
securities may also resemble some types of CMOs, such as Floaters, Inverse
Floaters, IOs and POs. Historically, borrowers are more likely to refinance
their mortgage than any other type of consumer or commercial debt. In
addition, some asset backed securities use prepayment to buy additional
assets, rather than paying off the securities. Therefore, while asset
backed securities may have some prepayment risks, they generally do not
present the same degree of risk as mortgage backed securities. Zero Coupon
Securities Zero coupon securities do not pay interest or principal until
final maturity, unlike debt securities that provide periodic payments of
interest (referred to as a coupon payment). Investors buy zero coupon
securities at a price below the amount payable at maturity. The difference
between the purchase price and the amount paid at maturity represents
interest on the zero coupon security. An investor must wait until maturity
to receive interest and principal, which increases the market and credit
risks of a zero coupon security. There are many forms of zero coupon
securities. Some are issued at a discount and are referred to as zero
coupon or capital appreciation bonds. Others are created from interest
bearing bonds by separating the right to receive the bond's coupon payments
from the right to receive the bond's principal due at maturity, a process
known as coupon stripping. Treasury STRIPs, IOs and POs are the most common
forms of stripped zero coupon securities. In addition, some securities give
the issuer the option to deliver additional securities in place of cash
interest payments, thereby increasing the amount payable at maturity. These
are referred to as pay-in-kind or PIK securities. Bank Instruments Bank
instruments are unsecured interest-bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Yankee instruments are denominated in U.S.
dollars and issued by U.S. branches of foreign banks. Eurodollar
instruments are denominated in U.S. dollars and issued by non-U.S. branches
of U.S. or foreign banks. Credit Enhancement Credit enhancement consists of
an arrangement in which a company agrees to pay amounts due on a fixed
income security after the issuer defaults. In some cases the company
providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For
this reason, the investment managers may evaluate the credit risk of a
fixed income security based solely upon its credit enhancement. Common
types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements
where securities or other liquid assets secure payment of a fixed income
security. Following a default, these assets may be sold and the proceeds
paid to security's holders. Either form of credit enhancement reduces
credit risks by providing another source of payment for a fixed income
security.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for or may be required to convert to common equity securities of the
issuer at a specified conversion price. The option allows the Fund to realize
additional returns if the market price of the common shares rises relative to
the conversion price. For example, the Fund may hold fixed income securities
that are convertible into shares of equity securities at a conversion price of
$10 per share. If the market value of the shares of common stock reached $12,
the Fund could realize an additional $2 per share by converting its fixed income
securities. Convertible securities typically have lower yields than comparable
non-convertible fixed income securities. In addition, at the time a convertible
security is issued, the effective conversion typically exceeds the market value
of the underlying equity securities. Thus, convertible securities may provide
lower returns than comparable non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity
securities. However, convertible securities offer the Fund the opportunity to
realize possible appreciation of the underlying equity securities with less risk
of losing its initial investment as compared with common stock. Foreign
Securities Foreign securities are securities of issuers based outside the United
States. The Fund considers an issuer to be based outside the United States if: o
it is organized under the laws of, or has a principal office located in, another
country; o the principal trading market for its securities is in another
country; or o it (or its subsidiaries) derived in its most current fiscal year
at least 50% of its total assets,
capitalization, gross revenue or profit from goods produced, services
performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks. Derivative
Contracts Derivative contracts are financial instruments that require payments
based upon changes in the values of designated (or underlying) securities,
currencies, commodities, financial indices or other assets. Some derivative
contracts (such as futures, forwards and options) require payments relating to a
future trade involving the underlying asset. Other derivative contracts (such as
swaps) require payments relating to the income or returns from the underlying
asset. The other party to a derivative contract is referred to as a
counterparty. Many derivative contracts are traded on securities or commodities
exchanges. In this case, the exchange sets all the terms of the contract except
for the price. Investors make payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
futures contracts make (or collect) daily payments to the margin accounts to
reflect losses (or gains) in the value of their transactions. This protects
investors against potential defaults by the counterparty. Trading contracts on
an exchange also allows investors to close out their contracts by entering into
offsetting transactions. For example, the Fund could close out an open contract
to buy an asset at a future date by entering into an offsetting contract to sell
the same asset on the same date. If the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. Exchanges may limit the amount of open contracts permitted at
any one time and may impose daily price limits on trading. (Such limits may
prevent the Fund from closing out a position.) If this happens, the Fund will be
required to keep the contract open (even if it is losing money on the contract),
and to make any payments required under the contract (even if it has to sell
portfolio securities at unfavorable prices to do so). Inability to close out a
contract could also harm the Fund by preventing it from disposing of or trading
any assets it has been using to secure its obligations under the contract. The
Fund may also trade derivative contracts over-the-counter (OTC) in transactions
negotiated directly between the Fund and the counterparty. OTC contracts do not
necessarily have standard terms, so they cannot be directly offset with other
OTC contracts. In addition, OTC contracts with more specialized terms may be
more difficult to price than exchange traded contracts. Depending upon how the
Fund uses derivative contracts and the relationships between the market value of
a derivative contract and the underlying asset, derivative contracts may
increase or decrease the Fund's exposure to market and currency risks, and may
also expose the Fund to liquidity and leverage risks. OTC contracts also expose
the Fund to credit risks in the event that a counterparty defaults on the
contract. The Fund may trade in the following types of derivative contracts:
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date and time. Entering into a contract to buy an underlying asset
is commonly referred to as buying a contract or holding a long position in
the asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Contracts for
future delivery traded OTC are frequently referred to as forward contracts.
Options Options are rights to buy or sell an underlying asset or futures
contract for a specified price (the exercise price) during, or at the end
of, a specified period. A call option gives the holder (buyer) the right,
but not the obligation, to buy the underlying asset or futures contract
from the seller (writer) of the option. A put option gives the holder the
right, but not the obligation, to sell the underlying asset or futures
contract to the writer of the option. The writer of the option receives a
payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.
The Fund may do one or more of the following:
Buy call options on securities and futures contracts in anticipation of an
increase in the value of the underlying asset or to adjust portfolio
volatility to more closely match the objectives of that sector of the fund.
Buy put options on securities and futures contracts in anticipation of a
decrease in the value of the underlying asset or to adjust portfolio
volatility or to adjust portfolio volatility to more closely match the
objectives of that sector of the Fund. Write call options on securities and
futures contracts to generate income from premiums, and in anticipation of
a decrease or only limited increase in the value of the underlying asset.
If a call written by the Fund is exercised, the Fund foregoes any possible
profit from an increase in the market price of the underlying asset over
the exercise price plus the premium received. Write put options on
securities and futures contracts (to generate income from premiums, and in
anticipation of an increase or only limited decrease in the value of the
underlying asset). In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset when its current market
price is lower than the exercise price. When the Fund writes options on
futures contracts, it will be subject to margin requirements similar to
those applied to futures contracts. Buy or write options to close out
existing options positions. Hybrid Instruments Hybrid instruments combine
elements of derivative contracts with those of another security (typically
a fixed income security). All or a portion of the interest or principal
payable on a hybrid security is determined by reference to changes in the
price of an underlying asset or by reference to another benchmark (such as
interest rates, currency exchange rates or indices). Hybrid instruments
also include convertible securities with conversion terms related to an
underlying asset or benchmark. The risks of investing in hybrid instruments
reflect a combination of the risks of investing in securities, options,
futures and currencies, and depend upon the terms of the instrument. Thus,
an investment in a hybrid instrument may entail significant risks in
addition to those associated with traditional fixed income or convertible
securities. Hybrid instruments are also potentially more volatile and carry
greater market risks than traditional instruments. Moreover, depending on
the structure of the particular hybrid, it may expose the Fund to leverage
risks or carry liquidity risks.
Preferred Stocks and Related Securities
Preferred stocks and related securities have the right to receive specified
dividends, interest or distributions before the issuer makes payments on its
common stock but after its senior securities are paid interest or other
distributions. Dividends or interest payments for most preferred securities are
fixed, but the income from variable payment preferred stocks such as adjustable
rate or auction rate issues may vary over time or be exposed to the risk of
value change. Generally, neither the suspension of dividend payments on
preferred stocks nor the deferral of interest payments on related fixed income
securities enables the holder of the security to invoke bankruptcy of the
issuer. Also, for some preferred securities the payment of dividends or interest
is non-cumulative. Some preferred securities may also participate in dividends
and distributions on the issuer's common stock and may be convertible or
exchangeable into common stock. Preferred securities may also permit the issuer
to redeem the security. The Fund treats preferred stocks and related securities
as fixed income securities. Special Transactions
Repurchase Agreements
A repurchase agreement is a transaction in which the Fund buys a security
from a dealer or bank and agrees to sell the security back at a mutually
agreed upon time and price. The repurchase price exceeds the sale price,
reflecting the Fund's return on the transaction. This return is unrelated
to the interest rate on the underlying security. The Fund will enter into
repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the
investment managers . The Fund's custodian or subcustodian will take
possession of the securities subject to repurchase agreements. The
investment managers or subcustodian will monitor the value of the
underlying security each day to ensure that the value of the security
always equals or exceeds the repurchase price. Repurchase agreements are
subject to credit risks. Reverse Repurchase Agreements Reverse repurchase
agreements are repurchase agreements in which the Fund is the seller
(rather than the buyer) of the securities, and agrees to repurchase them at
an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because the Fund must repurchase the underlying security at
a higher price, regardless of the market value of the security at the time
of repurchase. In addition, reverse repurchase agreements may create a
"debt-financed portfolio stock" condition that would reduce the
availability of the intercorporate dividends-received deduction (DRD). See
"Tax Information." When Issued Transactions When issued transactions are
arrangements in which the Fund buys securities for a set price, with
payment and delivery of the securities scheduled for a future time. During
the period between purchase and settlement, no payment is made by the Fund
to the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to buy the securities and reflects their value
in determining the price of its shares. Settlement dates may be a month or
more after entering into these transactions so that the market values of
the securities bought may vary from the purchase prices. Therefore, when
issued transactions create market risks for the Fund. When issued
transactions also involve credit risks in the event of a counterparty
default.
To Be Announced Securities (TBAs)
As with other when issued transactions, a seller agrees to issue a TBA
security at a future date. However, the seller does not specify the
particular securities to be delivered. Instead, the Fund agrees to
accept any security that meets specified terms. For example, in a TBA
mortgage backed transaction, the Fund and the seller would agree upon
the issuer, interest rate and terms of the underlying mortgages.
However, the seller would not identify the specific underlying
mortgages until it issues the security. TBA mortgage backed securities
increase market risks because the underlying mortgages may be less
favorable than anticipated by the Fund.
Securities Lending
The Fund may lend portfolio securities to borrowers that the investment
adviser deems creditworthy. In return, the Fund receives cash or liquid
securities from the borrower as collateral. The borrower must furnish
additional collateral if the market value of the loaned securities
increases. Also, the borrower must pay the Fund the equivalent of any
dividends or interest received on the loaned securities. The Fund will
reinvest cash collateral in securities that qualify as an acceptable
investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral. Loans are subject to termination
at the option of the Fund or the borrower. The Fund will not have the right
to vote on securities while they are on loan, but it will terminate a loan
in anticipation of any important vote. The Fund may pay administrative and
custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash collateral to a securities lending agent
or broker. Securities lending activities are subject to market risks and
credit risks. In addition, if the security is preferred stock, lending
activities may reduce the availability of the DRD. See "Tax Information."
Dollar Rolls Dollar rolls are transactions where the Fund sells
mortgage-backed securities with a commitment to buy similar, but not
identical, mortgage backed securities on a future date at a lower price.
Normally, one or both securities involved are TBA mortgage backed
securities. Dollar rolls are subject to market risks and credit risks.
Asset Coverage
In order to secure its obligations in connection with certain derivatives
contracts or special transactions, the Fund will either own the underlying
assets, enter into an offsetting transaction or set aside readily marketable
securities with a value that equals or exceeds the Fund's obligations. Unless
the Fund has other readily marketable assets to set aside, it cannot trade
assets used to secure such obligations without entering into an offsetting
derivative contract or terminating a special transaction. This may cause the
Fund to miss favorable trading opportunities or to realize losses on derivative
contracts or special transactions. Investment Risks Fixed Income Risks o Prices
of fixed income and preferred securities rise and fall in response to yield
changes for similar securities. Generally, when yields rise, prices of fixed
income and preferred securities fall.
o Yield changes have a greater effect on the price of fixed income or
preferred securities with longer durations. Duration measures the price
sensitivity of a fixed income or preferred security relative to changes in
yields.
Sector Risks
o Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. As the
investment managers allocate more of the Fund's portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that
sector.
Liquidity Risks
o Trading opportunities are more limited for common equity securities that
are not widely held and for fixed income or preferred securities that have
not received any credit ratings, have received ratings below investment
grade or are not widely held. This may make it more difficult to sell or
buy a security at a favorable price or time. Consequently, the Fund may
have to accept a lower price to sell a security, sell other securities to
raise cash or give up an investment opportunity, any of which could have a
negative effect on the Fund's performance. Infrequent trading of securities
may also lead to an increase in their price volatility.
o Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.
o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
Prepayment Risks
o Unlike traditional fixed income securities, which pay a fixed rate of
interest until maturity (when the entire principal amount is due) payments
on mortgage backed securities include both interest and a partial payment
of principal. Partial payment of principal may be comprised of scheduled
principal payments as well as unscheduled payments from the voluntary
prepayment , refinancing, or foreclosure of the underlying loans. These
unscheduled prepayments of principal create risks that can adversely affect
a Fund holding mortgage backed securities. For example, when interest rates
decline, the values of mortgage backed securities generally rise. However,
when interest rates decline, unscheduled prepayments can be expected to
accelerate, and the Fund would be required to reinvest the proceeds of the
prepayments at the lower interest rates then available. Unscheduled
prepayments would also limit the potential for capital appreciation on
mortgage backed securities. Conversely, when interest rates rise, the
values of mortgage backed securities generally fall. Since rising interest
rates typically result in decreased prepayments, this could lengthen the
average lives of mortgage backed securities, and cause their value to
decline more than traditional fixed income securities.
o Generally, mortgage backed securities compensate for the increased risk
associated with prepayments by paying a higher yield. The additional
interest paid for risk is measured by the difference between the yield of a
mortgage backed security and the yield of a U.S. Treasury security with a
comparable maturity (the spread). An increase in the spread will cause the
price of the mortgage backed security to decline. Spreads generally
increase in response to adverse economic or market conditions. Spreads may
also increase if the security is perceived to have an increased prepayment
risk or is perceived to have less market demand.
Currency Risks
o Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the U.S.
o The investment managers attempt to manage currency risk by limiting the
amount the Fund invests in securities denominated in a particular currency.
However, diversification will not protect the Fund against a general
increase in the value of the U.S. dollar relative to other currencies.
Risks of Foreign Investing
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
o Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
Leverage Risks
o Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security or other benchmark.
Credit Risks
o Credit risk is the possibility that an issuer will fail to pay interest,
dividends or principal as promised. If an issuer defaults on its
obligations or fails to make payments when promised, the Fund will lose
money.
o Many fixed income and preferred securities receive credit ratings from
services such as Standard & Poor's and Moody's Investors Services, Inc.
These services assign ratings to securities by assessing the likelihood of
issuer default. Lower credit ratings correspond to higher credit risk. If a
security has not received a rating, the Fund must rely entirely upon the
investment managers' credit assessment.
o Fixed income and preferred securities generally compensate for greater
credit risk by offering a higher yield. The difference between the yield of
a security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) incorporates an adjustment to compensate for risk of
loss. Spreads may increase generally in response to adverse economic or
market conditions. A security's spread may also increase if the security's
rating is lowered, or the security is perceived to have an increased credit
risk.
An increase in the spread will cause the price of the security to decline.
o Credit risk includes the possibility that a party to a transaction
involving the Fund will fail to meet its obligations. This could cause the
Fund to lose the benefit of the transaction or prevent the Fund from
selling or buying other securities to implement its investment strategy.
Risks Associated with Non-investment Grade Securities
Debt securities rated below investment grade, also known as junk bonds, and
preferred securities rated below investment grade, entail greater market, credit
and liquidity risks than investment grade securities with comparable terms. For
example, economic downturns and financial setbacks may affect their prices more
negatively, and their trading market may be more limited.
Investment Limitations
Selling Short and Buying On Margin
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary
for clearance of purchases and sales of securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin. Issuing Senior
Securities and Borrowing Money The Fund will not issue senior
securities, except that the Fund may borrow money directly or through
reverse repurchase agreements in amounts up to one-third of the value
of its net assets, including the amounts borrowed and except as
permitted by its investment objective and policies. The Fund will not
borrow money or engage in reverse repurchase agreements for investment
leverage, but rather as a temporary, extraordinary, or emergency
measure to facilitate management of the portfolio by enabling the Fund
to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund
will not purchase any securities while borrowings in excess of 5% of
the value of its total assets are outstanding. Pledging Assets The Fund
will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, the Fund may mortgage, pledge, or
hypothecate assets to secure such borrowings having a market value not
exceeding the lesser of the dollar amounts borrowed or 15% of the value
of total assets at the time of the borrowing. For purposes of this
limitation, the following are not deemed to be pledges: margin deposits
for the purchase and sale of futures contracts and related options, and
segregation or collateral arrangements made in connection with options
activities or the purchase of securities on a when-issued basis.
Investing in Real Estate The Fund will not buy or sell real estate,
including limited partnership interests, although the 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. Investing in Commodities The Fund will not
buy or sell commodities, commodity contracts, or commodities futures
contracts, except however, to the extent that the Fund may engage in
transactions involving futures contracts and related options.
Underwriting The Fund will not underwrite any issue of securities,
except as the Fund 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 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, and securities of other
investment companies) if, as a result, more than 5% of the value of the
Fund's total assets would be invested in the securities of that issuer.
Also, the Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. Concentration of Investments The Fund
will not invest 25% or more of the value of its total assets in any one
industry, except that the Fund may invest 25% or more of the value of
its total assets in cash, cash items, or securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities,
and repurchase agreements collateralized by such securities. Lending
Cash or Securities The Fund will not lend any of its assets except
portfolio securities, the market value of which do not exceed one-third
of the value of the Fund's total assets. This shall not prevent the
Fund from purchasing or holding U.S. government obligations, money
market instruments, demand master notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where
permitted by the Fund's investment objective, policies, and
limitations.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
Investing in Securities of Other Investment Companies
The Fund will limit its investment in other investment companies to not
more than 3% of the total outstanding voting stock of any investment
company, will invest no more than 5% of 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 Fund will purchase
securities of closed-end investment companies only in open market
transactions involving only customary brokers' commissions. However,
these limitations are not applicable if the securities are acquired in
a merger, consolidation, reorganization, or acquisition of assets. It
should be noted that investment companies incur certain expenses such
as custodian and transfer agency fees, and therefore, any investment by
the Fund in shares of another investment company would be subject to
such duplicate expenses. Investing in Illiquid Securities The Fund will
not invest more than 15% of its net assets in securities which are
illiquid, including repurchase agreements providing for settlement in
more than seven days after notice, over-the-counter options,
non-negotiable time deposits with maturities over seven days, and
certain securities not determined under guidelines established by the
Trustees to be liquid. Writing Covered Call Options The Fund will not
write call options on securities, futures contracts or forward
contracts unless the securities are held in the Fund's portfolio or
unless the Fund is entitled to them in deliverable form without further
payment or after segregating cash in the amount of any further payment
or unless the Fund has segregated cash equal to the current market
value of the underlying instrument or the exercise price, whichever is
applicable. Investing in Warrants The Funds will not invest more than
5% of its net assets in warrants. No more than 2% of the Fund's net
assets, to be included within the overall 5% limit on investments in
warrants, may be warrants which are not listed on the New York Stock
Exchange or the American Stock Exchange. Purchasing Securities to
Exercise Control The Fund will not purchase securities of a company for
purposes of exercising control or management.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings association, having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of deposit, to be "cash items."
The Fund did not borrow money in excess of 5% of the value of its total assets
during the last fiscal year and has no present intent to do so in the coming
fiscal year. Determining Market Value of Securities Market values of the Fund's
portfolio securities are determined as follows:
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that
short-term obligations with remaining maturities of less than 60 days at
the time of purchase may be valued at amortized cost or at fair market
value as determined in good faith by the Board; and
o for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics and other market data or
factors. When prices cannot be obtained from an independent pricing service,
securities may be valued based on quotes from broker-dealers or other financial
institutions that trade the securities.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the OTC market are valued according to the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option. The
Board may determine in good faith that another method of valuing such
investments is necessary to appraise their fair market value.
Securities listed on a national securities exchange are valued on the basis of
the last sale on such exchange on the day of valuation. In the absence of sales
of listed securities and with respect to securities for which the most recent
sale prices are not deemed to represent fair market value and unlisted
securities, securities are valued at the mean between the closing bid and asked
prices when quoted prices for investments are readily available. Investments for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Fund, including reference to valuations of other securities which are
considered comparable in quality, maturity and type.
Trading in Foreign Securities. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its net asset value (NAV), the Fund values foreign securities at the
latest closing price on the exchange on which they are traded immediately prior
to the closing of the NYSE. Certain foreign currency exchange rates may also be
determined at the latest rate prior to the closing of the NYSE. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
NYSE. If such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others. WHAT DO
SHARES COST?
The Fund's NAV per Share fluctuates and is based on the market value of all
securities and other assets of the Fund. The NAV for each class of Shares may
differ due to the variance in expenses incurred by each class. Such variance
will reflect only accrued net income to which the shareholders of a particular
class are entitled.
HOW ARE THE FUND'S SHARES SOLD?
Under the Distributor's contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
HOW TO BUY SHARES
Exchanging Securities for Shares
You may contact the Distributor to request a purchase of Shares in an exchange
for securities you own. The Fund reserves the right to determine whether to
accept your securities and the minimum market value to accept. The Fund will
value your securities in the same manner as it values its assets. This exchange
is treated as a sale of your securities for federal tax purposes.
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. Wachovia Bank acts as the
shareholders' agent in depositing checks and converting them to federal funds.
HOW TO REDEEM SHARES
Redemption In Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the 1940 Act,
the Fund is obligated to pay Share redemptions to any one shareholder in cash
only up to the lesser of $250,000 or 1% of the net assets represented by such
Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Board determines that payment should be in kind. In such a case, the
Fund will pay all or a portion of the remainder of the redemption in portfolio
securities, valued in the same way as the Fund determines its NAV. The portfolio
securities will be selected in a manner that the Fund's Board deems fair and
equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
ACCOUNT AND SHARE INFORMATION
Voting Rights
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All classes of each series of
the Trust have equal voting rights, except that in matters affecting only the
Fund or a particular class, only Shares of the 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 shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of each Trust's outstanding
shares of all series entitled to vote.
TAX INFORMATION
Federal Income Tax - Distribution and Redemptions
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
The Fund intends to qualify for treatment as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code).
As long as the Fund distributes each year all of its net investment income and
all of its net realized capital gains, the Fund is treated as a tax-free,
pass-through entity. The Fund's shareholders are taxable on those distributions.
If the foregoing requirements are not met, the Fund will not receive special tax
treatment and will pay federal income tax. "Ordinary dividends" are taxed to
shareholders as ordinary income. They include dividends earned on Fund assets,
plus net short-term capital gains realized on the Fund's sale of securities.
From the viewpoint of a Fund shareholder, there are three possible types of Fund
income: o ordinary dividends, o capital gains dividends, and o undistributed
capital gains In addition, a Fund shareholder may experience unrealized price
appreciation or depreciation.
Each year, the Fund will provide each shareholder with a statement (Form
1099-DIV) that breaks down the total income into each of these categories.
"Ordinary dividends" are taxed to shareholders as ordinary income. They include
dividends earned on Fund assets, plus net short-term capital gains realized on
the Fund's sale of securities. Generally, ordinary dividends received by a Fund
shareholder that is taxed under Subchapter C of the Code (a taxable corporation)
qualify for the 70% DRD to the extent the Fund designates the amount distributed
as qualifying for the DRD (a DRD dividend). The Fund may designate as DRD
dividends only the dividends it receives from domestic corporations. Certain
restrictions, however, can reduce DRD dividends. For example, o If the aggregate
dividends received by the Fund from domestic corporations is less than 75% of
its gross
income (computed without regard to realized capital gains), then the Fund's
expenses must be apportioned ratably and the Fund can designate as DRD
dividends only the amount of dividends received less a ratable portion of
its expenses.
o If the Fund does not meet certain holding period requirements with respect
to the underlying stock, the Fund cannot designate dividends received on
that stock as a DRD dividend.
o If the Fund is obligated to make a payment in lieu of a dividend on a
security sold short or corresponding payment with respect to a position in
substantially similar or related property, the Fund cannot designate the
dividend received as a qualifying DRD dividend.
o If the Fund receives a dividend on "debt-financed portfolio stock," as
defined by the Code, the amount of the DRD may be reduced.
As noted above, ordinary dividends paid by the Fund from sources other than the
dividends it receives from domestic corporations will not qualify for the DRD.
Thus, any interest income, net short-term capital gain, and dividends received
from foreign corporations included in the Fund's taxable income and distributed
by it as an ordinary dividend will not qualify for the DRD. You should also note
that availability of the DRD is subject to certain restrictions. For example,
the deduction is eliminated unless you have held (or are deemed to have held)
your Shares for at least 46 days in a substantially unhedged manner. The DRD may
also be reduced to the extent interest paid or accrued by you is directly
attributable to your investment in Fund shares. If your investment in the Fund
is "debt financed" for these tax purposes, you should consult with your tax
advisor concerning the availability of the DRD. "Capital gain dividends" are
distributions of the Fund's net capital gain (the excess of net realized
long-term capital gains over net realized short-term capital losses). Currently,
capital gain dividends received by a taxable corporation are taxed at ordinary
income tax rates. Pursuant to the Code, certain distributions that are declared
in October, November or December but that, for operational reasons, may not be
paid to Fund shareholders until the following January, will be treated for tax
purposes as if paid by the Fund and received by you on December 31 of the
calendar year in which they are declared. The Fund will be subject to a
nondeductible 4% excise tax to the extent it fails to distribute by the end of
any calendar year substantially all of its ordinary income for that year and
capital gain net income for the one-year period ending on October 31 of that
year, plus certain other amounts. Certain futures and foreign currency contracts
in which the Fund may invest will be subject to section 1256 of the Code
("section 1256 contracts"). Any section 1256 contracts the Fund holds at the end
of each taxable year generally must be "marked-to-market" (that is, treated as
having been sold at that time for their fair market value) for federal income
tax purposes, with the result that unrealized gains or losses will be treated as
though they were realized. Sixty percent of any net gain or loss recognized on
these deemed sales, and 60% of any net realized gain or loss from any actual
sales of section 1256 contracts, will be treated as long-term capital gain or
loss, and the balance will be treated as short-term capital gain or loss.
Section 1256 contracts also may be marked-to-market for purposes of the Excise
Tax. These rules may operate to increase the amount that the Fund must
distribute to satisfy the distribution requirement (i.e., with respect to the
portion treated as short-term capital gain), which will be taxable to the
shareholders as ordinary income, and to increase the net capital gain the Fund
recognizes, without in either case increasing the cash available to the Fund.
The Fund may elect not to have the foregoing rules apply to any "mixed straddle"
(that is, a straddle, clearly identified by the Fund in accordance with the
regulations under the Code, at least one (but not all) of the positions of which
are section 1256 contracts), although doing so may have the effect of increasing
the relative proportion of net short-term capital gain (taxable as ordinary
income) and thus increasing the amount of dividends that must be distributed.
Redemptions of Fund shares are taxable events on which you may realize a gain or
a loss. The Fund will inform you of the source of your dividends at the time
they are paid and will, promptly after the close of each calendar year, advise
you of the tax status thereof for federal income tax purposes. If you are not a
U.S. person for purposes of federal income taxation, you should consult with
your financial or tax advisors regarding the applicability of U.S. withholding
or other taxes on dividends received from the Fund and the application of
foreign tax laws to these dividends. You should consult your tax advisor with
respect to the applicability of state and local intangible property or income
taxes to your Shares and to dividends and redemption proceeds received from the
Fund. Foreign Investments If the Fund purchases foreign securities, its
investment income and gains from these securities may be subject to foreign
withholding or other taxes that could reduce the return on these securities. Tax
treaties between the United States and foreign countries, however, may reduce or
eliminate the amount of foreign taxes to which the Fund would be subject. The
effective rate of foreign tax cannot be predicted since the amount of Fund
assets to be invested within various countries is uncertain. However, the Fund
intends to operate so as to qualify for treaty-reduced tax rates when
applicable.
Distributions from the Fund may be based on estimates of book income for the
year. Book income generally consists solely of the coupon income generated by
the portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
The Fund may invest in the stock of certain foreign corporations that constitute
passive foreign investment companies (PFICs). If so, it and may be subject to
Federal income tax upon disposition of PFIC investments.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
Board of Trustees
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, total compensation received as a
Trustee from the Trust for the Trust's most recent fiscal year. Each of the
Trustees and officers listed below holds an identical position with The Wachovia
Municipal Funds, another investment company. The Wachovia Funds are comprised of
fifteen Funds and The Wachovia Municipal Funds are comprised of four funds,
together they form the Fund Complex.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Name Occupations for past 5 Years Aggregate
Birthdate Compensation from
Address Fund Complex
Position with Trust
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
James A. Hanley Retired; Vice President and Treasurer, Abbott Laboratories (health $26,400
August 13, 1931 care products) (until 1992).
4272 Sanctuary Way
Bonita Springs, FL
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Samuel E. Hudgins Hudgins Consulting, LLC (independent consultant); President, $26,400
March 4, 1929 Percival Hudgins & Company, LLC (investment bankers/financial
715 Whitemere Court, N.W. consultants) (until September 1997); Director, Atlantic American
Atlanta, GA Corporation (insurance holding company).
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
J. Berkely Ingram, Jr. Real estate investor and partner; formerly, Vice Chairman, $24,000
April 17, 1924 Massachusetts Mutual Life Insurance Company.
114-L Reynolda Village
Winston-Salem, NC
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
<PAGE>
- ---------------------------------- ---------------------------------------------------------------------- -------------------
D. Dean Kaylor Retired; Executive Vice President and Chief Financial Officer, NBD $24,000
June 29, 1930 Bank, N.A. and NBD Bancorp, Inc. (bank and bank holding company)
2835 Greenbriar (until 1990).
Harbor Springs, MI
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Alvin J. Schexnider, Ph.D. Chancellor, Winston-Salem State University. $12,000
May 26, 1945
5005 Marble Arch Road
Winston-Salem, NC 27104
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Charles S. Way, Jr.* President, Chairman and CEO, The Beach Company and its various $24,000
December 18, 1937 affiliated companies and partnerships.
211 King Street
Suite 300
Charleston, SC
Trustee
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
John W. McGonigle President and Chief Executive Officer, Federated Investors $0
October 26, 1938 Management Company; Executive Vice President, Secretary, General
Federated Investors Tower Counsel, and Trustee, Federated Investors; Trustee, Federated
Pittsburgh, PA Services Company; and Director, Federated Securities Corp.
President and Treasurer
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Charles L. Davis, Jr. Vice President, Federated Services Company. $0
March 23, 1960
Federated Investors Tower
Pittsburgh, PA
Vice President and Assistant
Treasurer
- ---------------------------------- ---------------------------------------------------------------------- -------------------
- ---------------------------------- ---------------------------------------------------------------------- -------------------
Peter J. Germain Senior Vice President and Director of Proprietary Funds Services, $0
September 3, 1959 Federated Services Company; formerly, Senior Corporate Counsel,
Federated Investors Tower Federated Services Company.
Pittsburgh, PA
Secretary
- ---------------------------------- ---------------------------------------------------------------------- -------------------
</TABLE>
Investment Managers
The investment adviser is a business unit of Wachovia Bank, N.A., a wholly-owned
subsidiary of Wachovia Corporation. Flaherty & Crumrine Incorporated is
wholly-owned by three of its registered principals.
The investment managers shall not be liable to the Trust, the Fund, or any Fund
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by them, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of their duties.
The Fund intends to seek an exemptive order from the SEC to permit the
investment adviser, subject to certain conditions, to enter into new
sub-advisory agreements, terminate existing sub-advisory agreements and amend
the terms of any sub-advisory agreement, subject to Board approval, but without
shareholder approval. The order would also permit the Fund to disclose the
aggregate advisory fee paid by the investment adviser to unaffiliated
sub-advisers.
The Adviser will monitor the diversification and concentration of the Fund by
reviewing daily reports provided by the Fund's portfolio recordkeeper which
aggregate the investments of all of the sub-advisers. The Adviser will take
appropriate action, which may include directing sub-advisers to reduce their
positions in a specific security, if it feels that the Fund is in danger of
violating diversification requirements.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the investment managers look for prompt execution of the order at a
favorable price. The investment managers will generally use firms that are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The investment managers
may select brokers and dealers based on whether they also offer research
services (as described below). In selecting among firms believed to meet these
criteria, the investment managers may give consideration to those firms which
have sold or are selling Shares of the Fund and other funds distributed by the
Distributor and its affiliates. The investment managers make decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Fund's Board.
Research Services
Research services 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 may be used by the investment managers in advising other accounts. To
the extent that receipt of these services may replace services for which the
investment managers or their affiliates might otherwise have paid, it would tend
to reduce their expenses. The investment managers and their affiliates exercise
reasonable business judgment in selecting those 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. However, it is
possible for the Fund to pay a higher commission than another broker might have
charged for the same transaction in recognition of services provided.
Investment decisions for the Fund are made independently from those of other
accounts managed by the investment managers. When the Fund and one or more of
those accounts invests in, or disposes of, the same security, available
investments or opportunities for sales will be allocated among the Fund and the
account(s) in a manner believed by the investment managers to be equitable.
While the coordination and ability to participate in volume transactions may
benefit the Fund, it is possible that this procedure could adversely impact the
price paid or received and/or the position obtained or disposed of by the Fund.
Administrator
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at the following annual rate of the average aggregate daily net
assets of the Fund as specified below:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Fund
.10 of 1% on the first $3.5 billion
.06 of 1% on assets in excess of $3.5 billion
Custodian
Wachovia Bank, N.A., is custodian (the Custodian) for the securities and cash of
the Fund. Under the Custodian Agreement, the Custodian holds the Fund's
portfolio securities in safekeeping and keeps all necessary records and
documents relating to its duties. For the services to be provided to the Trust
pursuant to the Custodian Agreement, the Trust pays the Custodian an annual fee
based upon the average daily net assets of the Fund and which is payable
monthly. The Custodian will also charge transaction fees and out-of-pocket
expenses.
Transfer Agent And Dividend Disbursing Agent
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, also provides certain accounting and
recordkeeping services with respect to the Fund's portfolio investments.
Independent Public Accountants
Ernst & Young LLP are the independent auditors for the Fund.
Shareholder Services
The Fund's Institutional Service Shares may pay Federated Administrative
Services, a subsidiary of Federated, for providing shareholder services and
maintaining shareholder accounts. Federated Administrative Services may select
others to perform these services for their customers and may pay them fees.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges which, if excluded, would increase the total return and
yield. The performance of Shares depends upon such variables as: portfolio
quality; average portfolio maturity; type and value of portfolio securities;
changes in interest rates; changes or differences in the Fund's or any class of
Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
Total Return
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of dividends
and capital gain distributions.
The average annual total return for Shares 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 NAV 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 adjusted over the period by any additional Shares,
assuming the annual reinvestment of all dividends and capital gain
distributions.
When Shares of the Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.
Yield
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number 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.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
Performance Comparisons
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to
certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
o information about the mutual fund industry from sources such as the Investment
Company Institute. The Fund may compare its performance, or performance for the
types of securities in which it invests, to a variety of other investments,
including federally insured bank products such as bank savings accounts,
certificates of deposit, and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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 capital gain distributions and income dividends and
takes into account any change in maximum offering price over a specific
period of time. From time to time, the Fund may quote its Lipper ranking in
advertising and sales literature.
Lehman Brothers Aggregate Bond Index is an unmanaged 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.
Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged total return index comprised of all the bonds included in 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. Lehman Brothers Corporate Bond
Index is an unmanaged total return index comprised of all the bonds
included in the Lehman Brothers Corporate Bond Index. Total return is based
on price appreciation/depreciation and income as a percentage of the
original investment. The index is rebalanced monthly by market
capitalization. Morningstar, Inc., an independent rating service, is the
publisher of the bi-weekly Mutual Fund Values. Mutual Fund Values rates
more than 1,000 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.
<PAGE>
INVESTMENT RATINGS
Standard & Poor's 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 Corporate Bond Ratings Aaa--Bonds
which are rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Aa--Bonds which are rated "Aa" are
judged to be of high quality by all standards. Together with the "Aaa" group
they comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than in "Aaa" securities. A--Bonds which are rated "A"
possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment some time in the future. 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.
<PAGE>
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 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 Commercial Paper Ratings
Prime-1--Issuers rated "Prime-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. "Prime-1"
repayment capacity will normally be evidenced by many of the following
characteristics: o Leading market positions in well-established industries; o
High rates of return on funds employed; o Conservative capitalization structure
with moderate reliance on debt and ample asset protection; o Broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
or o Well-established access to a range of financial markets and assured sources
of alternate liquidity. 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. Moody's Investors Service 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:
o Leading market positions in well established industries; o High rates of
return on funds employed; o Conservative capitalization structure with moderate
reliance on debt and ample asset protection; o Broad margins in earning coverage
of fixed financial charges and high internal cash generation; and o
Well-established access to a range of financial markets and assured sources of
alternate liquidity. Prime-2--Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained. 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 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.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
09/09/99
ADDRESSES
The Wachovia Executive Fixed Income Fund
Institutional Service Shares and 101 Greystone Boulevard
Institutional Shares SC-9215
Columbia, SC 29226
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Wachovia Asset Management 100 North Main Street
Winston-Salem, NC 27101
Custodian
Wachovia Bank, N.A. 100 North Main Street
Winston-Salem, NC 27101
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Independent Auditors
Ernst & Young LLP 200 Clarendon Street
Boston, MA 02116
</TABLE>
Item 23. Exhibits:
(a) Conformed copy of Declaration of Trust of the Registrant; (12)
(i) Conformed copy of Amendment #1 to the Declaration of Trust; (12)
(ii) Conformed copy of Amendment #2 to the Declaration of Trust; (12)
(iii) Conformed copy of Amendment #3 to the Declaration of Trust; (12)
(iv) Conformed copy of Amendment #4 to the Declaration of Trust; (12)
(v) Conformed copy of Amendment #5 to the Declaration of Trust; (12)
(vi) Conformed copy of Amendment #6 to the Declaration of Trust; (12)
(vii) Conformed copy of Amendment #13 to the Declaration of Trust; (19)
(b) Copy of Amended By-Laws of the Registrant; (2)
(c) Copy of Specimen Certificates for Shares of Beneficial Interest; (17)
(i) Copy of Specimen Certificate for Class A Shares of Wachovia
Balanced Fund; (17)
(ii) Copy of Specimen Certificate for Class
B Shares of Wachovia Balanced Fund; (17)
(iii) Copy of Specimen Certificate for Class
A Shares of Wachovia Equity Fund; (17) (iv)
Copy of Specimen Certificate for Class B
Shares of Wachovia Equity Fund; (17) (v)
Copy of Specimen Certificate for Class A
Shares of Wachovia Equity Index Fund; (17)
(vi) Copy of Specimen Certificate for Class
A Shares of Wachovia Fixed Income Fund; (17)
(vii) Copy of Specimen Certificate for Class
B Shares of Wachovia Fixed Income Fund; (17)
(viii) Copy of Specimen Certificate for
Class A Shares of Wachovia Special Values
Fund; .....(17) (ix) Copy of Specimen
Certificate for Class A Shares of Wachovia
Short-Term Fixed Income ..Fund; (17) (x)
Copy of Specimen Certificate for Investment
Shares of Wachovia Money Market
.............Fund; (17) (xi) Copy of
Specimen Certificate for Investment Shares
of Wachovia Tax-Free Money Market Fund; (17)
+ All exhibits have been electronically filed.
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on form N-1A filed March 6, 1992. (File Nos. 33-44590 and
811-6504)
(12) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed October 6, 1994. (File Nos. 33-44590
and 811-6504)
(17) Response is incorporated by reference to Registrant's Post-.....Effective
Amendment No. 21 on Form N-1A filed December 22, 1997. (File Nos. 33-44590
and 811-6504)
(19) Response is incorporated by reference to Registrant' Post-......Effective
Amendment No. 24 on Form N-1A filed March 12, 1998. (File Nos. 33-44590 and
811-6504)
<PAGE>
(xii) Copy of Specimen Certificate for Investment Shares of
Wachovia U.S.Treasury Money Market Fund; (17)
(xiii) Copy of Specimen Certificate for Class A Shares of Wachovia
Quantitative Equity ......Fund; (17)
(ivx) Copy of Specimen Certificate for Class B Shares of Wachovia
Quantitative Equity ......Fund; (17)
(xv) Copy of Specimen Certificate for Class A Shares of Wachovia
Emerging Markets .........Fund; (17)
(d) Conformed copy of Investment Advisory
Contract of the Registrant; (12) (i)
Conformed copy of Exhibit A to the
Investment Advisory Contract;
(12)
(ii) Conformed copy of Exhibit B to the Investment Advisory
Contract; (12)
(iii) Conformed copy of Exhibit C to the Investment Advisory
Contract; (12)
(iv) Conformed copy of Exhibit D to the Investment Advisory
Contract; (12)
(v) Conformed copy of Exhibit E to the Investment Advisory
Contract; (12)
(vi) Conformed copy of Exhibit F to the Investment Advisory
Contract; (12)
(vii) Conformed copy of Exhibit G to the Investment Advisory
Contract; (12)
(viii) Conformed copy of Exhibit H to the Investment Advisory
Contract; (12)
(ix) Conformed copy of Exhibit I to the Investment Advisory
Contract; (12)
(x) Conformed Copy of Sub-Advisory Agreement of the
Registrant; (10)
(xi) Conformed copy of Exhibit J to the Investment Advisory
Contract; (13)
(xii) Conformed copy of Exhibit K to the Investment Advisory Contract; (18)
(xiii) Conformed copy of Investment Advisory agreement between The Wachovia
Funds and the Adviser; (20) (xiv) Conformed copy of Investment Advisory
agreement between The Wachovia Municipal Funds and the Adviser;
(20)
(e) Conformed copy of Distributor's Contract of the Registrant and
Exhibits A-G thereto; (12)
(i) Conformed copy of Exhibit A to the Distributor's Contract;(12)
+ All exhibits have been electronically filed.
(10) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed June 29, 1994. (File Nos. 33-44590 and
811-6504)
(12) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed October 6, 1994. (File Nos. 33-44590
and 811-6504)
(13) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed January 30, 1995. (File Nos. 33-44590
and 811-6504)
(17) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed December 22, 1997. (File Nos. 33-44590
and 811-6504)
(18) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed February 4, 1998. (File Nos. 33-44590
and 811-6504)
(20) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed February 22, 1999. (File Nos. 33-44590
and 811-6504)
<PAGE>
(ii) Conformed copy of Exhibit B to the
Distributor's Contract; (12) (iii) Conformed
copy of Exhibit C to the Distributor's
Contract; (12) (iv) Conformed copy of
Exhibit D to the Distributor's Contract;
(12) (v) Conformed copy of Exhibit E to the
Distributor's Contract; (12) (vi) Conformed
copy of Exhibit F to the Distributor's
Contract; (12) (vii) Conformed copy of
Exhibit G to the Distributor's Contract;
(12) (viii) Conformed copy of Exhibit H to
the Distributor's Contract; (13) (ix)
Conformed copy of Exhibit I to the
Distributor's Contract; (16) (x) Conformed
copy of Exhibit J to the Distributor's
Contract; (16) (xi) Conformed copy of
Exhibit K to the Distribution Agreement;
(18)
(xii) Conformed copy of Exhibit L to the Distribution Agreement; (18)
(xiii) Conformed copies of Exhibits O through T ............to the
Distribution Agreement;+
(f) Not applicable;
(g) Conformed copy of Custodian Agreement of the Registrant; (12)
(i) Exhibit A to the Custodian Agreement; (12)
(ii) Exhibit B to the Custodian Agreement; (12)
(iii) Exhibit C to the Custodian Agreement; (12)
(iv) Exhibit D to the Custodian Agreement; (12)
(v) Conformed copy of Global Custody Agreement for the
Biltmore Emerging Markets .........Fund;(17)
(vi) Copy of Amendment to Exhibit A to Custody Agreement; (19)
(vii) Copy of Amendment to Exhibit A to
Custody Agreement; + (h) Conformed copy of Portfolio
Accounting and Shareholder Recordkeeping
Agreement of the Registrant; (12)
(i) Copy of Schedule A to Portfolio Accounting and
Shareholder Recordkeeping Agreement; (12)
(ii) Copy of Schedule H to Portfolio Accounting and
Shareholder Recordkeeping Agreement; (12)
+ All exhibits have been electronically filed.
(12) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed October 6, 1994. (File Nos. 33-44590
and 811-6504)
(13) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed January 30, 1995. (File Nos. 33-44590
and 811-6504)
(16) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed January 29, 1996. (File Nos. 33-44590
and 811-6504)
(18) Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 22 on Form N-1A filed February 4, 1998. (File Nos. 33-44590
and 811-6504)
(19) Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 24 on Form N-1A filed March 12, 1998. (File Nos. 33-44590 and
811-6504).
<PAGE>
(iii) Copy of Schedule I to Portfolio Accounting and Shareholder
Recordkeeping Agreement; (12)
(iv) Conformed Copy of Exhibit F to Transfer Agency and Service
Agreement;(3)
(v) Conformed Copy of Schedule G to Transfer Agency and Service
Agreement;(8)
(vi) Conformed Copy of Schedule G to Transfer Agency and Service
Agreement;(8)
(vii) Conformed Copy of Sub-Transfer Agency and Service Agreement;(7)
(viii) Conformed Copy of Administrative Services Agreement of the
Registrant; (12)
(ix) Conformed copy of Exhibit A to the Administrative Services
Agreement; (12)
(x) Conformed copy of Exhibit B to the Administrative Services
Agreement; (12)
(xi) Conformed copy of Exhibit C to the Administrative Services
Agreement; (12)
(xii) Conformed copy of Exhibit D to the Administrative Services
Agreement; (12)
(xiii) Conformed copy of Amendment No. 1 to the Administrative Services
Agreement; (12)
(xiv) Conformed copy of Amendment No. 2 to the Administrative Services
Agreement; (15)
(xv) Conformed copy of Exhibit E to the Administrative Services
Agreement; (12)
(xvi) Conformed Copy of Shareholder Services
Plan; (16)
(xvii) Conformed Copy of Exhibit A to
Shareholder Services Plan; (12)
(xviii)Conformed copy of Amendment No. 1 to
Exhibit A of the Shareholder
Services Plan; (12)
(xix) Conformed Copy of Amendment No. 2 to Exhibit A of the Shareholder
Services
Plan; (13)
+ All exhibits have been electronically filed.
(7) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed July 29, 1993. (File Nos. 33-44590 and
811-6504)
(12) Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 14 on Form N-1A filed October 6, 1994 (File Nos. 33-44590 and
811-6504)
(13) Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 15 on Form N-1A filed January 30, 1995. (File Nos. 33-44590
and 811-6504)
(15) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed June 24, 1996. (File Nos. 33-44590 and
811-6504)
(16) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed January 29, 1996. (File Nos. 33-44590
and 811-6504)
(17) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed December 22, 1997. (File Nos. 33-44590
and 811-6504)
(18) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed February 4, 1998. (File Nos. 33-44590
and 811-6504)
<PAGE>
(xx) Conformed copy of Shareholder Services
Agreement; (16) (xxi) Conformed copy of
Exhibit A to Shareholder Services Agreement;
(12) (xxii) Amendment to Exhibit A of the
Shareholder Services Agreement; (19)
(xxiii)Conformed copy of Portfolio
Accounting and Shareholder Recordkeeping
Agreement Amendment No. 2 to Schedule B; (16)
(xxiv)Form of Agreement for Administrative Services; (17)
(xxv) Amendment No. 1 to Agreement for Administrative Services; (18)
(xxvi) Amendment to Exhibit A to the Shareholder .....Services Agreement;+
(xxvii) Conformed copy of Agreement for Fund Accounting Services,
Administrative Service and Transfer Agency
Services;+
(i) Conformed copy of Opinion and Consent of Counsel as to legality of
shares being registered; (12)
(j) Not applicable;
(k) Not applicable;
(l) Conformed copy of Initial Capital Understanding; (2)
(m) Conformed copy of Distribution Plan and Exhibits A-B thereto; (12)
(i) Conformed copy of Exhibit A to
Distribution Plan; (12) (ii) Conformed copy
of Exhibit B to Distribution Plan; (12)
(iii) Copy of Dealer Agreement; (6) (iv)
Copy of Exhibit to Dealer Agreement; (6) (v)
Copy of Rule 12b-1 Agreement; (2) (vi)Copy
of Exhibit A to 12b-1 Agreement; (6) (vii)
Copy of Exhibit B to 12b-1 Agreement; (6)
(viii) Copy of Exhibit C to 12b-1 Agreement;
(16)
(ix) Conformed copy of Exhibit D to Plan of Distribution; (18) (x) Copy of
Exhibit F to the Administrator's 12b-1 Agreement;+ (xi) Copy of Exhibit F to the
Broker's 12b-1 Agreement;+ (xii) Copy of Exhibits F and G to the distribution
Plan;+
- ---------------------
+ All exhibits have been electronically filed.
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed March 6, 1992. (File Nos. 33-44590 and
811-6504)
(6) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed December 2, 1992. (File Nos. 33-44590
and 811-6504)
(12) Response is incorporated by reference to Registrant's Post-Effective
Amendment No.14 on Form N-1A filed October 6, 1994. (File Nos. 33-44590 and
811-6504)
(16) Response is incorporated by reference to Registrant's Post-.....Effective
Amendment No. 20 on Form N-1A filed January 29, 1996. (File Nos. 33-44590
and 811-6504)
(17) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed December 22, 1997. (File Nos. 33-44590
and 811-6504)
(18) Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 22 on Form N-1A filed February 4, 1998. (File Nos. 33-44590
and 811-6504)
(19) Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 24 on Form N-1A filed March 12, 1998. (File Nos. 33-44590 and
811-6504).
<PAGE>
(n) Not applicable.
(o) Copy of The Wachovia Funds Multiple Class Plan; (15)
(i) Amendment to Exhibit A to Multiple Class Plan; (18)
(ii) Amendment to Exhibit A to Multiple Class Plan; +
(p) Conformed Copy of Power of Attorney; (15)
Item 24. Persons Controlled by or Under Common Control with Registrant:
None
Item 25. Indemnification: (2)
Item 26. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser,
see the section entitled "Who Manages the Funds?" in Part A. The
Officers of the investment adviser are: Chairman of the Board, L. M.
Baker, Jr.; President and Chief Executive Officer, J. Walter McDowell;
Executive Vice President, Robert S. McCoy, Jr.; Executive Vice
President, Robert L. Alphin; Executive Vice President, Hugh M. Durden;
Executive Vice President, Mickey W. Dry; Executive Vice President,
Walter E. Leonard, Jr.; Executive Vice President, Richard B. Roberts;
and Executive Vice President, Robert G. Brookly. The business address
of each of the Officers of the investment adviser is Wachovia Bank of
North Carolina, N.A., 100 North Main Street, Winston-Salem, N.C.
27101.
The Directors of the investment adviser are listed below with their
occupations: L.M. Baker, Jr., President and Chief Executive Officer,
Wachovia Corporation, Chairman, Wachovia Bank of North Carolina, N.A.;
H.C. Bissell, Chairman of the Board and Chief Executive Officer, The
Bissell Companies, Inc.; Bert Collins, President and Chief Executive
Officer, North Carolina Mutual Life Insurance Company; Felton J Capel,
Chairman of the Board and President, Century Associates of North
Carolina; Richard L. Daugherty, Retired Vice President and Consultant,
IBM Corporation; Estell C. Lee, Chairman of the Board and President,
The Lee Company; David J. Whichard II, Chairman, The Daily Reflector;
John C. Whitaker, Jr., Chairman of the Board and Chief Executive
Officer, Inmar Enterprises, Inc.; William Cavanaugh, III, President
and Chief Operating Officer, Carolina Power and Light Company; J.
Walter McDowell, III, President and Chief Executive Officer, Wachovia
Bank of North Carolina, N.A.; John F. Ward, Senior Vice President,
Sara Lee Corporation; Anderson D. Warlick, President and Chief
Operating Officer, Parkdale Mills, Inc.; Thomas M. Belk, Jr., Senior
Vice President, Belk Stores Services, Inc.; George W. Henderson,
President and Chief Executive Officer, Burlington Industries, Inc.; G.
George Prendergast, Executive Vice President, Wachovia Corporation;
Robert L. Tillman, Chief Operating Officer, Lowe's Companies, Inc.;
and Andrew J. Schindler, President and Chief Executive Officer, R.J.
Reynolds Tobacco Company.
+ All exhibits have been electronically filed.
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on form N-1A filed March 6, 1992. (File Nos. 33-44590 and
811-6504)
(15) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on filed June 24, 1996. (File Nos. 33-44590 and 811-6504)
(18) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed February 4, 1998. (File Nos. 33-44590
and 811-6504)
<PAGE>
Item 27. Principal Underwriters:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
.............open-end investment companies, including the Registrant:
Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; ; Hibernia
Funds; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Obligations Trust II; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Regions Funds; RIGGS Funds; SouthTrust Funds;
Tax-Free Instruments Trust; The Planters Funds; The Wachovia Funds; The Wachovia
Municipal Funds; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; World Investment Series, Inc.; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; High Yield Cash Trust; Investment Series Trust; Star Funds;
Targeted Duration Trust; The Virtus Funds; Trust for Financial Institutions;
Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Director, Chairman, Chief
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice
Federated Investors Tower President,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable.
Item 28. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant
The Wachovia Funds 5800 Corporate Drive
Pittsburgh, PA 15237-7010
Federated Services Company Federated Investors Tower
(Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper)
Federated Services Company Federated Investors Tower
(Administrator) Pittsburgh, PA 15222-3779
Wachovia Asset Management 301 North Main Street
(Adviser) Winston-Salem, NC 21750
Twin Capital Management, Inc. 3244 Washington Road
(Sub-Adviser to Wachovia McMurrary, PA 15315-3153
Quantitative Equity Fund only)
Wachovia Bank of North Carolina Wachovia Trust Operations
(Custodian) 301 North Main Street
Winston-Salem, NC 21750
Item 29. Management Services: Not applicable.
Item 30. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders on behalf of each of its portfolios.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, THE WACHOVIA FUNDS, certifies
that it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) and has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 16thst day of November, 1999.
THE WACHOVIA FUNDS
BY: /s/ Gail Cagney
Gail Cagney, Assistant Secretary
Attorney in Fact for John W. McGonigle
November 16, 1999
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
By: /s/Gail Cagney
Gail Cagney Attorney In Fact November 16, 1999
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John W. McGonigle* President and Treasurer
(Chief Executive Officer
and Principal Financial and
Accounting Officer)
James A. Hanley* Trustee
Samuel E. Hudgins* Trustee
J. Berkley Ingram, Jr.* Trustee
D. Dean Kaylor* Trustee
* By Power of Attorney
</TABLE>
Exhibit e(xiii) under Form N-1A
Exhibit 1 under Item 601/Reg.S-K
Trust name changed to The Wachovia Funds - 7/31/97
DISTRIBUTION AGREEMENT
This Distribution Agreement is made as of this 9th day of March, 1992,
between The Biltmore Funds, a Massachusetts business trust, (herein called the
"Trust") and FEDERATED SECURITIES CORP., Pennsylvania corporation (herein called
"FSC").
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Trust hereby appoints FSC as its agent to sell and distribute shares
of the Trust which may be offered in one or more series (the "Portfolios") or
classes (the "Classes") of shares (the "Shares") as described and set forth on
one or more exhibits to this Agreement, at the current public offering price
thereof as described and set forth in the current prospectus and statement of
additional information ("Prospectus") of the applicable Portfolio. FSC hereby
accepts such appointment and agrees to provide such other services for the
Trust, if any, and accept such compensation from the Trust, if any, as set forth
in the applicable exhibit to this Agreement. FSC shall have the right to sell
such Shares as are authorized for issue and registered under the Securities Act
of 1933, as amended ("1933 Act") and applicable state securities laws. The
rights granted to FSC shall be nonexclusive in that the Trust reserves the right
to sell its shares to investors on applications received and accepted by the
Trust. Further, the Trust reserves the right to issue shares in connection with
(a) the merger or consolidation, or acquisition by the Trust through purchase or
otherwise, with any other investment company, trust or personal holding company
and (b) a pro rata distribution directly to the holders of shares in the nature
of a stock dividend or split-up.
2. The sale of any Shares may be suspended without prior notice whenever in
the judgment of the Trust it is in its best interest to do so. In the event the
sale of any Shares is suspended, no further orders for Shares shall be processed
by FSC except such unconditional orders placed with FSC before it had knowledge
of the suspension. In addition, the Trust and FSC reserve the right to reject
any purchase order.
3. In consideration of these rights granted to FSC, FSC agrees to use all
reasonable efforts, consistent with its other business, to secure purchasers for
Shares. This shall not prevent FSC from entering into like arrangements with
other issuers. FSC agrees to use all reasonable efforts to ensure that taxpayer
identification numbers provided for record shareholders of the Trust are
correct.
4. Neither FSC nor any other person is authorized by the Trust to give any
information or to make any representation relative to any Shares other than
those contained in the Registration Statement, Prospectuses filed with the
Securities and Exchange Commission, as the same may be amended from time to
time, or in any supplemental information to said Prospectuses approved by the
Trust. FSC agrees that any other information or representations other than those
specified above which it or any broker or other person who purchases Shares
through FSC may make in connection with the offer or sale of Shares, shall be
made entirely without liability on the part of the Trust. No person, other than
FSC, is authorized to act as agent for the Trust for any purpose. FSC agrees
that in offering or selling Shares as agent of the Trust, it will, in all
respects, duly conform to all applicable state and federal laws and the rules
and regulations of the National Association of Securities Dealers, Inc.,
including its Rules of Fair Practice and any applicable filing and approval
requirements for sales literature. FSC will submit to the Trust, with a copy to
its counsel, copies of all sales literature before using the same and will not
use such sales literature if disapproved by the Trust or the appropriate
regulatory authorities, if applicable.
5. (a) The Trust shall pay all fees and expenses in connection with the
preparation, setting in type and filing of any Registration Statement,
Prospectus under the 1933 Act and any amendments thereto for the issue of its
shares, in connection with the registration and qualification of Shares for sale
in the various states in which the Board of Trustees of the Trust shall
determine it advisable to qualify such Shares for sales, registering the Trust
or Portfolio as a broker or dealer or any officer of the Trust as agent or
salesperson in any state, of preparing, setting in type, printing and mailing
any report or other communication to shareholders of the Trust in their capacity
as such, and of preparing, setting in type, printing and mailing Prospectuses
and any supplements thereto sent to existing shareholders.
(b) FSC may in its sole discretion pay such expenses as it deems
reasonable for distribution including printing and distributing Prospectuses and
reports prepared for its use in connection with the offering of the Shares for
sale to the public, any other literature used in connection with such offering,
and advertising and marketing materials in connection with such offering.
6. This Agreement shall continue in effect for one year from the date of
its execution (or in the case of a Portfolio or Class that is added to the Trust
following the date of such execution, the date that the applicable exhibit with
respect to such Portfolio or Class is added hereto) and thereafter for
successive periods of one year only if such continuance is approved at least
annually by (i) either the vote of a majority of the Trustees of the Trust, or
by the vote of a majority of the outstanding voting securities of the applicable
Portfolio or Class, and (ii) the vote of a majority of those Trustees of the
Trust who are not parties to this Agreement or interested persons of any party
and who have no direct or indirect financial interest in the operation of any
Plan of Distribution relating to the Trust or in any agreements related to such
Plan ("Disinterested Trustees"), cast in person at a meeting called for the
purpose of voting on the approval.
7. This Agreement may be terminated with regard to a particular Portfolio
or Class at any time, without the payment of any penalty, by the Trust by the
vote of a majority of the Disinterested Trustees or by a majority of the
outstanding voting securities of the particular Portfolio or Class on not more
than sixty (60) days' written notice to FSC. This Agreement may be terminated
with regard to a particular Portfolio or Class by FSC on sixty (60) days'
written notice to the Trust.
8. This Agreement may not be assigned by FSC and shall automatically
terminate in the event of an assignment by FSC as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), provided, however, that FSC
may employ such other person, persons, corporation or corporations as it shall
determine in order to assist it in carrying out its duties under this Agreement;
provided, however, that FSC shall be fully responsible to the Trust for the acts
and omissions of any such person or corporation as it is for its own acts and
omissions.
9. This Agreement may be amended at any time by mutual agreement in writing
of all the parties hereto, provided that such amendment is approved by (i) the
Trustees of the Trust or by a majority of the outstanding voting securities of
the particular Class and (ii) by a vote of a majority of the Disinterested
Trustees, cast in person at a meeting called for the purpose of voting on the
amendment.
10. This Agreement shall be construed in accordance with and governed by
the laws of the State of Pennsylvania; provided, however, that nothing herein
shall be construed in a manner inconsistent with the 1940 Act or any rule or
regulation promulgated by the Securities and Exchange Commission thereunder.
11. (a) Subject to the conditions set forth below, the Trust agrees to
indemnify and hold harmless FSC and each person, if any, who controls FSC within
the meaning of Section 15 of the 1933 Act and Section 20 of the Securities
Exchange Act of 1934, as amended ("1934 Act"), against any and all loss,
liability, claim, damage or expense whatsoever (including the reasonable cost of
investigating or defending any alleged loss, liability, damages, claim or
expense and reasonable counsel fees incurred in connection therewith) arising by
reason of any person acquiring any Shares, based upon the 1933 Act or any other
statute or common law, alleging any wrongful act of the Trust or any of its
employees or representatives, or based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement,
Prospectuses, shareholder reports or other information filed or made public by
the Trust (as from time to time amended and supplemented) or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon and in conformity with written information
furnished to the Trust by or on behalf of FSC or any person who controls FSC
within the meaning of Section 15 of the 1933 Act and Section 20 of the 1934 Act
expressly for use in the Registration Statement, Prospectuses, shareholder
reports or other information filed or made public by the Trust or any amendment
or supplement thereof.
If any action is brought against FSC or any controlling person thereof
with respect to which indemnity may be sought against the Trust pursuant to the
foregoing paragraph, FSC shall promptly notify the Trust in writing of the
institution of such action and, provided such notice has been given, the Trust
shall assume the defense of such action, including the employment of counsel
selected by the Trust and payment of expenses. FSC or any such controlling
person thereof shall have the right to employ separate counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of FSC or such
controlling person unless the employment of such counsel shall have been
authorized in writing by the Trust in connection with the defense of such action
or the Trust shall not have employed counsel to have charge of the defense of
such action, in any of which events such fees and expenses shall be borne by the
Trust. Anything in this paragraph to the contrary notwithstanding, the Trust
shall not be liable for any settlement of any such claim or action effected
without its written consent. The Trust agrees promptly to notify FSC of the
commencement of any litigation or proceedings against the Trust or any of its
officers or Trustees or controlling persons in connection with the issuance or
sale of Shares or in connection with the Registration Statement, Prospectuses,
shareholder reports or other information filed or made public by the Trust.
(b) FSC agrees to indemnify and hold harmless the Trust, each of its
Trustees, each of its officers and each other person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act, against any loss,
liability, damages, claim or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, damages, claim or
expense and reasonable counsel fees incurred in connection therewith) arising by
reason of any person acquiring any Shares, based upon the 1933 Act or any other
statute or common law, alleging any wrongful act of FSC or any of its employees
or representatives, or based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement,
Prospectuses, shareholder reports or other information filed or made public by
the Trust (as from time to time amended and supplemented) or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading, insofar as such
statements or omissions were made in reliance upon, and in conformity with,
information furnished in writing to the Trust by or on behalf of FSC or any
person who controls FSC within the meaning of Section 15 of the 1933 Act and
Section 20 of the 1934 Act expressly for use in the Registration Statement, any
Prospectus, any shareholder report or other information filed or made public by
the Trust, or any amendment or supplement thereof, or arising out of any
information or representations other than those specified in Section 3 of this
Agreement by it or any broker or other person who purchases Shares through FSC.
In case any action shall be brought against the Trust or any other person so
indemnified based on the foregoing as described in this subsection (b), and with
respect to which indemnity may be sought against FSC, FSC shall have the rights
and duties given to the Trust, and the Trust and each other person so
indemnified shall have the rights and duties given to FSC by the provisions of
subsection (a) above.
(c) Nothing herein contained shall be deemed to protect any person
against liability to the Trust or its shareholders to which such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence by FSC in the performance of its duties or by reason of the reckless
disregard by FSC of its obligations and duties under this Agreement.
12. FSC is expressly put on notice of the limitation of liability as set
forth in the Declaration of Trust and agrees that the obligations assumed by the
Trust pursuant to this Agreement shall be limited in any case to the Trust and
its assets and that FSC shall not seek satisfaction of any such obligations from
the shareholders of the Trust, the Trustees, officers, employees or agents of
the Trust, or any of them.
13. FSC agrees to adopt compliance standards as to when each Class of
Shares may be sold to particular investors.
14. As used in this Agreement the terms "vote of a majority of the
outstanding voting securities" and "interested person" shall have the respective
meanings specified in the 1940 Act and the rules enacted thereunder as now in
effect or as hereafter amended.
All references to Biltmore changed to Wachovia - 7/31/97 Biltmore U.S.
Government Money Market Fund - withdrawn from registration
EXHIBIT A
The Biltmore Funds
Biltmore Money Market Fund (Institutional Shares)
Biltmore Tax-Free Money Market Fund (Institutional Shares)
Biltmore U.S. Government Money Market Fund (Institutional Shares)
Biltmore U.S. Treasury Money Market Fund (Institutional Shares)
In consideration of the mutual covenants set forth in the Distribution
Agreement dated March 9, 1992 between The Biltmore Funds and Federated
Securities Corp., The Biltmore Funds executes and delivers this Exhibit on
behalf of the Portfolios with respect to the separate Classes thereof first set
forth in this Exhibit.
Witness the due execution hereof this 9th day of March, 1992.
The Biltmore Funds
Attest: /s/Peter J. Germain By: /s/John W. McGonigle
Its: Secretary Its: President
FEDERATED SECURITIES CORP.
Attest: /s/S. Elliott Cohan By: /s/Richard B. Fisher
Its: Secretary Its: President
<PAGE>
All references to Biltmore changed to Wachovia - 7/31/97 Biltmore U.S.
Government Money Market Fund - withdrawn from registration
EXHIBIT B
The Biltmore Funds
Biltmore Money Market Fund (Investment Shares)
Biltmore U.S. Government Money Market Fund (Investment Shares)
Biltmore Tax-Free Money Market Fund (Investment Shares)
The following provisions are hereby incorporated and made part of the
Distribution Agreement dated the 9th day of March, 1992, between The Biltmore
Funds and Federated Securities Corp. with respect to the Classes of the
Portfolios set forth above:
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the Classes. Pursuant to this
appointment FSC is authorized to select a group of brokers ("Brokers") to sell
shares of the above-listed Classes ("Shares"), at the current offering price
thereof as described and set forth in the Prospectuses of the Trust, and to
render administrative support services to the Trust and its shareholders. In
addition, FSC is authorized to select a group of Administrators
("Administrators") to render administrative support services to the Trust and
its shareholders of the above-listed Classes.
2. Administrative support services may include, but are not limited to, the
following functions: (1) account openings: the Broker or Administrator
communicates account openings via computer terminals located on the Broker or
Administrator's premises, through a toll-free telephone number or otherwise; (2)
account closings: the Broker or Administrator similarly communicates account
closings; (3) purchase transactions: the Broker or Administrator similarly
communicates purchase transactions; (4) redemption transactions: the Broker or
Administrator similarly communicates redemption transactions; (5) transmittal of
funds: the Broker or Administrator wires funds and receives funds for Trust
share purchases and redemptions; (6) reconciliation activities: the Broker or
Administrator confirms and reconciles all transactions and reviews the activity
in the Trust's accounts; (7) training: the Broker or Administrator provides
training and supervision of its personnel; (8) interest posting: the Broker or
Administrator posts and reinvests dividends and other distributions to
shareholders; (9) prospectus and shareholder reports: the Broker or
Administrator maintains and distributes current copies of prospectuses,
statements of additional information and shareholder reports; (10)
advertisements: the Broker or Administrator advertises the availability of its
services and products; (11) design services: the Broker or Administrator
provides assistance in the design of materials to send to customers and in the
the development of methods of making such materials accessible to customers;
(12) consultation services: the Broker or Administrator provides information
about the product needs of customers; and (13) information services: the Broker
or Administrator responds to customers' and potential customers' questions about
the Trust.
3. During the term of this Agreement, the Trust may in its discretion, but
is not obligated to, pay FSC for services pursuant to this Agreement, a monthly
fee computed at an annual rate not to exceed 0.40% of the average aggregate net
asset value of the Portfolios of the Trust listed above, held during the month.
For the month in which this Agreement becomes effective or terminates, there
shall be an appropriate proration of any fee payable on the basis of the number
of days that the Agreement is in effect during the month.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services in Paragraph One herein. FSC, in its sole
discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
5. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts paid to the various firms and the purpose for
such payments.
In consideration of the mutual covenants set forth in the Distribution
Agreement dated March 9, 1992 between The Biltmore Funds and Federated
Securities Corp., The Biltmore Funds executes and delivers this Exhibit on
behalf of the Portfolios with respect to the separate Classes thereof first set
forth in this Exhibit.
Witness the due execution hereof this 9th day of March, 1992.
The Biltmore Funds
Attest: /s/Peter J. Germain By: /s/John W. McGonigle
Its: Secretary Its: President
FEDERATED SECURITIES CORP.
Attest: /s/S. Elliott Cohan By: /s/Richard B. Fisher
Its: Secretary Its: President
<PAGE>
Portfolio name changed to Wachovia Prime Cash Management Fund - 7/31/97
EXHIBIT C
The Biltmore Funds
DISTRIBUTION AGREEMENT
Biltmore Prime Cash Management Fund
In consideration of the mutual covenants set forth in the Distribution
Agreement dated March 9, 1992 between The Biltmore Funds and Federated
Securities Corp., The Biltmore Funds executes and delivers this Exhibit on
behalf of the Portfolios thereof first set forth in this Exhibit.
Witness the due execution hereof this 12th day of June, 1992.
The Biltmore Funds
Attest: /s/Peter J. Germain By: /s/John W. McGonigle
Its: Secretary Its: President
FEDERATED SECURITIES CORP.
Attest: /s/S. Elliott Cohan By: /s/Richard B. Fisher
Its: Secretary Its: President
<PAGE>
Portfolio name changed to Wachovia U.S. Treasury Money Market Fund - 7/31/97
EXHIBIT D
The Biltmore Funds
Biltmore U.S. Treasury Money Market Fund (Investment Shares)
The following provisions are hereby incorporated and made part of the
Distribution Agreement dated the 9th day of March, 1992, between The Biltmore
Funds and Federated Securities Corp. with respect to the Classes of the
Portfolios set forth above:
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the Classes. Pursuant to this
appointment FSC is authorized to select a group of brokers ("Brokers") to sell
shares of the above-listed Classes ("Shares"), at the current offering price
thereof as described and set forth in the Prospectuses of the Trust, and to
render administrative support services to the Trust and its shareholders. In
addition, FSC is authorized to select a group of Administrators
("Administrators") to render administrative support services to the Trust and
its shareholders of the above-listed Classes.
2. Administrative support services may include, but are not limited to, the
following functions: (1) account openings: the Broker or Administrator
communicates account openings via computer terminals located on the Broker or
Administrator's premises, through a toll-free telephone number or otherwise; (2)
account closings: the Broker or Administrator similarly communicates account
closings; (3) purchase transactions: the Broker or Administrator similarly
communicates purchase transactions; (4) redemption transactions: the Broker or
Administrator similarly communicates redemption transactions; (5) transmittal of
funds: the Broker or Administrator wires funds and receives funds for Trust
share purchases and redemptions; (6) reconciliation activities: the Broker or
Administrator confirms and reconciles all transactions and reviews the activity
in the Trust's accounts; (7) training: the Broker or Administrator provides
training and supervision of its personnel; (8) interest posting: the Broker or
Administrator posts and reinvests dividends and other distributions to
shareholders; (9) prospectus and shareholder reports: the Broker or
Administrator maintains and distributes current copies of prospectuses,
statements of additional information and shareholder reports; (10)
advertisements: the Broker or Administrator advertises the availability of its
services and products; (11) design services: the Broker or Administrator
provides assistance in the design of materials to send to customers and in the
the development of methods of making such materials accessible to customers;
(12) consultation services: the Broker or Administrator provides information
about the product needs of customers; and (13) information services: the Broker
or Administrator responds to customers' and potential customers' questions about
the Trust.
3. During the term of this Agreement, the Trust may in its discretion, but
is not obligated to, pay FSC for services pursuant to this Agreement, a monthly
fee computed at an annual rate not to exceed 0.40% of the average aggregate net
asset value of the Portfolios of the Trust listed above, held during the month.
For the month in which this Agreement becomes effective or terminates, there
shall be an appropriate proration of any fee payable on the basis of the number
of days that the Agreement is in effect during the month.
<PAGE>
4. FSC will enter into separate written agreements with various firms to
provide certain of the services in Paragraph One herein. FSC, in its sole
discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
5. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts paid to the various firms and the purpose for
such payments.
In consideration of the mutual covenants set forth in the Distribution
Agreement dated March 9, 1992 between The Biltmore Funds and Federated
Securities Corp., The Biltmore Funds executes and delivers this Exhibit on
behalf of the Portfolios with respect to the separate Classes thereof first set
forth in this Exhibit.
Witness the due execution hereof this 31st day of January, 1993.
The Biltmore Funds
Attest: /s/Peter J. Germain By: /s/John W. McGonigle
Its: Secretary Its: President
FEDERATED SECURITIES CORP.
Attest: /s/S. Elliott Cohan By: /s/John A. Staley, IV
Its: Secretary Its: Executive Vice President
<PAGE>
All references to Biltmore were changed to Wachovia - 7/31/97. Exhibit E
superseded by Exhibit I dated 6/6/96.
EXHIBIT E
The Biltmore Funds
Biltmore Balanced Fund
Biltmore Equity Fund
Biltmore Equity Index Fund
Biltmore Fixed Income Fund
Biltmore Short-Term Fixed Income Fund
In consideration of the mutual covenants set forth in the Distribution
Agreement (the "Agreement") dated March 9, 1992 between The Biltmore Funds and
Federated Securities Corp., ("FSC"), The Biltmore Funds executes and delivers
this Exhibit on behalf of the Portfolios first set forth in this Exhibit.
FSC shall retain the initial sales charge, if any, on purchases of shares
of the above Portfolios as set forth in The Biltmore Funds' Registration
Statement. FSC is authorized to collect the gross proceeds derived from the sale
of such shares, remit the net asset value thereof to the applicable Portfolio
upon receipt of the proceeds and retain the initial sales charge, if any.
FSC may reallow any or all of the initial sales charges which it is paid
under the Agreement to such brokers and other financial institutions as FSC may
from time to time determine.
Witness the due execution hereof this 3rd day of April, 1993.
The Biltmore Funds
Attest: /s/Peter J. Germain By: /s/John W. McGonigle
Its: Secretary Its: President
FEDERATED SECURITIES CORP.
Attest: /s/S. Elliott Cohan By: /s/Edward C. Gonzales
Its: Secretary Its: Executive Vice President
<PAGE>
All references to Biltmore were changed to Wachovia - 7/31/97. Exhibit F
superseded by Exhibit I dated 6/6/96.
EXHIBIT F
The Biltmore Funds
Biltmore Special Values Fund
In consideration of the mutual covenants set forth in the Distribution
Agreement dated March 9, 1992 between The Biltmore Funds and Federated
Securities Corp., The Biltmore Funds executes and delivers this Exhibit on
behalf of the Portfolio first set forth in this Exhibit.
Witness the due execution hereof this 3rd day of April, 1993.
The Biltmore Funds
Attest: /s/Peter J. Germain By: /s/John W. McGonigle
Its: Secretary Its: President
FEDERATED SECURITIES CORP.
Attest: /s/S. Elliott Cohan By: /s/Edward C. Gonzales
Its: Secretary Its: Executive Vice President
<PAGE>
All references to Biltmore were changed to Wachovia - 7/31/97. Exhibit G
superseded by Exhibit I dated 6/6/96.
EXHIBIT G
to the
Distribution Agreement
Biltmore Quantitative Equity Fund
In consideration of the mutual covenants set forth in the Distribution
Agreement (the "Agreement") dated March 9, 1992 between The Biltmore Funds and
Federated Securities Corp. ("FSC"), The Biltmore Funds executes and delivers
this Exhibit on behalf of the Portfolios first set forth in this Exhibit.
FSC shall retain the initial sales charge, if any, on purchases of
shares of the above Portfolios as set forth in The Biltmore Funds' Registration
Statement. FSC is authorized to collect the gross proceeds derived from the sale
of such shares, remit the net asset value thereof to the applicable Portfolio
upon receipt of the proceeds and retain the initial sales charge, if any.
FSC may reallow any or all of the initial sales charges which it is
paid under the Agreement to such brokers and other financial institutions as FSC
may from time to time determine.
Witness the due execution hereof this 1st day of January, 1994.
Attest: The Biltmore Funds
/s/ Joseph M. Huber By: /s/ John W. McGonigle
Secretary President
Attest: Federated Securities Corp.
/s/ S. Elliott Cohan By: /s/ Edward C. Gonzales
Secretary Executive Vice President
<PAGE>
All references to Biltmore were changed to Wachovia - 7/31/97. Exhibit H
superseded by Exhibit I dated 6/6/96.
EXHIBIT H
to the
Distribution Agreement
Biltmore Emerging Markets Fund
In consideration of the mutual covenants set forth in the Distribution
Agreement (the "Agreement") dated March 9, 1992 between The Biltmore Funds and
Federated Securities Corp. ("FSC"), The Biltmore Funds executes and delivers
this Exhibit on behalf of the Portfolios first set forth in this Exhibit.
FSC shall retain the initial sales charge, if any, on purchases of
shares of the above Portfolios as set forth in The Biltmore Funds' Registration
Statement. FSC is authorized to collect the gross proceeds derived from the sale
of such shares, remit the net asset value thereof to the applicable Portfolio
upon receipt of the proceeds and retain the initial sales charge, if any.
FSC may reallow any or all of the initial sales charges which it is
paid under the Agreement to such brokers and other financial institutions as FSC
may from time to time determine.
Witness the due execution hereof this 8th day of December, 1994.
Attest: The Biltmore Funds
/s/ Joseph M. Huber By: /s/ John W. McGonigle
Secretary President
Attest: Federated Securities Corp.
/s/ S. Elliott Cohan By: /s/ Edward C. Gonzales
Secretary Executive Vice President
<PAGE>
All references to Biltmore were changed to Wachovia - 7/31/97.
EXHIBIT I
to the
Distribution Agreement
THE BILTMORE FUNDS
Class A Shares*
Class Y Shares
Biltmore Balanced Fund
Biltmore Emerging Markets Fund
Biltmore Equity Fund
Biltmore Equity Index Fund
Biltmore Fixed Income Fund
Biltmore Quantitative Equity Fund
Biltmore Short-Term Fixed Income Fund
Biltmore Special Values Fund
In consideration of the mutual covenants set forth in the Distribution
Agreement (the "Agreement") dated March 9, 1992 between The Biltmore Funds and
Federated Securities Corp. ("FSC"), The Biltmore Funds executes and delivers
this Exhibit on behalf of the Portfolios first set forth in this Exhibit.
FSC shall retain the initial sales charge, if any, on purchases of
shares of the above Portfolios as set forth in The Biltmore Funds' Registration
Statement. FSC is authorized to collect the gross proceeds derived from the sale
of such shares, remit the net asset value thereof to the applicable Portfolio
upon receipt of the proceeds and retain the initial sales charge, if any.
FSC may reallow any or all of the initial sales charges which it is
paid under the Agreement to such brokers and other financial institutions as FSC
may from time to time determine.
Witness the due execution hereof this 6th day of June, 1996.
Attest: The Biltmore Funds
/s/ Peter J. Germain By:/s/ Charles L. Davis Jr.
Secretary Vice President
Attest: Federated Securities Corp.
/s/ Byron F. Bowman By:/s/ E C Gonzales
Secretary Executive Vice President
* This Exhibit supersedes Exhibits E, F, G and H with respect to the Class A
Shares.
<PAGE>
All references to Biltmore were changed to Wachovia - 7/31/97.
EXHIBIT J
THE BILTMORE FUNDS
Class B Shares
Biltmore Balanced Fund
Biltmore Emerging Markets Fund
Biltmore Equity Fund
Biltmore Equity Index Fund
Biltmore Fixed Income Fund
Biltmore Quantitative Equity Fund
Biltmore Short-Term Fixed Income Fund
Biltmore Special Values Fund
The following provisions are hereby incorporated and made part of the
Distribution Agreement dated the 9th day of March, 1992, between The Biltmore
Funds and Federated Securities Corp. with respect to the Classes of the
Portfolios set forth above:
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the Classes. Pursuant to this
appointment FSC is authorized to select a group of brokers ("Brokers") to sell
shares of the above-listed Classes ("Shares"), at the current offering price
thereof as described and set forth in the Prospectuses of the Trust, and to
render administrative support services to the Trust and its shareholders. In
addition, FSC is authorized to select a group of Administrators
("Administrators") to render administrative support services to the Trust and
its shareholders of the above-listed Classes.
2. Administrative support services may include, but are not limited to,
the following functions: (1) account openings: the Broker or Administrator
communicates account openings via computer terminals located on the Broker or
Administrator's premises, through a toll-free telephone number or otherwise; (2)
account closings: the Broker or Administrator similarly communicates account
closings; (3) purchase transactions: the Broker or Administrator similarly
communicates purchase transactions; (4) redemption transactions: the Broker or
Administrator similarly communicates redemption transactions; (5) transmittal of
funds: the Broker or Administrator wires funds and receives funds for Trust
share purchases and redemptions; (6) reconciliation activities: the Broker or
Administrator confirms and reconciles all transactions and reviews the activity
in the Trust's accounts; (7) training: the Broker or Administrator provides
training and supervision of its personnel; (8) interest posting: the Broker or
Administrator posts and reinvests dividends and other distributions to
shareholders; (9) prospectus and shareholder reports: the Broker or
Administrator maintains and distributes current copies of prospectuses,
statements of additional information and shareholder reports; (10)
advertisements: the Broker or Administrator advertises the availability of its
services and products; (11) design services: the Broker or Administrator
provides assistance in the design of materials to send to customers and in the
development of methods of making such materials accessible to customers; (12)
consultation services: the Broker or Administrator provides information about
the product needs of customers; and (13) information services: the Broker or
Administrator responds to customers' and potential customers' questions about
the Trust.
<PAGE>
3. During the term of this Agreement, the Trust may in its discretion,
but is not obligated to, pay FSC for services pursuant to this Agreement, a
monthly fee computed at an annual rate not to exceed 0.75 of 1% of the average
net asset value of the Classes listed above, held during the month. For the
month in which this Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the number of days that
the Agreement is in effect during the month.
4. FSC will enter into separate written agreements with various firms
to provide certain of the services in Paragraph One herein. FSC, in its sole
discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
5. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts paid to the various firms and the purpose for
such payments.
In consideration of the mutual covenants set forth in the Distribution
Agreement dated March 9, 1992 between The Biltmore Funds and Federated
Securities Corp., The Biltmore Funds executes and delivers this Exhibit on
behalf of the Portfolios with respect to the separate Classes thereof first set
forth in this Exhibit.
Witness the due execution hereof this 6th day of June, 1996.
The Biltmore Funds
Attest:/s/ Peter J. Germain By:/s/ John W. McGonigle
Its: Secretary Its: President
FEDERATED SECURITIES CORP.
Attest:/s/ Byron F. Bowman By:/s/ E C Gonzales
Its: Secretary Its:Executive Vice President
<PAGE>
EXHIBIT K
to the
Distribution Agreement
THE WACHOVIA FUNDS
Class A Shares
Class Y Shares
Wachovia Growth & Income Fund
In consideration of the mutual covenants set forth in the Distribution
Agreement (the "Agreement") dated March 9, 1992 between The Wachovia Funds and
Federated Securities Corp. ("FSC"), The Wachovia Funds executes and delivers
this Exhibit on behalf of the Portfolios first set forth in this Exhibit.
FSC shall retain the initial sales charge, if any, on purchases of
shares of the above Portfolios as set forth in The Wachovia Funds' Registration
Statement. FSC is authorized to collect the gross proceeds derived from the sale
of such shares, remit the net asset value thereof to the applicable Portfolio
upon receipt of the proceeds and retain the initial sales charge, if any.
FSC may reallow any or all of the initial sales charges which it is
paid under the Agreement to such brokers and other financial institutions as FSC
may from time to time determine.
Witness the due execution hereof this 4th day of December, 1997.
The Wachovia Funds
By:/s/ Charles L. Davis, Jr.
Vice President
Federated Securities Corp.
By:/s/ Edward C. Gonzales
Executive Vice President
<PAGE>
EXHIBIT L
to the Distribution Agreement
THE WACHOVIA FUNDS
Class B Shares
Wachovia Growth & Income Fund
The following provisions are hereby incorporated and made part of the
Distribution Agreement dated the 9th day of March, 1992, between The Wachovia
Funds and Federated Securities Corp. with respect to the Classes of the
Portfolios set forth above:
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the Classes. Pursuant to this
appointment FSC is authorized to select a group of brokers ("Brokers") to sell
shares of the above-listed Classes ("Shares"), at the current offering price
thereof as described and set forth in the Prospectuses of the Trust, and to
render administrative support services to the Trust and its shareholders. In
addition, FSC is authorized to select a group of Administrators
("Administrators") to render administrative support services to the Trust and
its shareholders of the above-listed Classes.
2. Administrative support services may include, but are not limited to,
the following functions: (1) account openings: the Broker or Administrator
communicates account openings via computer terminals located on the Broker or
Administrator's premises, through a toll-free telephone number or otherwise; (2)
account closings: the Broker or Administrator similarly communicates account
closings; (3) purchase transactions: the Broker or Administrator similarly
communicates purchase transactions; (4) redemption transactions: the Broker or
Administrator similarly communicates redemption transactions; (5) transmittal of
funds: the Broker or Administrator wires funds and receives funds for Trust
share purchases and redemptions; (6) reconciliation activities: the Broker or
Administrator confirms and reconciles all transactions and reviews the activity
in the Trust's accounts; (7) training: the Broker or Administrator provides
training and supervision of its personnel; (8) interest posting: the Broker or
Administrator posts and reinvests dividends and other distributions to
shareholders; (9) prospectus and shareholder reports: the Broker or
Administrator maintains and distributes current copies of prospectuses,
statements of additional information and shareholder reports; (10)
advertisements: the Broker or Administrator advertises the availability of its
services and products; (11) design services: the Broker or Administrator
provides assistance in the design of materials to send to customers and in the
development of methods of making such materials accessible to customers; (12)
consultation services: the Broker or Administrator provides information about
the product needs of customers; and (13) information services: the Broker or
Administrator responds to customers' and potential customers' questions about
the Trust.
3. During the term of this Agreement, the Trust may in its discretion,
but is not obligated to, pay FSC for services pursuant to this Agreement, a
monthly fee computed at an annual rate not to exceed 0.75 of 1% of the average
net asset value of the Classes listed above, held during the month. For the
month in which this Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the number of days that
the Agreement is in effect during the month.
4. FSC will enter into separate written agreements with various firms
to provide certain of the services in Paragraph One herein. FSC, in its sole
discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
5. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts paid to the various firms and the purpose for
such payments.
In consideration of the mutual covenants set forth in the Distribution
Agreement dated March 9, 1992 between The Wachovia Funds and Federated
Securities Corp., The Wachovia Funds executes and delivers this Exhibit on
behalf of the Portfolios with respect to the separate Classes thereof first set
forth in this Exhibit.
Witness the due execution hereof this 4th day of December, 1997.
The Wachovia Funds
By:/s/ Charles L. Davis, Jr.
Vice President
Federated Securities Corp.
By:/s/ Edward C. Gonzales
Executive Vice President
<PAGE>
EXHIBIT M
to the
Distribution Agreement
THE WACHOVIA FUNDS
Class A Shares
Class Y Shares
Wachovia Intermediate Fixed Income Fund
In consideration of the mutual covenants set forth in the Distribution
Agreement (the "Agreement") dated March 9, 1992 between The Wachovia Funds and
Federated Securities Corp. ("FSC"), The Wachovia Funds executes and delivers
this Exhibit on behalf of the Portfolios first set forth in this Exhibit.
FSC shall retain the initial sales charge, if any, on purchases of
shares of the above Portfolios as set forth in The Wachovia Funds' Registration
Statement. FSC is authorized to collect the gross proceeds derived from the sale
of such shares, remit the net asset value thereof to the applicable Portfolio
upon receipt of the proceeds and retain the initial sales charge, if any.
FSC may reallow any or all of the initial sales charges which it is
paid under the Agreement to such brokers and other financial institutions as FSC
may from time to time determine.
Witness the due execution hereof this 4th day of March, 1998.
The Wachovia Funds
By:./s/ John W. McGonigle
Name: John W. McGonigle
Title: President
Federated Securities Corp.
By: /s/ Byron F. Bowman
Name: Byron F. Bowman
Title: Vice President
<PAGE>
EXHIBIT N
to the Distribution Agreement
THE WACHOVIA FUNDS
Class B Shares
Wachovia Intermediate Fixed Income Fund
The following provisions are hereby incorporated and made part of the
Distribution Agreement dated the 9th day of March, 1992, between The Wachovia
Funds and Federated Securities Corp. with respect to the Classes of the
Portfolios set forth above:
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the Classes. Pursuant to this
appointment FSC is authorized to select a group of brokers ("Brokers") to sell
shares of the above-listed Classes ("Shares"), at the current offering price
thereof as described and set forth in the Prospectuses of the Trust, and to
render administrative support services to the Trust and its shareholders. In
addition, FSC is authorized to select a group of Administrators
("Administrators") to render administrative support services to the Trust and
its shareholders of the above-listed Classes.
2. Administrative support services may include, but are not limited to,
the following functions: (1) account openings: the Broker or Administrator
communicates account openings via computer terminals located on the Broker or
Administrator's premises, through a toll-free telephone number or otherwise; (2)
account closings: the Broker or Administrator similarly communicates account
closings; (3) purchase transactions: the Broker or Administrator similarly
communicates purchase transactions; (4) redemption transactions: the Broker or
Administrator similarly communicates redemption transactions; (5) transmittal of
funds: the Broker or Administrator wires funds and receives funds for Trust
share purchases and redemptions; (6) reconciliation activities: the Broker or
Administrator confirms and reconciles all transactions and reviews the activity
in the Trust's accounts; (7) training: the Broker or Administrator provides
training and supervision of its personnel; (8) interest posting: the Broker or
Administrator posts and reinvests dividends and other distributions to
shareholders; (9) prospectus and shareholder reports: the Broker or
Administrator maintains and distributes current copies of prospectuses,
statements of additional information and shareholder reports; (10)
advertisements: the Broker or Administrator advertises the availability of its
services and products; (11) design services: the Broker or Administrator
provides assistance in the design of materials to send to customers and in the
development of methods of making such materials accessible to customers; (12)
consultation services: the Broker or Administrator provides information about
the product needs of customers; and (13) information services: the Broker or
Administrator responds to customers' and potential customers' questions about
the Trust.
3. During the term of this Agreement, the Trust may in its discretion,
but is not obligated to, pay FSC for services pursuant to this Agreement, a
monthly fee computed at an annual rate not to exceed 0.75 of 1% of the average
net asset value of the Classes listed above, held during the month. For the
month in which this Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the number of days that
the Agreement is in effect during the month.
4. FSC will enter into separate written agreements with various firms
to provide certain of the services in Paragraph One herein. FSC, in its sole
discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
5. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts paid to the various firms and the purpose for
such payments.
In consideration of the mutual covenants set forth in the Distribution
Agreement dated March 9, 1992 between The Wachovia Funds and Federated
Securities Corp., The Wachovia Funds executes and delivers this Exhibit on
behalf of the Portfolios with respect to the separate Classes thereof first set
forth in this Exhibit.
Witness the due execution hereof this 4th day of March, 1998.
The Wachovia Funds
By:./s/ John W. McGonigle
Name: John W. McGonigle
Title: President
Federated Securities Corp.
By: /s/ Byron F. Bowman
Name: Byron F. Bowman
Title: Vice President
<PAGE>
EXHIBIT O
to the
Distribution Agreement
THE WACHOVIA FUNDS
Class A Shares
Class Y Shares
Wachovia Personal Equity Fund
In consideration of the mutual covenants set forth in the Distribution
Agreement (the "Agreement") dated March 9, 1992 between The Wachovia Funds and
Federated Securities Corp. ("FSC"), The Wachovia Funds executes and delivers
this Exhibit on behalf of the Portfolios first set forth in this Exhibit.
FSC shall retain the initial sales charge, if any, on purchases of
shares of the above Portfolios as set forth in The Wachovia Funds' Registration
Statement. FSC is authorized to collect the gross proceeds derived from the sale
of such shares, remit the net asset value thereof to the applicable Portfolio
upon receipt of the proceeds and retain the initial sales charge, if any.
FSC may reallow any or all of the initial sales charges which it is
paid under the Agreement to such brokers and other financial institutions as FSC
may from time to time determine.
Witness the due execution hereof this 1st day of July, 1999.
The Wachovia Funds
By:./s/ Charles L. Davis, Jr.
Name: Charles L. Davis, Jr.
Title: Vice President
Federated Securities Corp.
By: /s/ David M. Taylor
Name: David M. Taylor
Title: Executive Vice President
<PAGE>
EXHIBIT P
to the Distribution Agreement
THE WACHOVIA FUNDS
Class B Shares
Wachovia Personal Equity Fund
The following provisions are hereby incorporated and made part of the
Distribution Agreement dated the 9th day of March, 1992, between The Wachovia
Funds and Federated Securities Corp. with respect to the Classes of the
Portfolios set forth above:
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the Classes. Pursuant to this
appointment FSC is authorized to select a group of brokers ("Brokers") to sell
shares of the above-listed Classes ("Shares"), at the current offering price
thereof as described and set forth in the Prospectuses of the Trust, and to
render administrative support services to the Trust and its shareholders. In
addition, FSC is authorized to select a group of Administrators
("Administrators") to render administrative support services to the Trust and
its shareholders of the above-listed Classes.
2. Administrative support services may include, but are not limited to,
the following functions: (1) account openings: the Broker or Administrator
communicates account openings via computer terminals located on the Broker or
Administrator's premises, through a toll-free telephone number or otherwise; (2)
account closings: the Broker or Administrator similarly communicates account
closings; (3) purchase transactions: the Broker or Administrator similarly
communicates purchase transactions; (4) redemption transactions: the Broker or
Administrator similarly communicates redemption transactions; (5) transmittal of
funds: the Broker or Administrator wires funds and receives funds for Trust
share purchases and redemptions; (6) reconciliation activities: the Broker or
Administrator confirms and reconciles all transactions and reviews the activity
in the Trust's accounts; (7) training: the Broker or Administrator provides
training and supervision of its personnel; (8) interest posting: the Broker or
Administrator posts and reinvests dividends and other distributions to
shareholders; (9) prospectus and shareholder reports: the Broker or
Administrator maintains and distributes current copies of prospectuses,
statements of additional information and shareholder reports; (10)
advertisements: the Broker or Administrator advertises the availability of its
services and products; (11) design services: the Broker or Administrator
provides assistance in the design of materials to send to customers and in the
development of methods of making such materials accessible to customers; (12)
consultation services: the Broker or Administrator provides information about
the product needs of customers; and (13) information services: the Broker or
Administrator responds to customers' and potential customers' questions about
the Trust.
3. During the term of this Agreement, the Trust may in its discretion,
but is not obligated to, pay FSC for services pursuant to this Agreement, a
monthly fee computed at an annual rate not to exceed 0.75 of 1% of the average
net asset value of the Classes listed above, held during the month. For the
month in which this Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the number of days that
the Agreement is in effect during the month.
4. FSC will enter into separate written agreements with various firms
to provide certain of the services in Paragraph One herein. FSC, in its sole
discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
5. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts paid to the various firms and the purpose for
such payments.
In consideration of the mutual covenants set forth in the Distribution
Agreement dated March 9, 1992 between The Wachovia Funds and Federated
Securities Corp., The Wachovia Funds executes and delivers this Exhibit on
behalf of the Portfolios with respect to the separate Classes thereof first set
forth in this Exhibit.
Witness the due execution hereof this 1st day of July, 1999.
The Wachovia Funds
By:./s/ Charles L. Davis, Jr.
Name: Charles L. Davis, Jr.
Title: Vice President
Federated Securities Corp.
By: /s/ David M. Taylor
Name: David M. Taylor
Title: Executive Vice President
<PAGE>
EXHIBIT Q
to the
Distribution Agreement
THE WACHOVIA FUNDS
Class A Shares
Class Y Shares
Wachovia Executive Equity Fund
In consideration of the mutual covenants set forth in the Distribution
Agreement (the "Agreement") dated March 9, 1992 between The Wachovia Funds and
Federated Securities Corp. ("FSC"), The Wachovia Funds executes and delivers
this Exhibit on behalf of the Portfolios first set forth in this Exhibit.
FSC shall retain the initial sales charge, if any, on purchases of
shares of the above Portfolios as set forth in The Wachovia Funds' Registration
Statement. FSC is authorized to collect the gross proceeds derived from the sale
of such shares, remit the net asset value thereof to the applicable Portfolio
upon receipt of the proceeds and retain the initial sales charge, if any.
FSC may reallow any or all of the initial sales charges which it is
paid under the Agreement to such brokers and other financial institutions as FSC
may from time to time determine.
Witness the due execution hereof this 3rd day of June, 1999.
The Wachovia Funds
By:./s/ Charles L. Davis, Jr.
Name: Charles L. Davis, Jr.
Title: Vice President
Federated Securities Corp.
By: /s/ David M. Taylor
Name: David M. Taylor
Title: Executive Vice President
<PAGE>
EXHIBIT R
to the Distribution Agreement
THE WACHOVIA FUNDS
Class B Shares
Wachovia Executive Equity Fund
The following provisions are hereby incorporated and made part of the
Distribution Agreement dated the 9th day of March, 1992, between The Wachovia
Funds and Federated Securities Corp. with respect to the Classes of the
Portfolios set forth above:
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the Classes. Pursuant to this
appointment FSC is authorized to select a group of brokers ("Brokers") to sell
shares of the above-listed Classes ("Shares"), at the current offering price
thereof as described and set forth in the Prospectuses of the Trust, and to
render administrative support services to the Trust and its shareholders. In
addition, FSC is authorized to select a group of Administrators
("Administrators") to render administrative support services to the Trust and
its shareholders of the above-listed Classes.
2. Administrative support services may include, but are not limited to,
the following functions: (1) account openings: the Broker or Administrator
communicates account openings via computer terminals located on the Broker or
Administrator's premises, through a toll-free telephone number or otherwise; (2)
account closings: the Broker or Administrator similarly communicates account
closings; (3) purchase transactions: the Broker or Administrator similarly
communicates purchase transactions; (4) redemption transactions: the Broker or
Administrator similarly communicates redemption transactions; (5) transmittal of
funds: the Broker or Administrator wires funds and receives funds for Trust
share purchases and redemptions; (6) reconciliation activities: the Broker or
Administrator confirms and reconciles all transactions and reviews the activity
in the Trust's accounts; (7) training: the Broker or Administrator provides
training and supervision of its personnel; (8) interest posting: the Broker or
Administrator posts and reinvests dividends and other distributions to
shareholders; (9) prospectus and shareholder reports: the Broker or
Administrator maintains and distributes current copies of prospectuses,
statements of additional information and shareholder reports; (10)
advertisements: the Broker or Administrator advertises the availability of its
services and products; (11) design services: the Broker or Administrator
provides assistance in the design of materials to send to customers and in the
development of methods of making such materials accessible to customers; (12)
consultation services: the Broker or Administrator provides information about
the product needs of customers; and (13) information services: the Broker or
Administrator responds to customers' and potential customers' questions about
the Trust.
3. During the term of this Agreement, the Trust may in its discretion,
but is not obligated to, pay FSC for services pursuant to this Agreement, a
monthly fee computed at an annual rate not to exceed 0.75 of 1% of the average
net asset value of the Classes listed above, held during the month. For the
month in which this Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the number of days that
the Agreement is in effect during the month.
4. FSC will enter into separate written agreements with various firms
to provide certain of the services in Paragraph One herein. FSC, in its sole
discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
5. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts paid to the various firms and the purpose for
such payments.
In consideration of the mutual covenants set forth in the Distribution
Agreement dated March 9, 1992 between The Wachovia Funds and Federated
Securities Corp., The Wachovia Funds executes and delivers this Exhibit on
behalf of the Portfolios with respect to the separate Classes thereof first set
forth in this Exhibit.
Witness the due execution hereof this 3rd day of June, 1999.
The Wachovia Funds
By:./s/ Charles L. Davis, Jr.
Name: Charles L. Davis, Jr.
Title: Vice President
Federated Securities Corp.
By: /s/ David M. Taylor
Name: David M. Taylor
Title: Executive Vice President
<PAGE>
EXHIBIT S
to the
Distribution Agreement
THE WACHOVIA FUNDS
Class A Shares
Class Y Shares
Wachovia Executive Fixed Income Fund
In consideration of the mutual covenants set forth in the Distribution
Agreement (the "Agreement") dated March 9, 1992 between The Wachovia Funds and
Federated Securities Corp. ("FSC"), The Wachovia Funds executes and delivers
this Exhibit on behalf of the Portfolios first set forth in this Exhibit.
FSC shall retain the initial sales charge, if any, on purchases of
shares of the above Portfolios as set forth in The Wachovia Funds' Registration
Statement. FSC is authorized to collect the gross proceeds derived from the sale
of such shares, remit the net asset value thereof to the applicable Portfolio
upon receipt of the proceeds and retain the initial sales charge, if any.
FSC may reallow any or all of the initial sales charges which it is
paid under the Agreement to such brokers and other financial institutions as FSC
may from time to time determine.
Witness the due execution hereof this 3rd day of June, 1999.
The Wachovia Funds
By:./s/ Charles L. Davis, Jr.
Name: Charles L. Davis, Jr.
Title: Vice President
Federated Securities Corp.
By: /s/ David M. Taylor
Name: David M. Taylor
Title: Executive Vice President
<PAGE>
EXHIBIT T
to the Distribution Agreement
THE WACHOVIA FUNDS
Class B Shares
Wachovia Executive Fixed Income Fund
The following provisions are hereby incorporated and made part of the
Distribution Agreement dated the 9th day of March, 1992, between The Wachovia
Funds and Federated Securities Corp. with respect to the Classes of the
Portfolios set forth above:
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the Classes. Pursuant to this
appointment FSC is authorized to select a group of brokers ("Brokers") to sell
shares of the above-listed Classes ("Shares"), at the current offering price
thereof as described and set forth in the Prospectuses of the Trust, and to
render administrative support services to the Trust and its shareholders. In
addition, FSC is authorized to select a group of Administrators
("Administrators") to render administrative support services to the Trust and
its shareholders of the above-listed Classes.
2. Administrative support services may include, but are not limited to,
the following functions: (1) account openings: the Broker or Administrator
communicates account openings via computer terminals located on the Broker or
Administrator's premises, through a toll-free telephone number or otherwise; (2)
account closings: the Broker or Administrator similarly communicates account
closings; (3) purchase transactions: the Broker or Administrator similarly
communicates purchase transactions; (4) redemption transactions: the Broker or
Administrator similarly communicates redemption transactions; (5) transmittal of
funds: the Broker or Administrator wires funds and receives funds for Trust
share purchases and redemptions; (6) reconciliation activities: the Broker or
Administrator confirms and reconciles all transactions and reviews the activity
in the Trust's accounts; (7) training: the Broker or Administrator provides
training and supervision of its personnel; (8) interest posting: the Broker or
Administrator posts and reinvests dividends and other distributions to
shareholders; (9) prospectus and shareholder reports: the Broker or
Administrator maintains and distributes current copies of prospectuses,
statements of additional information and shareholder reports; (10)
advertisements: the Broker or Administrator advertises the availability of its
services and products; (11) design services: the Broker or Administrator
provides assistance in the design of materials to send to customers and in the
development of methods of making such materials accessible to customers; (12)
consultation services: the Broker or Administrator provides information about
the product needs of customers; and (13) information services: the Broker or
Administrator responds to customers' and potential customers' questions about
the Trust.
3. During the term of this Agreement, the Trust may in its discretion,
but is not obligated to, pay FSC for services pursuant to this Agreement, a
monthly fee computed at an annual rate not to exceed 0.75 of 1% of the average
net asset value of the Classes listed above, held during the month. For the
month in which this Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the number of days that
the Agreement is in effect during the month.
4. FSC will enter into separate written agreements with various firms
to provide certain of the services in Paragraph One herein. FSC, in its sole
discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
5. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts paid to the various firms and the purpose for
such payments.
In consideration of the mutual covenants set forth in the Distribution
Agreement dated March 9, 1992 between The Wachovia Funds and Federated
Securities Corp., The Wachovia Funds executes and delivers this Exhibit on
behalf of the Portfolios with respect to the separate Classes thereof first set
forth in this Exhibit.
Witness the due execution hereof this 3rd day of June, 1999.
The Wachovia Funds
By:./s/ Charles L. Davis, Jr.
Name: Charles L. Davis, Jr.
Title: Vice President
Federated Securities Corp.
By: /s/ David M. Taylor
Name: David M. Taylor
Title: Executive Vice President
Exhibit g (vii) under Form N-1A
Exhibit 8 under Item 601/Reg.S-K
The Biltmore Funds changed their name to The Wachovia Funds - 7/31/97
CUSTODY AGREEMENT
THIS AGREEMENT, is made effective as of March 9, 1992, by and between
The Biltmore Funds (the "Trust"), a business trust organized under the laws of
the Commonwealth of Massachusetts and Wachovia Bank of North Carolina, N.A. a
banking company organized under the laws of the State of North Carolina (the
"Custodian").
WITNESSETH:
WHEREAS, the Trust is an open-end management series investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Trust desires to retain the Custodian to serve as the
Trust's custodian to its existing series: Biltmore U.S. Government Money Market
Fund, Biltmore U.S. Treasury Money Market Fund, Biltmore Tax-Free Money Market
Fund, and Biltmore Money Market Fund (such series, together with all other
series subsequently established by the Trust and made subject to this Agreement
in accordance with Section 3.22 being herein referred to as the "Funds") and the
Custodian is willing to furnish such services;
NOW THEREFORE, in consideration of the mutual agreements herein made,
the Trust and the Custodian hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
1.1 "Authorized Person" means any Officer or other person duly
authorized by resolution of the Board of Trustees to give Proper Instructions on
behalf of the Funds and named in Exhibit B hereto or in such resolutions of the
Board of Trustees, certified by an Officer, as may be received by the Custodian
from time to time. The Trust will provide the Custodian with authenticated
specimen signatures of each Authorized Person.
1.2 "Board of Trustees" means the Trustees from time to time serving
under the Trust's Agreement and Amended and Restated Declaration of Trust, dated
Feberuary 24, 1992, as from time to time amended.
1.3 "Securities System" means a federal book-entry system as provided in
Subpart O of Treasury Circular No. 300, CFR 306, in Subpart B of 31 CFR Part
350, or in such book-entry regulations of federal agencies as are substantially
in the form of such Subpart O, the Depository Trust Company ("DTC"),
Participants Trust Company and (provided that Custodian shall have received a
copy of a resolution of the Board of Trustees, certified by an Officer,
specifically approving the use of such clearing agency as a depository for the
Funds) any other clearing agency registered with the Securities and Exchange
Commission ("SEC") under Section 17A of the Securities Exchange Act of 1934
("1934 Act"), which acts as a system for the central handling of Securities
where all securities of any particular class or series of an issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of the Securities.
1.4 "Business Day" means any day recognized as a settlement day by The
New York Stock Exchange, Inc. and any other day for which the Trust computes the
net asset value of a Fund.
1.5 "NASD" means The National Association of Securities Dealers, Inc.
1.6 "Officer" means the Chairman, President, any Vice President, the
Secretary, any Assistant Secretary, the Treasurer, or any Assistant Treasurer of
the Trust.
1.7 "Fund Custody Account" means any of the accounts in the name of the
Trust, which are provided for in Section 3.2 below.
1.8 "Proper Instructions" means:
(i) a writing (including, without limitation, a facsimile
transmission or tested telex) constituting a request, direction,
instruction or certification signed or initiated by or on behalf of a
Fund by one or more Authorized Persons or reasonably believed by the
Custodian to have been signed by such Authorized Persons;
(ii) a telephonic or other oral communication by one or more
Authorized Persons or reasonably believed by the Custodian to have been
communicated by such Authorized Persons; or
(iii) communications transmitted electronically through the
Institutional Delivery System (IDS), or any other similar electronic
instruction system acceptable to Custodian and approved by resolutions
of the Board of Trustees, a copy of which, certified by an Officer,
shall have been delivered to the Custodian.
The Trust shall cause all Proper Instructions in the form of oral communications
to be promptly confirmed in writing, as specified in clause (i) of this
paragraph. In the event that an oral communication is not so confirmed, or in
the event that a written confirmation differs from the related oral
communication, the Trust will hold the Custodian harmless and without liability
for any claims or losses in connection with such oral communication. Proper
Instructions may be in the form of standing instructions. In respect of trades
reported on the Trust's behalf through DTC, instructions from DTC (whether in a
DTC report or otherwise), shall be Proper Instructions.
1.9 "Securities" include, without limitation, common and preferred
stocks, bonds, call options, put options, debentures, notes, bank certificates
of deposit, bankers' acceptances, mortgage-backed securities, other money market
instruments or other obligations, and any certificates, receipts, warrants or
other instruments or documents representing rights to receive, purchase or
subscribe for the same, or evidencing or representing any other rights or
interests therein, or any similar property or assets that the Custodian has the
facilities to clear and to service.
1.10 "Shares" means, with respect to a Fund, the units of beneficial
interest issued by the Trust on account of such Fund.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 Appointment. The Trust hereby constitutes and appoints the Custodian
as custodian for the term and subject to the provisions of this Agreement.
2.2 Acceptance. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 Segregation. All Securities and non-cash property held by the
Custodian for the account of a Fund, except Securities maintained in a
Securities System pursuant to Section 3.6 herein, shall be physically segregated
from other Securities and non-cash property in the possession of the Custodian
(including the Securities and non-cash property of another Fund) and shall be
identified as subject to this Agreement.
3.2 Fund Custody Accounts. As to each Fund, the Custodian shall open and
maintain in its trust department a custody account or accounts in the name of
the Trust coupled with the name of such Fund, subject only to draft or order of
the Custodian, in which the Custodian shall enter and carry all Securities, cash
and other assets of such Fund which are delivered to it.
3.3 Appointment of Sub-custodians. In its discretion, the Custodian may
appoint, and at any time remove, any domestic bank or trust company, which has
been approved by the Board of Trustees and is qualified to act as a custodian
under the 1940 Act, as sub-custodian to hold Securities and cash of the Funds
and to carry out such other provisions of this Agreement as it may determine,
and may also open and maintain one or more banking accounts with such a bank or
trust company (any such accounts to be in the name of the Custodian on behalf of
its customers and subject only to its draft or order pursuant to the terms of
this Agreement), provided, however, that the Custodian shall have no more or
less responsibility or liability to the Trust on account of any actions or
omissions of such Sub-custodian so employed than any such sub-custodian has to
the Custodian.
3.4 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust company
which is itself qualified under the Investment Company Act of 1940, as amended,
to act as a custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; provided, however, that
the appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
3.5 Delivery of Assets to Custodian. The Trust shall deliver, or cause
to be delivered, to the Custodian all of the Funds' Securities, cash and other
assets, including (a) all payment of income, payments of principal and capital
distributions received by the Funds with respect to such Securities, cash or
other assets owned by the Funds at any time during the period of this Agreement,
and (b) all cash received by the Funds for the issuance, at any time during such
period, of Shares. The Custodian shall not be responsible for such Securities,
cash or other assets until actually received by it.
3.6 Securities Systems. The Custodian may deposit and/or maintain
Securities of the Funds in a Securities System, subject to the following
provisions:
(a) Prior to a deposit of Securities of the Funds in any
Securities System, the Trust shall deliver to the Custodian a
resolution of the Board of Trustees, certified by an Officer,
authorizing and instructing the Custodian on an on-going basis to
deposit in such Securities System all Securities eligible for
deposit therein and to make use of such Securities System to the
extent possible and practical in connection with its performance
hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of
Securities, and deliveries and returns of collateral consisting
of Securities. So long as such Securities System shall continue
to be employed for the deposit of Securities of the Funds, the
Trust shall annually re-adopt such resolution and deliver a copy
thereof, certified by an Officer, to the Custodian.
(b) Securities of the Funds kept in a Securities System shall be
kept in an account ("Depository Account") of the Custodian in
such Securities System which includes only assets held by the
Custodian as a fiduciary, custodian or otherwise for customers.
(c) The records of the Custodian with respect to Securities of a
Fund maintained in a Securities System shall, by book-entry,
identify such Securities as belonging to such Fund.
(d) If Securities purchased by a Fund are to be held in a
Securities System, the Custodian shall pay for such Securities
upon (i) receipt of advice from the Securities System that such
Securities have been transferred to the Depository Account, and
(ii) the making of any entry on the records of the Custodian to
reflect such payment and transfer for the account of such Fund.
If Securities sold by a Fund are held in a Securities System, the
Custodian shall transfer such Securities upon (i) receipt of
advice from the Securities System that payment for such
Securities has been transferred to the Depository Account, and
(ii) the making of an entry on the records of the custodian to
reflect such transfer and payment for the account of such Fund.
(e) Upon request, the Custodian shall provide the Trust with
copies of any report (obtained by the Custodian from a Securities
System in which Securities of the Funds are kept) on the internal
accounting controls and procedures for safeguarding Securities
deposited in such Securities System.
(f) Anything to the contrary in this Agreement notwithstanding,
the Custodian shall not be liable to the Trust for any loss or
damage to a Fund resulting from the use by the Custodian of a
Securities System, unless such loss or damage is caused by or
results from the negligence or willful misconduct on the part of
Custodian or its agents or any of its (or their) employees,
provided, however, that in the event of any such loss or damage
the Custodian shall take reasonable steps to enforce effectively
such rights as it may have against the Securities System. At its
election, the Trust shall be subrogated to the rights of the
Custodian with respect to any claim against a Securities System
or any other person for any loss or damage to the Funds arising
from the use of such Securities System, if and to the extent that
the Funds have not been made whole for any such loss or damage.
3.7 Collection of Income. Subject to the provisions of Section 3.15, the
Custodian shall collect on a timely basis all income and other payments with
respect to registered securities held hereunder to which each Fund shall be
entitled either by law or pursuant to custom in the securities business, and
shall collect on a timely basis all income and other payments with respect to
bearer securities if, on the date of payment by the issuer, such securities are
held by the custodian or its agent thereof and shall credit some income, as
collected, to each Fund's custodian account. Without limiting the generality of
the foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due and
shall collect interest when due on securities held hereunder. The collection of
income due the Funds on Securities loaned pursuant to the provisions of Section
3.9(j) shall be the responsibility of the Trust. The Custodian will have no duty
or responsibility in connection therewith, other than to provide the Trust with
such information or data as may be necessary to assist the Trust in arranging
for the timely delivery to the Custodian of the income of which each Fund is
properly entitled.
The Custodian shall promptly notify the Trust whenever income due on
Securities is not collected in due course and will provide the Trust with
monthly reports of the status of past due income. Except as set forth herein,
the Custodian shall not be required to enforce collection, by legal means or
otherwise, of any money or property due and payable with respect to Securities
held for a Fund if such Securities are in default or payment is not made after
due demand or presentation.
3.8 Disbursement of Moneys from Fund Custody Accounts.
Upon receipt of Proper Instructions, the Custodian shall disburse moneys from a
Fund Custody Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only (i) in the
case of Securities (other than options on Securities, futures
contracts and options on future contracts), against the delivery
to the Custodian (or any sub-custodian or agent appointed
pursuant to Sections 3.3 and 3.4, respectively, above) of such
Securities to be registered as provided in Section 3.15 below in
proper form for transfer, or if the purchase of such Securities
is effected through a Securities System, in accordance with the
conditions set forth in Section 3.6 above; (ii) in the case of
options on Securities, against delivery to the Custodian (or such
sub-custodian) of such receipts as are required by the customs
prevailing among dealers in such options; (iii) in the case of
futures contracts and options on futures contracts, against
delivery to the Custodian (or such sub-custodian) of evidence of
title thereto in favor of the Fund or any nominee referred to in
Section 3.15 below; and (iv) in the case of repurchase or reverse
repurchase agreements entered into between the Trust and any
other party, against delivery of the purchased Securities either
in certificate form or through an entry crediting the Custodian's
account at a Securities System with such Securities;
(b) In connection with the conversion, exchange or surrender, as set
forth in Section 3.9(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
(d) In payment of the redemption price of Shares as provided in
Section 5.1 below;
(e) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the
account of the Fund: interest; taxes; administration, investment
management, investment advisory, accounting, auditing, transfer
agent, custodian, trustee and legal fees; and other operating
expenses of the Fund; in all cases, whether or not such expenses
are to be in whole or in part capitalized or treated as deferred
expenses;
(f) For transfer in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker- dealer registered
under the 1934 Act and a member of the NASD, relating to
compliance with rules of The Options Clearing Corporation and of
any registered national securities exchange (or of any similar
organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Fund;
(g) For transfer in accordance with the provisions of any agreement
among the Trust, the Custodian, and a futures commission merchant
registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading
Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits in
connection with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution (including
the Custodian), which deposit or account has a term of one year
or less; and
(i) For any other proper purposes, but only upon receipt, in addition
to Proper Instructions, of a copy of a resolution of the Board of
Trustees, certified by an Officer, specifying the amount and
purpose of such payment, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such
payment is to be made.
3.9 Delivery of Securities from Fund Custody Accounts.
Upon receipt of Proper Instructions, the Custodian shall release and delivery
Securities from a Fund Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of the Fund but only
against receipt of payment therefor;
(b) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 3.6 above;
(c) To an Offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund;
(d) To the issuer thereof or its agent when such securities are
called, redeemed, retired, or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
(e) To the issuer thereof or its agent (i) for transfer into the name
of the Fund, the Custodian or any sub- custodian or agent
appointed pursuant to Sections 3.3 and 3.4, respectively, above,
or of any nominee or nominees of any of the foregoing, or (ii)
for exchange for a different number of certificates or other
evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new Securities are to
be delivered to the Custodian;
(f) To the broker selling Securities or its clearing agent, for
examination in accordance with the "street delivery" custom;
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own
negligence or willful misconduct;
(g) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, readjustment of the securities,
reorganization or readjustment of the issuer of such Securities,
or pursuant to any deposit agreement, including surrender or
receipt of underlying Securities in connection with the issuance
or cancellation of depository receipts; provided that, in any
such case, the new Securities and cash, if any, are to be
delivered to the Custodian;
(h) Upon receipt of payment therefor pursuant to any repurchase or
reverse repurchase agreement entered into by a Fund;
(i) In the case of warrants, rights or similar Securities, upon the
exercise thereof, the surrender thereof in the exercise of such
warrants, rights or similar securities or the surrender of
interim receipts or temporary securities; provided that, in any
such case, the new Securities and cash, if any, are to be
delivered to the Custodian;
(j) For delivery in connection with any loans of Securities of the
Fund, but only against receipt of such collateral as the Trust
shall have specified to the Custodian in Proper Instructions;
except that in connection with any loans for which collateral is
to be credited to the Custodian's account in the book-entry
system authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the delivery
of securities owned by the Fund prior to the receipt of such
collateral;
(k) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by such Fund, but only against
receipt by the Custodian of the amounts borrowed;
(l) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Trust or a Fund;
(m) For delivery in accordance with the provisions of any agreement
among the Trust on behalf of a Fund, the Custodian and a
broker-dealer registered under the 1934 Act and a member of the
NASD, relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange (or of any similar organization or organizations)
regarding escrow or other arrangements in connection with
transactions by the Fund;
(n) For delivery in accordance with the provisions of any agreement
among the Trust on behalf of a Fund, the Custodian, and a futures
commission merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures
Trading commission and/or any contract market (or any similar
organization or organizations) regarding account deposits in
connection with transactions by the Fund; or
(o) Upon receipt of instructions from the transfer agent for a Fund,
for delivery to such transfer agent or to the holders of Shares
in connection with distributions in kind, in satisfaction of
requests by holders of Shares for repurchase redemption;
(p) For any other proper corporate purposes, but only upon receipt,
in addition to Proper Instructions, of a copy of a resolution of
the Board of Trustees, certified by an Officer, specifying the
Securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such Securities shall be made.
3.10 Bank Accounts. The Custodian may open and maintain a separate bank
account or accounts in the name of each Fund, subject only to draft or order by
the Custodian acting pursuant to the terms of this Agreement, and shall hold in
such account or accounts, subject to the provisions hereof, all cash received by
it from or for the account of each Fund, other than cash maintained in a joint
repurchase account with other affiliated funds or by a particular Fund in a bank
account established and used in accordance with Rule 17f-3 under the 1940 Act.
Funds held by the Custodian for a Fund may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other banks or
trust companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be qualified to
act as a custodian under the 1940 Act and that each such bank or trust company
and the funds to be deposited with each such bank or trust company shall be
approved by the vote of a majority of the Board of Trustees of the Trust. Such
funds shall be deposited by the Custodian in its capacity as Custodian for the
Fund and shall be withdrawable by the Custodian only in that capacity. If
requested by the Trust, the Custodian shall furnish the Trust, not later than
twenty (20) days after the last business day of each month, an internal
reconciliation of the closing balance as of that day in all accounts described
in this section to the balance shown on the daily cash report for that day
rendered to the Trust.
3.11 Payments for Shares. The Custodian shall make such arrangements
with the transfer agent of each Fund, as will enable the Custodian to receive
the cash consideration due to each Fund and will deposit into each Fund's
Custody Account such payments as are received from the transfer agent. The
Custodian will provide timely notification to the Trust and the transfer agent
of any receipt by it of payments for Shares of the respective Fund.
3.12 Availability of Federal Funds. Upon mutual agreement between the
Trust and the Custodian, the Custodian shall make federal funds available to the
Funds as of specified times agreed upon from time to time by the Trust and the
Custodian in the amount of checks, clearing house funds, and other non-federal
funds received in payment for Shares of the Funds which are deposited into the
Funds' Custody Accounts.
3.13 Actions Not Requiring Proper Instructions. The Custodian may, in
its discretion and without express authority from the Trust or any Fund:
(a) Make payments to itself or others for minor expenses of handling
Securities or other similar items relating to its duties under
this Agreement, provided that all such payments shall be
accounted for to the Fund;
(b) Endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments;
(c) Surrender interim receipts or Securities in temporary form for
Securities in definitive form; and
(d) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in
connection with sale, exchange, substitution, purchase, transfer
and other dealings with Securities and assets of the Fund.
3.14 Ownership Certificates for Tax Purposes. The Custodian shall
execute any necessary declarations certificates of ownership under the federal
income tax laws or the laws or regulations of any other taxing authority now or
hereafter in effect, and prepare and submit reports to the Internal Revenue
Service ("IRS") and to the Trust at such time, in such manner and containing
such information as is prescribed by the IRS.
3.15 Registration and Transfer of Securities. All Securities held for a
Fund that are issued or issuable only in bearer form shall be held by the
Custodian in that form, provided that any such Securities shall be held in a
Securities System if eligible therefor. All other Securities held for a Fund may
be registered in the name of such Fund, the Custodian, or any sub- custodian or
agent appointed pursuant to Sections 3.3 and 3.4, respectively, above, or in the
name of any nominee of any of them, or in the name of a Securities System or any
nominee thereof. All securities accepted by the Custodian on behalf of the Fund
under the terms of this Agreement shall be in "street name" or other good
delivery form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best efforts only
to timely collect income due the Fund on such securities and to notify the Fund
on a best efforts basis only of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers. The Trust
shall furnish to the Custodian appropriate instruments to enable the Custodian
to hold or deliver in proper form for transfer, or to register in the name of
any of the nominees hereinabove referred to or in the name of a Securities
System, any Securities registered in the name of a Fund.
3.16 Records. The Custodian shall create and maintain all records
relating to its activities and obligations under this Contract in such manner as
will meet the obligations of the Fund under the 1940 Act, with particular
attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such
records shall be the property of the Fund and shall at all times during the
regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the SEC. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by the Fund and held by the Custodian and shall,
when requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
3.17 Fund Reports by Custodian. The Custodian shall furnish the Trust
with a daily activity statement by Fund and a summary of all transfers to or
from each Fund Custody Account on the day following such transfers. At least
monthly and from time to time, the Custodian shall furnish the Trust with a
detailed statement, by Fund, of the Securities and moneys held for the Funds
under this Agreement.
3.18 Other Reports by Custodian. The Custodian shall provide the Trust,
at such times as the Trust may reasonably require, with reports by independent
public accountants for each Fund on the accounting system, internal accounting
control and procedures for safeguarding securities, future contracts and options
on future contracts including securities deposited and/or maintained in a
Securities System, relating to the services provided by the Custodian for the
Fund under this Agreement; such reports shall be of sufficient scope and in
sufficient detail as may reasonably be required by the Trust to provide
reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so state.
3.19 Proxies and Other Materials. The Custodian shall cause all proxies
relating to Securities which are not registered in the name of a Fund, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the trust such proxies, all proxy soliciting materials and
all notices to such Securities.
3.20 Information on Corporate Actions. Subject to the provisions of
Section 3.15, the Custodian shall transmit promptly to the Trust all written
information (including, without limitation, pendency of calls and maturities of
securities and expirations of rights in connection therewith and notices of
exercise of call and put options written by the Trust, on behalf of a Fund and
the maturity of futures contracts purchased or sold by the Trust on behalf of a
Fund) received by the Custodian from issuers of the Securities being held for
the Funds. With respect to tender or exchange offers, the Custodian shall
transmit promptly to the Trust all written information received by the Custodian
from the issuers of the Securities whose tender or exchange offer is sought from
the party (or his agents) making the tender offer. If the Trust on behalf of a
Fund desires to take action with respect to any tender offer, exchange offer, or
any other similar transaction, the Trust shall notify the Custodian at least
three business days prior to the date on which the Custodian is to take such
action.
3.22 Additional Series. In the event that the Trust establishes one or
more series in addition to and with respect to which it desires to have the
Custodian render services as Custodian under the terms set forth in this
Agreement, it shall so notify the Custodian in writing, and if the Custodian
shall agree in writing to provide such services, such series shall become a Fund
hereunder, subject to such fees as the parties may agree.
<PAGE>
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
4.1 Purchase of Securities. Promptly upon each purchase of Securities
for a Fund, Proper Instructions shall be delivered to the Custodian, specifying
(a) the Fund for which the purchase was made, (b) the name of the issuer or
writer of such Securities, and the title or other description thereof, (c) the
number of shares, principal amount (and accrued interest if any) or other units
purchased, (d) the date of purchase and settlement, (e) the purchase price per
unit, (f) the total amount payable upon such purchase, and (g) the name of the
person to whom such amount is payable. The Custodian shall, upon receipt of such
Securities purchased by a Fund, pay out of the moneys held for the Fund in the
relevant Fund Custody Account the total amount specified in such Proper
Instructions to the person named therein. The Custodian shall not be under any
obligation to pay out moneys to cover the cost of a purchase of Securities for a
Fund, if in the relevant Fund Custody Account there is insufficient cash
available to the Fund for which such purchase was made.
4.2 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as provided in this Agreement, in any and every case where payment for
the purchase of Securities for a Fund is made by the Custodian in advance of
receipt of the securities purchased but in the absence of Proper Instructions to
so pay in advance, the Custodian shall be liable to the Trust, on behalf of the
Fund, for such Securities to the same extent as if the Securities had been
received by the Custodian.
4.3 Sale of Securities. Promptly upon each sale of Securities by a Fund,
Proper Instructions shall be delivered to the Custodian, specifying (a) the Fund
for which the sale was made, (b) the name of the issuer or writer of such
Securities, and the title or other description thereof, (c) the number of
shares, principal amount (and accrued interest, if any), or other units sold,
(d) the date of sale and settlement (e) the sale price per unit, (f) the total
amount payable upon such sale, and (g) the person to whom such Securities are to
be delivered. Upon receipt of the total amount payable to the Fund as specified
in such Proper Instructions, the Custodian shall deliver such Securities to the
person specified in such Proper Instructions. Subject to the foregoing, the
Custodian may accept payment in such form as shall be satisfactory to it, and
may deliver Securities and arrange for payment in accordance with the customs
prevailing among dealers in Securities.
4.4 Payment for Securities Sold. In its sole discretion and from time to
time, the Custodian may credit the relevant Fund Custody Account, prior to
actual receipt of final payment thereof, with (i) proceeds from the sale of
Securities which it has been instructed to deliver against payment, (ii)
proceeds from the redemption of Securities or other assets of the Fund, and
(iii) income from cash, Securities or other assets of the Fund. Any such credit
shall be conditional upon actual receipt by Custodian of final payment and may
be reversed if final payment is not actually received in full. The Custodian
may, in its sole discretion and from time to time, permit a Fund to use funds so
credited to its Fund Custody Account in anticipation of actual receipt of final
payment. Any such funds shall be repayable immediately upon demand made by the
Custodian at any time prior to the actual receipt of all final payments in
anticipation of which funds were credited to the Fund Custody Account.
4.5 Advances by Custodian for Settlement. The Custodian may, in its sole
discretion and from time to time, advance funds to the Trust to facilitate the
settlement of a Fund's transactions in its Fund Custody Account. Any such
advance shall be repayable immediately upon demand made by Custodian.
ARTICLE V
REDEMPTION OF FUND SHARES
5.1 Transfer of Funds. From such funds as may be available for the
purpose in the relevant Fund Custody Account, and upon receipt of Proper
Instructions specifying that the funds are required to redeem Shares of a Fund,
the Custodian shall wire each amount specified in such Proper Instructions to or
through such bank as the Trust may designate with respect to such amount in such
Proper Instructions.
5.2 No Duty Regarding Paying Banks. The Custodian shall not be under any
obligation to effect payment or distribution by any bank designated in Proper
Instructions given pursuant to Section 5.1 above of any amount paid by the
Custodian to such bank in accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of a Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement among the
Trust on behalf of a Fund, the Custodian and a broker-dealer
registered under the 1934 Act and a member of the NASD (or any
futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading commission
or any registered contract market), or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by a Fund,
(b) for purposes of segregating cash or Securities in connection with
securities options purchased or written by the Trust, on behalf
of a Fund or in connection with financial futures contracts (or
options thereon) purchased or sold by a Fund,
(c) which constitute collateral for loans of Securities made by a
Fund,
(d) for purposes of compliance by the Funds with requirements under
the 1940 Act for the maintenance of segregated accounts by
registered investment companies in connection with reverse
repurchase agreements, and when-issued, delayed delivery and firm
commitment transactions, and other similar transactions, and
(e) for other proper corporate purposes, but only upon receipt of, in
addition of Proper Instructions, a certified copy of a resolution
of the Board of Trustees, certified by an Officer, setting forth
the purpose of purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
Each segregated account established under this Article VI shall be
established and maintained for a single Fund only. All Proper Instructions
relating to a segregated account shall specify the Fund involved.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 Standard of Care. The Custodian shall be held to a standard of
reasonable care in carrying out the provisions of this Agreement. The Custodian
shall be entitled to rely on and may act upon advice of counsel (who may be
counsel for the Trust) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice. Subject to the
limitations set forth in this Agreement, the Custodian shall be kept indemnified
by the Trust and be without liability for any action taken or omitted to be
taken by it in carrying out the terms and provisions of this Agreement in
accordance with the above standards.
7.2 No Responsibility for Title. So long as and to the extent that it is
in the exercise of reasonable care, the Custodian shall not be responsible for
the title, validity or genuineness of any property or evidence of title thereto
received for delivered by it pursuant to this Agreement.
7.3 Reliance Upon Documents and Instructions. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian shall
be entitled to rely upon any Proper Instructions actually received by it
pursuant to this Agreement.
7.4 Express Duties Only. The Custodian shall have no duties or
obligations whatsoever except such duties and obligations as are specifically
set forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Custodian.
7.5 Co-operation. The Custodian shall cooperate with and supply
necessary information, by Fund, to the entity or entities appointed by the Trust
to keep the books of account of the Funds and/or compute the value of the assets
of the Funds. The Custodian shall take all such reasonable actions as the Trust
may from time to time request to enable the Trust to obtain, from year to year,
favorable opinions from the Trust's independent accountants with respect to the
Custodian's activities hereunder in connection with (a) the preparation of the
Trust's report on Form N-1A and Form N-SAR and any other reports required by the
Securities and Exchange Commission, and (b) the fulfillment by the Trust of any
other requirements of the SEC.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. The Trust shall indemnify and hold harmless the
Custodian, any sub-custodian appointed pursuant to Section 3.3 above, or any
agent, and any nominee of the Custodian or of such sub-custodian from and
against any loss, damage, cost, expense (including attorneys' fees and
disbursements), liability (including, without limitation, liability arising
under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any state
securities and/or banking laws) or claim arising directly or indirectly (a) from
the fact that Securities are registered in the name of any such nominee, or (b)
from any action or inaction by the Custodian or such sub-custodian (i) at the
request or direction of or in reliance on the advice of the Trust, or (ii) upon
Proper Instructions, or (c) generally, from the performance of its obligations
under this Agreement or any sub-custody agreement with a sub-custodian appointed
pursuant to Section 3.3 above or, in the case of any such sub-custodian, from
the performance of its obligations under such sub-custody agreement, provided
that neither the Custodian nor any such sub-custodian shall be indemnified and
held harmless from and against any such loss, damage, cost, expense, liability
or claim arising from the Custodian's or such sub-custodian's failure to act in
accordance with the standard of reasonable care set forth in Section 7.1.
8.2 Indemnity to be Provided. If the Trust requests the Custodian to
take any action with respect to Securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee becoming liable for the payment of money or incurring
liability of some other form, the Custodian shall not be required to take such
action until the Trust shall have provided indemnity therefor to the Custodian
in an amount and form satisfactory to the Custodian.
8.3 Security. If the Custodian advances cash or Securities to a Fund for
any purpose, either at the Trust's request or as otherwise contemplated in this
Agreement, or in the event that the Custodian or its nominee incurs, in
connection with its performance under this Agreement, any loss, damage, cost
expense (including attorneys' fees and disbursements), liability or claim
(except such as may arise from its or its nominee's negligence, bad faith and
willful misconduct), then, in any such event, any property at any time held for
the account of such Fund shall be security therefor, and should such Fund fail
promptly to repay or indemnify the Custodian, the Custodian shall be entitled to
utilize available cash of such Fund and to dispose of other assets of such Fund
to the extent necessary to obtain reimbursement or indemnification.
ARTICLE IX
EFFECTIVE PERIOD; TERMINATION
9.1 Effective Period. This Agreement shall become effective as of its
execution and shall continue in full force and effect until terminated as
hereinafter provided.
9.2 Termination. Either party hereto may terminate this Agreement, with
respect to one or more Funds, by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than ninety
(90) days after the date of the giving of such notice. The notice shall specify
the Funds to which the termination relates ("Terminated Funds"). If a successor
custodian for one or more Terminated Funds shall have been appointed by the
Board of Trustees, the Custodian shall, upon receipt of a notice of acceptance
by the successor custodian, on such specified date of termination (a) deliver
directly to the successor custodian all Securities (other than Securities held
in a Securities System) and cash then owned by the Terminated Funds and held by
the Custodian as custodian, and (b) transfer any Securities held in a Securities
System to an account of or for the benefit of the Funds at the successor
custodian, provided that the Trust on behalf of the Terminated Funds shall have
paid to the Custodian all fees, expenses and other amounts to the payment or
reimbursement of which it shall then be entitled. Upon such delivery and
transfer, the Custodian shall be relieved of all obligations under this
Agreement with respect to the Terminated Funds. The Trust may at any time
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by regulatory authorities in the State
of North Carolina or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
9.3 Failure to Appoint Successor Custodian. If a successor custodian is
not designated by the Trust on or before the date of termination specified
pursuant to Section 9.2 above, then the Custodian shall have the right to
deliver to a bank or trust company of its own selection, which is (a) a "Bank"
as defined in the 1940 Act, (b) has aggregate capital, surplus and undivided
profits as shown on its then most recent published report of not less than $25
million, and (c) is doing business in New York, New York, all Securities, cash
and other property held by Custodian under this Agreement and to transfer to an
account of or for the identified Funds at such bank or trust company all
Securities of the Funds held in a Securities System. Upon such delivery and
transfer, such bank or trust company shall be the successor custodian for the
Terminated Funds under this Agreement and the Custodian shall be relieved of all
obligations with respect to such Funds under this Agreement. If, after
reasonable inquiry, Custodian cannot find a successor custodian as contemplated
in this Section 9.3, then Custodian shall have the right to deliver to the Trust
all Securities and cash of the Terminated Funds and to transfer any Securities
held in a Securities System to an account of or for the Trust. Thereafter, the
Trust shall be deemed to be its own custodian with respect to the Securities,
cash and other assets of the Terminated Funds and the Custodian shall be
relieved of all obligations under this Agreement.
9.4 Continuing Obligations. Nothing contained in this Article IX shall
be construed to excuse the Trust from payment of all charges due and payable to
the Custodian. The provisions of section 13.2, "References to Custodian",
Article VII, "Concerning the Custodian" and Article VIII, "Indemnification"
shall survive the termination or expiration of this Agreement for any reason.
ARTICLE X
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon from time
to time by the Trust and the Custodian. The fees and other charges in effect on
the date hereof and applicable to the Funds are set forth in Exhibit C attached
hereto.
ARTICLE XI
LIMITATION OF LIABILITY
It is expressly agreed that the obligations of the Trust hereunder shall
not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the trust
property of the Trust as provided in the Trust's Agreement and Amended and
Restated Declaration of Trust, dated February 24, 1992, as from time to time
amended. The execution and delivery of this Agreement have been authorized by
the Trustees, and this Agreement has been signed and delivered by an authorized
officer of the Trust, acting as such, and neither such authorization by the
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Trust as provided in
the above-mentioned Agreement and Declaration of Trust.
ARTICLE XII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions,
and other communications to be given hereunder shall be in writing and shall be
sent or delivered to The receipt at the address set forth after its name herein
below:
To the Trust:
The Biltmore Funds
Federated Investors Tower
Pittsburgh, PA 15222-3779
Attention: Secretary
To the Custodian:
Wachovia Bank of North Carolina, N.A.
301 North Main Street
Winston-Salem, NC 27150
Attn: Robert S. Kniejski
Telephone: 919/770-6172
Facsimile: 919/770-5758
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XII. Writing shall include
transmission by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XIII
MISCELLANEOUS
13.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
13.2 References to Custodian. The Trust shall not circulate any printed
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for a Fund and such other printed matter as
merely identifies Custodian as custodian for a Fund. The Trust shall submit
printed matter requiring approval to Custodian in draft form, allowing
sufficient time for review by Custodian and its counsel prior to any deadline
for printing.
13.3 No Waiver. No failure by either party hereto to exercise, and no
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
13.4 Amendments. This Agreement cannot be changed orally and no
amendment to this Agreement shall be effective unless evidenced by an instrument
in writing executed by the parties hereto.
13.5 Counterparts. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
13.6 Severability. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
13.7 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
13.8 Headings. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed an delivered in its name and on its behalf by its representatives
thereunto duly authorized, all as of the day and year first above written.
ATTEST: The Biltmore Funds
/s/ Peter J. Germain By:/s/ John W. McGonigle
Secretary President
ATTEST: Wachovia Bank of
North Carolina, N.A.
/s/ James G. Vanderberry By:_/s/ James Ferguson
Secretary Vice President
<PAGE>
Superseded by Amendment to Exhibit D dated 6/12/92
EXHIBIT A
to the
Custody Agreement
The Biltmore Funds
FUNDS
The Biltmore Funds (the "Trust") consists of the following portfolios (the
"Funds") effective as of the dates set forth below:
Biltmore U.S. Government Money Market Fund March 9, 1992
Biltmore U.S. Treasury Money Market Fund March 9, 1992
Biltmore Tax-Free Money Market Fund March 9, 1992
Biltmore Money Market Fund March 9, 1992
Biltmore Prime Cash Management Fund June 11, 1992
<PAGE>
EXHIBIT B
to the
CUSTODY AGREEMENT
THE BILTMORE FUNDS
Biltmore Money Market Fund
Institutional Shares/Investment Shares
Biltmore Prime Cash Management Fund
Insitional Shares
Biltmore Tax-Free Money Market Fund
Institutional Shares/Investment Shares
Biltmore U.S. Government Money Market Fund
Institutional Shares/Investment Shares
Biltmore U.S. Treasury Money Market Fund
Institional Shares
the ("Trust")
I, H. Veron Winters, an Officer of Wachovia Investment Management,
hereby request that the following individuals be authorized to give proper
instructions to the Custodian of the Trust.
/s/ H. Vernon Winters
H. Vernon Winters
Chief Investment Officer
Name, Title
H. Vernon Winters, Signature: /s/ H. Veron Winters
Senior Vice President;
Group Executive Manager;
Chief Investment Officer of
Wachovia Investment Management
Michael J. Tierney, Signature: /s/ Michael J. Tierney
Senior Vice President;
Manager of Trust Investments
Samuel M. Gibbs II, Signature: /s/ Samuel M. Gibbs, II
Senior Vice President;
Senior Portfolio Manager;
and Manager of Fixed-Income
Portfolio Management
Patti J. Kiser, Signature: /s/ Patti J. Kiser
Assistant Vice President;
Portfolio Manager Short-Term
Investments
R. Emery Pike, Signature: /s/ R. Emery Pike
Vice President;
Portfolio Manager
Michael Holt, Signature: /s/ Michael Holt
Vice President; Portfolio
Manager Tax-Free Securities
H. Frederick Nelson, Signature: /s/ H. Frederick Nelson
Vice President;
Portfolio Manager
Doris M. Styron, Signature: /s/ Doris M. Styron
Assistant Vice President
<PAGE>
EXHIBIT C
to the
Custody Agreement
The Biltmore Funds
COMPENSATION
For the services to be provided to the Trust pursuant to the Custody Agreement,
the Trust share pay the custodian an annual fee calculated based upon the
average daily net assets of each series and payable monthly as follows:
$0 to $250 million - 2.0 b.p.
$250 million to 500 million - 1.5 b.p.
Over $500 million - 1.0 b.p.
Transaction Fees
$12.00 DTC Transaction
12.00 Federal Reserve Book Entry Transaction
25.00 Physical Transaction, Non-Fed/Non-DTC
Transaction
10.00 Wire Transfers
Out of pocket expenses including telephone, legal, postage and insurance, telex,
telecopier, supplies, stationery and forms.
<PAGE>
Superseded by Amendment to Exhibit A dated 12/4/97
EXHIBIT D
to the
Custody Agreement
The Biltmore Funds
FUNDS
The Biltmore Funds (the "Trust") consists of the following portfolios (the
"Funds") effective as of the dates set forth below:
Biltmore U.S. Government Money Market Fund March 9, 1992
Biltmore U.S. Treasury Money Market Fund March 9, 1992
Biltmore Tax-Free Money Market Fund March 9, 1992
Biltmore Money Market Fund March 9, 1992
Biltmore Prime Cash Management Fund June 12, 1992
<PAGE>
EXHIBIT E
to the
Custody Agreement
Biltmore Emerging Markets Fund
COMPENSATION
For the services to be provided to the Biltmore Emerging Markets Fund (the
"Fund") pursuant to the Custody Agreement, the Trust shall pay the custodian an
annual fee calculated based upon the average daily net assets of each series and
payable monthly as follows:
$0 to $250 million - 5.0 b.p.
$250 million to 500 million - 3.0 b.p.
Over $500 million - 1.0 b.p.
Transaction Fees
$12.00 DTC Transaction
12.00 Federal Reserve Book Entry Transaction
25.00 Physical Transaction, Non-Fed/Non-DTC Transaction
10.00 Wire Transfers
Out-of-pocket expenses including telephone, legal, postage and insurance, telex,
telecopier, supplies, stationery and forms.
<PAGE>
Superseded by Amendment to Exhibit A dated3/4/98
Amendment to
EXHIBIT A
to the
Custody Agreement
The Wachovia Funds
The Wachovia Funds (the "Trust") consists of the following portfolio(s) (the
"Funds") effective as of the dates set forth below:
Wachovia U.S. Government Money Market Fund March 9, 1992
Wachovia U.S. Treasury Money Marekt Fund March 9, 1992
Wachovia Tax-Free Money Market Fund March 9, 1992
Wachovia Money Market Fund March 9, 1992
Wachovia Prime Cash Management Fund June 11, 1992
Wachovia Balanced Fund April 3, 1993
Wachovia Equity Fund April 3, 1993
Wachovia Equity Index Fund April 3, 1993
Wachovia Fixed Income Fund April 3, 1993
Wachovia Short-Term Fixed Income Fund April 3, 1993
Wachovia Special Values Fund April 3, 1993
Wachovia Quantitative Equity Fund December 9, 1993
Wachovia Emerging Markets Fund December 10, 1994
Wachovia Growth & Income Fund December 4, 1997
As revised: December 4, 1997
<PAGE>
Superseded by Amendment to Exhibit A dated 7/1/99
Amendment to
EXHIBIT A
to the
Custody Agreement
The Wachovia Funds
The Wachovia Funds (the "Trust") consists of the following portfolio(s) (the
"Funds") effective as of the dates set forth below:
Wachovia U.S. Government Money Market Fund March 9, 1992
Wachovia U.S. Treasury Money Marekt Fund March 9, 1992
Wachovia Tax-Free Money Market Fund March 9, 1992
Wachovia Money Market Fund March 9, 1992
Wachovia Prime Cash Management Fund June 11, 1992
Wachovia Balanced Fund April 3, 1993
Wachovia Equity Fund April 3, 1993
Wachovia Equity Index Fund April 3, 1993
Wachovia Fixed Income Fund April 3, 1993
Wachovia Short-Term Fixed Income Fund April 3, 1993
Wachovia Special Values Fund April 3, 1993
Wachovia Quantitative Equity Fund December 9, 1993
Wachovia Emerging Markets Fund December 10, 1994
Wachovia Growth & Income Fund December 4, 1997
Wachovia Intermediate Fixed Income Fund March 4, 1998
As revised: March 4, 1998
<PAGE>
Amendment to
EXHIBIT A
to the
Custody Agreement
The Wachovia Funds
The Wachovia Funds (the "Trust") consists of the following portfolio(s) (the
"Funds") effective as of the dates set forth below:
Wachovia U.S. Government Money Market Fund March 9, 1992
Wachovia U.S. Treasury Money Market Fund March 9, 1992
Wachovia Tax-Free Money Market Fund March 9, 1992
Wachovia Money Market Fund March 9, 1992
Wachovia Prime Cash Management Fund June 11, 1992
Wachovia Balanced Fund April 3, 1993
Wachovia Equity Fund April 3, 1993
Wachovia Equity Index Fund April 3, 1993
Wachovia Fixed Income Fund April 3, 1993
Wachovia Short-Term Fixed Income Fund April 3, 1993
Wachovia Special Values Fund April 3, 1993
Wachovia Quantitative Equity Fund December 9, 1993
Wachovia Emerging Markets Fund December 10, 1994
Wachovia Growth & Income Fund December 4, 1997
Wachovia Intermediate Fixed Income Fund March 4, 1998
Wachovia Executive Equity Fund June 3, 1999
Wachovia Executive Fixed Income Fund June 3, 1999
Wachovia Personal Equity Fund July 1, 1999
As revised: July 1, 1999
Exhibit h (xxvii) under Form N-1A
Exhibit 10 under Item 601/Reg.S-K
SHAREHOLDER SERVICES AGREEMENT
This Agreement is made between the Financial Institution executing this
Agreement ("Provider") and Federated Administrative Services ("FAS") for The
Wachovia Funds and The Wachovia Municipal Funds (the "Trusts"), on behalf of the
portfolios listed in Exhibit A hereto (the "Funds"), who have approved this form
of Agreement. In consideration of the mutual covenants hereinafter contained, it
is hereby agreed by and between the parties hereto as follows:
1. FAS hereby appoints Provider to render or cause to be rendered personal
services to shareholders of the Funds and/or the maintenance of accounts of
shareholders of the Funds ("Services"). Provider agrees to provide Services
which, in its best judgment, are necessary or desirable for its customers who
are investors in the Funds. Provider further agrees to provide FAS, upon
request, a written description of the Services which Provider is providing
hereunder.
2. The Services to be provided under Paragraph 1 may include, but are not
limited to, the following:
(a) communicating account openings through computer terminals located on
the Provider's premises ("computer terminals"), through a toll-free
telephone number or otherwise;
(b) communicating account closings via the computer terminals, through a
toll-free telephone number or otherwise;
(c) entering purchase transactions through the computer terminals,
through a toll-free telephone number or otherwise;
(d) entering redemption transactions through the computer terminals,
through a toll-free telephone number or otherwise;
(e) electronically transferring and receiving funds for Fund Share
purchases and redemptions, and confirming and reconciling all such
transactions;
(f) reviewing the activity in Fund accounts;
(g) providing training and supervision of its personnel; and
(h) responding to customers' and potential customers' questions about
the Funds.
The Services listed above are illustrative. The Provider is not required to
perform each Service and may at any time perform either more or fewer Services
than described above.
3. During the term of this Agreement, the Funds will pay the Provider fees
as set forth in a written schedule delivered to the Provider pursuant to this
Agreement. The fee schedule for Provider may be changed by FAS sending a new fee
schedule to Provider pursuant to Paragraph 10 of this Agreement. For the payment
period in which this Agreement becomes effective or terminates, there shall be
an appropriate proration of the fee on the basis of the number of days that this
Agreement is in effect during the quarter.
<PAGE>
4. The Provider understands that the Department of Labor views ERISA as
prohibiting fiduciaries of discretionary ERISA assets from receiving
administrative service fees or other compensation from funds in which the
fiduciary's discretionary ERISA assets are invested. To date, the Department of
Labor has not issued any exemptive order or advisory opinion that would exempt
fiduciaries from this interpretation. Without specific authorization from the
Department of Labor, fiduciaries should carefully avoid investing discretionary
assets in any fund pursuant to an arrangement where the fiduciary is to be
compensated by the fund for such investment. Receipt of such compensation could
violate ERISA provisions against fiduciary self-dealing and conflict of interest
and could subject the fiduciary to substantial penalties.
5. The Provider agrees not to solicit or cause to be solicited directly, or
indirectly at any time in the future, any proxies from the shareholders of a
Fund in opposition to proxies solicited by management of the Trusts, unless a
court of competent jurisdiction shall have determined that the conduct of a
majority of the Board of Trustees of the Trusts constitutes willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties. This
Paragraph 5 will survive the term of this Agreement.
6. This Agreement shall continue in effect for one year from the date of its
execution, and thereafter for successive periods of one year if the form of this
Agreement is approved at least annually by the Board of the Trust, including a
majority of the members of the Board of the Trusts who are not interested
persons of the Funds and have no direct or indirect financial interest in the
operation of this Agreement or in any related documents to this Agreement
("Disinterested Board Members") cast in person at a meeting called for that
purpose.
7. Notwithstanding Paragraph 6, this Agreement may be terminated as follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Board Members of the Trusts or by a
vote of a majority of the outstanding voting securities of a Fund as
defined in the Investment Company Act of 1940 on not more than sixty
(60) days' written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as
defined in the Investment Company Act of 1940; and
(c) by either party to the Agreement without cause by giving the other
party at least sixty (60) days' written notice of its intention to
terminate.
8. The Provider agrees to obtain any taxpayer identification number
certification from its customers required under Section 3406 of the Internal
Revenue Code, and any applicable Treasury regulations, and to provide the Funds
or their designee with timely written notice of any failure to obtain such
taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
9. This Agreement supersedes any prior service agreements between the
parties for the Funds.
10. This Agreement may be amended by FAS from time to time by the following
procedure. FAS will mail a copy of the amendment to the Provider's address, as
shown below. If the Provider does not object to the amendment within thirty (30)
days after its receipt, the amendment will become part of this Agreement. The
Provider's objection must be in writing and be received by FAS within such
thirty days.
11. The Provider acknowledges and agrees that FAS has entered into this
Agreement solely in the capacity of agent for the Funds. The Provider agrees not
to claim that FAS is liable for any responsibilities or amounts due by the Funds
hereunder.
12. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania.
Provider
Address
City, State, Zip Code
Date
Authorized Signature
Title
Print Name of Authorized Signature
FEDERATED ADMINISTRATIVE SERVICES
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By:
Vice President
<PAGE>
Superseded by Amendment to Exhibit A dated 7/1/99
AMENDMENT TO EXHIBIT A
TO THE
SHAREHOLDER SERVICES AGREEMENT
Class A Shares
Wachovia Balanced Fund
Wachovia Emerging Markets Fund
Wachovia Equity Fund
Wachovia Equity Index Fund
Wachovia Fixed Income Fund
Wachovia Georgia Municipal Bond Fund
Wachovia Growth & Income Fund
Wachovia Intermediate Fixed Income Fund
Wachovia North Carolina Municipal Bond Fund
Wachovia Quantitative Equity Fund
Wachovia Short-Term Fixed Income Fund
Wachovia South Carolina Municipal Bond Fund
Wachovia Special Values Fund
Wachovia Virginia Municipal Bond Fund
Class B Shares
Wachovia Balanced Fund
Wachovia Equity Fund
Wachovia Fixed Income Fund
Wachovia Quantitative Equity Fund
Shareholder Service Fees
1. During the term of this Agreement, the Funds will pay Provider a
quarterly fee. This fee will be computed at the annual rate of .25 of 1% of the
average net asset value of shares of the Funds held during the quarter in
accounts for which the Provider provides Services under this Agreement, so long
as the average net asset value of Shares in the Funds during the quarter equals
or exceeds such minimum amount as the Funds shall from time to time determine
and communicate in writing to the Provider.
2. For the quarterly period in which the Shareholder Services Agreement
becomes effective or terminates, there shall be an appropriate proration of any
fee payable on the basis of the number of days that this Agreement is in effect
during the quarter.
As revised: January 6, 1999
<PAGE>
AMENDMENT TO EXHIBIT A
TO THE
SHAREHOLDER SERVICES AGREEMENT
Class A Shares
Wachovia Balanced Fund
Wachovia Emerging Markets Fund
Wachovia Equity Fund
Wachovia Equity Index Fund
Wachovia Executive Equity Fund
Wachovia Executive Fixed Income Fund
Wachovia Fixed Income Fund
Wachovia Georgia Municipal Bond Fund
Wachovia Growth & Income Fund
Wachovia Intermediate Fixed Income Fund
Wachovia North Carolina Municipal Bond Fund
Wachovia Personal Equity Fund
Wachovia Quantitative Equity Fund
Wachovia Short-Term Fixed Income Fund
Wachovia South Carolina Municipal Bond Fund
Wachovia Special Values Fund
Wachovia Virginia Municipal Bond Fund
Class B Shares
Wachovia Balanced Fund
Wachovia Equity Fund
Wachovia Executive Equity Fund
Wachovia Executive Fixed Income Fund
Wachovia Fixed Income Fund
Wachovia Personal Equity Fund
Wachovia Quantitative Equity Fund
Wachovia Special Values Fund
Shareholder Service Fees
1. During the term of this Agreement, the Funds will pay Provider a
quarterly fee. This fee will be computed at the annual rate of .25 of 1% of the
average net asset value of shares of the Funds held during the quarter in
accounts for which the Provider provides Services under this Agreement, so long
as the average net asset value of Shares in the Funds during the quarter equals
or exceeds such minimum amount as the Funds shall from time to time determine
and communicate in writing to the Provider.
2. For the quarterly period in which the Shareholder Services Agreement
becomes effective or terminates, there shall be an appropriate proration of any
fee payable on the basis of the number of days that this Agreement is in effect
during the quarter.
As revised: July 1, 1999
Exhibit h (xxvii) under Form N-1A
Exhibit 10 under Item 601/Reg.S-K
The Wachovia Funds
The Wachovia Municipal Funds
AGREEMENT
for
FUND ACCOUNTING SERVICES,
ADMINISTRATIVE SERVICES
and
TRANSFER AGENCY SERVICES
AGREEMENT made as of June 3, 1999, by and among THE WACHOVIA FUNDS and THE
WACHOVIA MUNICIPAL FUNDS, each having its principal office and place of business
at 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-7010 (together, the
"Investment Company"), on behalf of their respective separate investment
portfolios (individually referred to herein as a "Fund" and collectively as
"Funds"), listed on Exhibit 1 as may be amended from time to time, and FEDERATED
SERVICES COMPANY, a Pennsylvania corporation, having its principal office and
place of business at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779 on behalf of itself and its subsidiaries (the "Company").
WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued shares of beneficial interest
("Shares");
WHEREAS, the Investment Company desires to retain the Company as fund
accountant to provide fund accounting services (as herein defined) including
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes"), and the Company
desires to accept such appointment;
WHEREAS, the Investment Company desires to appoint the Company as its
administrator to provide it with administrative services (as herein defined),
and the Company desires to accept such appointment; and
WHEREAS, the Investment Company desires to appoint the Company as its
transfer agent and dividend disbursing agent to provide it with transfer agency
services (as herein defined), and agent in connection with certain other
activities, and the Company desires to accept such appointment;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Investment Company hereby appoints the Company to provide certain
pricing and accounting services to the Funds, and/or the Classes, for the period
and on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation set forth in Exhibit 1 to this Agreement.
Article 2. The Company's Duties.
Subject to the supervision and control of the Investment Company's Board of
Trustees ("Board"), the Company will assist the Investment Company with regard
to fund accounting for the Investment Company, and/or the Funds, and/or the
Classes, and in connection therewith undertakes to perform the following
specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent
pricing services selected by the Company in consultation with the
Investment Company's investment adviser ("Adviser") and/or investment
sub-adviser ("Sub-Adviser"), or sources selected by the Adviser and/or
Sub-Adviser, and reviewed by the Board; secondarily, if a designated
pricing service does not provide a price for a security which the
Company believes should be available by market quotation, the Company
may obtain a price by calling brokers designated by the Adviser and/or
Sub-Adviser of the Fund holding the security, or if the Adviser and/or
Sub-Adviser does not supply the names of such brokers, the Company
will attempt on its own to find brokers to price those securities;
thirdly, for securities for which no market price is available, the
Investment Company's Pricing Committee (or, in the absence of a
Pricing Committee, the Board) will determine a fair value in good
faith. Consistent with Rule 2a-4 under the 1940 Act, estimates may be
used where necessary or appropriate. The Company's obligations with
regard to the prices received from outside pricing services and
designated brokers or other outside sources, is to exercise reasonable
care in the supervision of the pricing agents. The Company is not the
guarantor of the securities prices received from such agents and the
Company is not liable to the Fund for potential errors in valuing a
Fund's assets or calculating the net asset value per share of such
Fund or Class attributable to such prices. All of the above sources of
prices used as described are deemed by the Company to be authorized
sources of security prices. The Company provides daily to the Adviser
and/or Sub-Adviser the securities prices used in calculating the net
asset value of the Fund, for its use in preparing exception reports
for those prices on which the Adviser and/or Sub-Adviser has comment.
Further, upon receipt of the exception reports generated by the
Adviser and/or Sub-Adviser, the Company diligently pursues
communication regarding exception reports with the designated pricing
agents;
B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board
and as set forth in the Prospectus and Statement of Additional
Information ("Prospectus") of each Fund;
C. Calculate the net income of each Fund, if any;
D. Calculate realized capital gains or losses of each Fund resulting
from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial
records of the Investment Company, including for each Fund and/or
Class, as required under Section 31(a) of the 1940 Act and the rules
thereunder in connection with the services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records to be maintained by Rule 31a-1 under the 1940 Act in
connection with the services provided by the Company. The Company
further agrees that all such records it maintains for the Investment
Company are the property of the Investment Company and further agrees
to surrender promptly to the Investment Company such records upon the
Investment Company's request;
G. At the request of the Investment Company, prepare various reports or
other financial documents in accordance with generally accepted
accounting principles as required by federal, state and other
applicable laws and regulations; and
H. Such other similar services as may be reasonably requested by the
Investment Company.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section One,
shall hereafter be referred to as "Fund Accounting Services."
SECTION TWO: ADMINISTRATIVE SERVICES.
Article 3. Appointment.
The Investment Company hereby appoints the Company as Administrator for the
period on the terms and conditions set forth in this Agreement. The Company
hereby accepts such appointment and agrees to furnish the services herein set
forth in return for the compensation set forth in Exhibit 1 to this Agreement.
Article 4. The Company's Duties.
As Administrator, and subject to the supervision and control of the Board
and in accordance with Proper Instructions (as defined hereafter) from the
Investment Company, the Company will provide facilities, equipment, and
personnel to carry out the following administrative services for operation of
the business and affairs of the Investment Company and each of its Funds:
A. Prepare, file, and maintain the Investment Company's governing
documents and any amendments thereto, including the declaration of
trust (which has already been prepared and filed), the by-laws and
minutes of meetings of the Board and shareholders;
B. Prepare and file with the Securities and Exchange Commission ("SEC")
and the appropriate state securities authorities the registration
statements for the Investment Company and the Investment Company's
Shares and all amendments thereto, reports to regulatory authorities
and shareholders, prospectuses, proxy statements, and such other
documents all as may be necessary to enable the Investment Company to
make a continuous offering of its Shares;
C. Prepare, negotiate, and administer contracts (if any) on behalf of
the Investment Company with, among others, the Adviser and/or
Sub-Adviser and the Investment Company's distributor(s), subject to
any applicable restrictions of the Board or the 1940 Act;
D. Calculate performance data of the Investment Company for
dissemination to information services covering the investment company
industry;
E. Prepare and file the Investment Company's tax returns;
F. Coordinate the layout and printing of publicly disseminated prospectuses
and reports; G. Perform internal audit examinations in accordance with a
charter adopted by the Company and the
Investment Company;
H. Assist with the design, development, and operation of the Investment
Company and the Funds;
I. Provide individuals reasonably acceptable to the Board for
nomination, appointment, or election as officers of the Investment
Company, who will be responsible for the management of certain of the
Investment Company's affairs as determined by the Investment
Company's Board; and
J. Consult with the Investment Company and its Board on matters
concerning the Investment Company and its affairs.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Two,
shall hereafter be referred to as "Administrative Services."
Article 5. Records.
The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the 1940 Act and the rules
thereunder, as the same may be amended from time to time, pertaining to the
Administrative Services performed by it and not otherwise created and maintained
by another party pursuant to contract with the Investment Company. Where
applicable, such records shall be maintained by the Company for the periods and
in the places required by Rule 31a-2 under the 1940 Act. The books and records
pertaining to the Investment Company which are in the possession of the Company
shall be the property of the Investment Company. The Investment Company, or the
Investment Company's authorized representatives, shall have access to such books
and records at all times during the Company's normal business hours. Upon the
reasonable request of the Investment Company, copies of any such books and
records shall be provided promptly by the Company to the Investment Company or
the Investment Company's authorized representatives.
Article 6. Expenses.
Notwithstanding the Company's duties as set forth in Article 4 of this
Agreement, the Investment Company assumes full responsibility for the
preparation, contents and distribution of its own offering documents and for
complying with all applicable requirements the 1940 Act, the Internal Revenue
Code, and any other laws, rules and regulations of government authorities having
jurisdiction.
A. The Company shall be responsible for expenses incurred in providing
office space, equipment, and personnel as may be necessary or
convenient to provide the Administrative Services to the Investment
Company, including the compensation of the Company employees who serve
as officers of the Investment Company. The Investment Company shall be
responsible for all other expenses incurred by the Company on behalf
of the Investment Company, including without limitation postage and
courier expenses, printing expenses, travel expenses, registration
fees, filing fees, fees of outside counsel and independent auditors,
or other professional services, organizational expenses, insurance
premiums, fees payable to persons who are not the Company's employees,
trade association dues, and other expenses properly payable by the
Funds and/or the Classes.
Article 7. Standard of Care and Indemnification.
A. The Company shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Investment Company in
connection with the matters to which Section Two of this Agreement
relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement. The Company shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Investment Company) on
all matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice provided that such action is
not in violation of applicable federal or state laws or regulations,
and is in good faith and without negligence. Any person, even though
also an officer, director, trustee, partner, employee or agent of the
Company, who may be or become an officer, director, trustee, partner,
employee or agent of the Investment Company, shall be deemed, when
rendering services to the Investment Company or acting on any business
of the Investment Company (other than services or business in
connection with the duties of the Company hereunder) to be rendering
such services to or acting solely for the Investment Company and not
as an officer, director, trustee, partner, employee or agent or one
under the control or direction of the Company even though paid by the
Company.
B. Subject to the conditions set forth below; the Investment Company
agrees to indemnify and hold harmless the Company against any and all
loss, liability, claim, damage or expense whatsoever (including the
reasonable cost of investigating or defending any alleged loss,
liability, damages, claim or expense and reasonable counsel fees
incurred in connection therewith) arising by reason of any action
taken or thing done by the Company in performing Administrative
Services pursuant to Section Two of this Agreement if not resulting
from the Company's willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
If any action is brought against the Company to which indemnity may
be sought against the Investment Company pursuant to the foregoing
paragraph, The Company shall promptly notify the Investment Company
in writing of the institution of such action and, if provided such
notice has been given, the Investment Company shall assume the
defense of such action, including the employment of counsel selected
by the Investment Company and payment of expenses. The Company shall
have the right to employ separate counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of the
Company unless the employment of such counsel shall have been
authorized in writing by the Investment Company in connection with
the defense of such action or the Investment Company shall not have
employed counsel to have charge of the defense of such action, in any
of which events such fees and expenses shall be borne by the Company.
Anything in this paragraph to the contrary notwithstanding, the
Investment Company shall not be liable for any settlement of any such
claim or action effected without its written consent. The Investment
Company agrees promptly to notify the Company of the commencement of
any litigation or proceedings against the Investment Company or any
of its officers or Trustees in connection with the Administrative
Services.
C. The Company agrees to indemnify and hold harmless the Investment Company,
each of its Trustees and each of its officers against any loss, liability,
damages, claim or expense (including the reasonable cost of investigating
or defending any alleged loss, liability, damages, claim or expense and
reasonable counsel fee incurred in connection therewith) arising by reason
of any action taken or thing done by the Company in performing
Administrative Services pursuant to Section Two of this Agreement if
resulting from the Company's willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement. In case
any action shall be brought against the Investment Company or any other
person so indemnified based on the foregoing at described in this
subsection (C), and with respect to which indemnity may be sought against
the Company, the Company shall have the rights and duties given to the
Investment Company, and the Investment Company and each other person so
indemnified shall have the rights and duties given to the Company by the
provisions of subsection B above.
SECTION THREE: TRANSFER AGENCY SERVICES.
Article 8. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Investment Company hereby appoints the Company to act as Transfer Agent and
Dividend Disbursing Agent for each Fund's Shares, and agent in connection with
any accumulation, open-account or similar plans provided to the shareholders of
any Fund ("Shareholder(s)"), including without limitation any periodic
investment plan or periodic withdrawal program.
Article 9. Duties of the Company.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Investment Company as
to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the
purchase of Shares and promptly deliver payment and
appropriate documentation therefor to the custodian of the
relevant Fund, (the "Custodian"). The Company shall notify
the Fund the Custodian on a daily basis of the total amount
of orders and payments so delivered.
(2) Pursuant to purchase orders and in accordance with the
Fund's current Prospectus, the Company shall compute and
issue the appropriate number of Shares of each Fund and/or
Class and hold such Shares in the appropriate Shareholder
accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or
its agent requests a certificate, the Company, as Transfer
Agent, shall countersign and mail by first class mail, a
certificate to the Shareholder at its address as set forth
on the transfer books of the Funds, and/or Classes, subject
to any Proper Instructions regarding the delivery of
certificates.
(4) In the event that any check or other order for the purchase
of Shares of a Fund and/or Class is returned unpaid for any
reason, the Company shall debit the Share account of the
Shareholder by the number of Shares that had been credited
to its account upon receipt of the check or other order,
promptly mail a debit advice to the Shareholder, and notify
the Fund and/or Class of its action. In the event that the
amount paid for such Shares exceeds proceeds of the
redemption of such Shares plus the amount of any dividends
paid with respect to such Shares, the Fund and/or Class or
its distributor will reimburse the Company in the amount of
such excess.
B. Distribution
(1) Upon notification by a Fund of the declaration of any
distribution to Shareholders, the Company shall act as
Dividend Disbursing Agent for the Fund in accordance with
the provisions of its governing document and the
then-current Prospectus of the Fund. The Company shall
prepare and mail or credit income, capital gain, or any
other payments to Shareholders. As the Dividend Disbursing
Agent, the Company shall, on or before the payment date of
any such distribution, notify the Custodian of the estimated
amount required to pay any portion of said distribution
which is payable in cash and request the Custodian to make
available sufficient funds for the cash amount to be paid
out. The Company shall reconcile the amounts so requested
and the amounts actually received by the Custodian on a
daily basis. If a Shareholder is entitled to receive
additional Shares by virtue of any such distribution or
dividend, appropriate credits shall be made to the
Shareholder's account, or for certificated Funds and/or
Classes, certificates for such Shares shall be delivered
where requested; and
(2) The Company shall maintain records of account for each Fund
and Class and advise the Investment Company, each Fund and
Class and its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set
forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall
notify the Funds on a daily basis of the total amount of
redemption requests processed and monies paid to the Company
by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds
from the Custodian with respect to any redemption, the
Company shall pay or cause to be paid the redemption
proceeds in the manner instructed by the redeeming
Shareholders, pursuant to procedures described in the
then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request
for redemption does not comply with the procedures for
redemption approved by the Fund, the Company shall promptly
notify the Shareholder of such fact, together with the
reason therefor, and shall effect such redemption at the
price applicable to the date and time of receipt of
documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts
and uncashed checks for state escheat requirements on an
annual basis and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each
Fund, and/or Class, and maintain pursuant to applicable
rules of the SEC a record of the total number of Shares of
the Fund and/or Class which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Company shall also provide the Fund on a regular basis or
upon reasonable request with the total number of Shares
which are authorized and issued and outstanding.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed under this Section Three in the form and manner as
agreed to by the Investment Company to include a record for
each Shareholder's account of the following:
(a) Name, address and tax identification number (and
whether such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account,
including dividends paid and date and price for all
transactions;
(d) Any stop or restraining order placed against the
account;
(e) Information with respect to withholding in the case
of a foreign account or an account for which
withholding is required by the Internal Revenue
Code;
(f) Any dividend reinvestment order, plan application,
dividend address and correspondence relating to the
current maintenance of the account;
(g) Certificate numbers and denominations for any
Shareholder holding certificates (if share
certificates are issued);
(h) Any information required in order for the Company
to perform the calculations contemplated or
required by this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such
record retention shall be at the expense of the Company, and
such records may be inspected by the Fund at reasonable
times. The Company may, at its option at any time, and shall
forthwith upon the Fund's demand, turn over to the Fund and
cease to retain in the Company's files, records and
documents created and maintained by the Company pursuant to
this Agreement, which are no longer needed by the Company in
performance of its services or for its protection. If not so
turned over to the Fund, such records and documents will be
retained by the Company for six years from the year of
creation, during the first two of which such documents will
be in readily accessible form. At the end of the six year
period, such records and documents will either be turned
over to the Fund or destroyed in accordance with Proper
Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding
in each state for "blue sky" purposes as determined
according to Proper Instructions delivered from
time to time by the Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption
fees, or other transaction- or sales-related
payments;
(f) Such other information as may be agreed upon from time
to time.
(2) The Company shall prepare in the appropriate form, file with
the Internal Revenue Service and appropriate state agencies,
and, if required, mail to Shareholders, such notices for
reporting dividends and distributions paid as are required
to be so filed and mailed and shall withhold such sums as
are required to be withheld under applicable federal and
state income tax laws, rules and regulations.
(3) In addition to and not in lieu of the services set forth above,
the Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan
or periodic withdrawal program), including but not limited
to: maintaining all Shareholder accounts, mailing
Shareholder reports and Prospectuses to current
Shareholders, withholding taxes on accounts subject to
back-up or other withholding (including non-resident alien
accounts), preparing and filing reports on U.S. Treasury
Department Form 1099 and other appropriate forms required
with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders
for all purchases and redemptions of Shares and other
conformable transactions in Shareholder accounts, preparing
and mailing activity statements for Shareholders, and
providing Shareholder account information; and
(b) Provide a system which will enable the Fund to monitor the
total number of Shares of each Fund (and/or Class) sold in
each state ("blue sky reporting"). The Fund shall by Proper
Instructions (i) identify to the Company those transactions
and assets to be treated as exempt from the blue sky
reporting for each state and (ii) verify the classification
of transactions for each state on the system prior to
activation and thereafter monitor the daily activity for
each state. The responsibility of the Company for each
Fund's (and/or Class's) state blue sky reporting status is
limited to the recording of the classification of
transactions or accounts with regard to blue sky compliance
and the reporting of such transactions and accounts to the
Fund as provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other
correspondence as may from time to time be addressed to the
Company;
(2) The Company shall prepare Shareholder meeting lists, mail
proxy cards and other material supplied to it by the Fund in
connection with Shareholder meetings of each Fund; receive,
examine and tabulate returned proxies, and certify the vote
of the Shareholders; and
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of Share certificates (if
issued), check forms and facsimile signature imprinting
devices, if any; and for the preparation or use, and for
keeping account of, such certificates, forms and devices.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Three,
shall hereafter be referred to as "Transfer Agency Services."
Article 10. Duties of the Investment Company.
A. Compliance
Notwithstanding, the duties of the Company as set forth in Article 9
of this Agreement, the Investment Company or Fund assume full
responsibility for the preparation, contents and distribution of
their own and/or their classes' Prospectus and for complying with all
applicable requirements of the Securities Act of 1933, as amended
(the "1933 Act"), the 1940 Act and any laws, rules and regulations of
government authorities having jurisdiction.
B. Share Certificates
If Share certificates are issued, the Investment Company shall supply
the Company with a sufficient supply of blank Share certificates and
from time to time shall renew such supply upon request of the
Company. Such blank Share certificates shall be properly signed,
manually or by facsimile, if authorized by the Investment Company and
shall bear the seal of the Investment Company or facsimile thereof;
and notwithstanding the death, resignation or removal of any officer
of the Investment Company authorized to sign certificates, the
Company may continue to countersign certificates which bear the
manual or facsimile signature of such officer until otherwise
directed by the Investment Company.
C. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's Shares.
SECTION FOUR: GENERAL PROVISIONS.
Article 11. Proper Instructions.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more persons as the Board shall have from time to
time authorized. Each such writing shall set forth the specific transaction or
type of transaction involved. Oral instructions will be deemed to be Proper
Instructions if (a) the Company reasonably believes them to have been given by a
person previously authorized in Proper Instructions to give such instructions
with respect to the transaction involved, and (b) the Investment Company, or the
Fund, and the Company promptly cause such oral instructions to be confirmed in
writing. Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Investment
Company, or the Fund, and the Company are satisfied that such procedures afford
adequate safeguards for the Fund's assets. Proper Instructions may only be
amended in writing.
<PAGE>
Article 12. Assignment.
Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. With regard to Transfer Agency Services, the Company may, without
further consent of the Investment Company, subcontract for the
performance of Transfer Agency Services with
(1) its subsidiary, Federated Shareholder Service Company, a
Delaware business trust, which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the
Securities Exchange Act of 1934, as amended, or any
succeeding statute ("Section 17A(c)(1)"); or
(2) such other provider of services duly registered as a
transfer agent under Section 17A(c)(1) as Company shall
select.
C. With regard to Fund Accounting Services and Administrative Services,
the Company may, without further consent of the Investment Company,
subcontract for the performance of such services with Federated
Administrative Services, a wholly-owned subsidiary of the Company, or
such other service provider as Company may select.
D. Except as provided in E below, the Company shall be as fully
responsible to the Investment Company for the acts and omissions of
any subcontractor as it is for its own acts and omissions. The
compensation of such person or persons shall be paid by the Company
and no obligation shall be incurred on behalf of the Investment
Company, the Funds, or the Classes in such respect.
E. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with
an agent selected by the Investment Company, other than as described
in B. and C. above; provided, however, that the Company shall in no
way be responsible to the Investment Company for the acts and
omissions of the agent.
F. Either party may assign all of or a substantial portion of its
business to a successor, or to a party controlling, controlled by, or
under common control with such party.
Nothing in this Article 12 shall prevent the Company from delegating
its responsibilities to another entity to the extent provided herein.
Article 13. Documents.
A. In connection with the appointment of the Company under this
Agreement, the Investment Company shall file with the Company the
following documents:
(1) A copy of the declaration of trust and by-laws of the Investment
Company and all amendments thereto;
(2) A copy of the resolution of the Board of the Investment Company
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share certificates of
the Investment Company or the Funds in the forms approved by
the Board of the Investment Company with a certificate of
the Secretary of the Investment Company as to such approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Investment Company
authorizing the original issuance of each Fund's and/or
Class's Shares;
(2) Each registration statement filed with the SEC and
amendments thereof and orders relating thereto in effect
with respect to the sale of Shares of any Fund, and/or
Class;
(3) A certified copy of each amendment to the declaration of trust
and the by-laws of the Investment Company;
(4) Certified copies of each vote of the Board authorizing
officers to give Proper Instructions to the Custodian and
agents for fund accounting and shareholder recordkeeping or
transfer agency services;
(5) If issued, specimens of all new Share certificates
representing Shares of any Fund, accompanied by Board
resolutions approving such forms;
(6) Such other certificates, documents or opinions which the
Company may, in its discretion, deem necessary or
appropriate in the proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Fund that:
(1) it is a corporation duly organized and existing and in good
standing under the laws of the Commonwealth of Pennsylvania;
(2) It is duly qualified to carry on its business in each
jurisdiction where the nature of its business requires such
qualification, and in the Commonwealth of Pennsylvania;
(3) it is empowered under applicable laws and by its articles of
incorporation and by-laws to enter into and perform this
Agreement;
(4) all requisite corporate proceedings have been taken to
authorize it to enter into and perform its obligations under
this Agreement;
(5) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties
and obligations under this Agreement; and
(6) it is in compliance with federal securities law requirements
and in good standing as an administrator, fund accountant
and transfer agent.
B. Representations and Warranties of the Investment Company
The Investment Company represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and
in good standing under the laws of its state of
organization;
(2) It is empowered under applicable laws and by its declaration
of trust and by-laws to enter into and perform its
obligations under this Agreement;
(3) All corporate proceedings required by said declaration of
trust and by-laws have been taken to authorize it to enter
into and perform its obligations under this Agreement;
(4) The Investment Company is an open-end management investment
company registered under the 1940 Act; and
(5) A registration statement under the 1933 Act will be
effective, and appropriate state securities law filings have
been made and will continue to be made, with respect to all
Shares of each Fund being offered for sale.
Article 15. Standard of Care and Indemnification.
A. Standard of Care
With regard to Sections One and Three, the Company shall be held to a
standard of reasonable care in carrying out the provisions of this
Agreement, provided however, that the Company shall be held to any
higher standard of care that would be imposed upon the Company, by an
applicable law or regulation even though such stated standard of care
was not part of this Agreement. The Company shall be entitled to rely
on and may act upon advice of counsel (who may be counsel for the
Investment Company) on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice,
provided that such action is not in violation of applicable federal
or state laws or regulations, and is in good faith and without
negligence. Any person, even though also an officer, trustee,
partner, employee or agent of the Company, who may be or become an
officer, trustee, partner, employee or agent of the Investment
Company, shall be deemed, when rendering services to the Investment
Company or acting on any business of the Investment Company (other
than services or business in connection with the duties of the
Company hereunder) to be rendering such services to or acting solely
for the Investment Company and not as an officer, director, trustee,
partner, employee or agent or one under the control or direction of
the Company even though paid by the Company.
B. Indemnification by Investment Company
The Company shall not be responsible for and the Investment Company
or Fund shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents, employees and affiliates,
harmless against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or
attributable to:
(1) The Investment Company's refusal or failure to comply with
the terms of this Agreement, or which arise out of the
Investment Company's lack of good faith, gross negligence or
willful misconduct or which arise out of the breach of any
representation or warranty of the Investment Company
hereunder;
(2) The acts or omissions of any Custodian, Adviser, Sub-Adviser
or other party contracted or approved by the Investment
Company or Fund;
(3) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in
proper form which:
(a) are received by the Company or its agents or
subcontractors and furnished to it by or on behalf
of the Investment Company or Fund, its Shareholders
or investors regarding the purchase, redemption or
transfer of Shares and Shareholder account
information;
(b) are received by the Company from independent
pricing services or sources for use in valuing the
assets of the Investment Company or Fund; or
(c) are received by the Company or its agents or
subcontractors from Advisers, Sub-Advisers or other
third parties contracted or approved by the
Investment Company or Fund for use in the
performance of services under this Agreement; or
(d) have been prepared and/or maintained by the
Investment Company or Fund or its affiliates or any
other person or firm on behalf of the Investment
Company.
(4) The reliance on, or the carrying out by the Company or its
agents or subcontractors of, Proper Instructions of the
Investment Company or the Fund.
(5) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares
be registered in such state or in violation of any stop
order or other determination or ruling by any federal agency
or any state with respect to the offer or sale of such
Shares in such state.
Provided, however, that the Company shall not be protected
by this Article 15.B. from liability for any act or omission
resulting from the Company's willful misfeasance, bad faith,
negligence or reckless disregard of its duties or failure to
meet the standard of care set forth in Article 15.A. above.
C. Indemnification by the Company
The Company shall indemnify and hold the Investment Company and each
Fund harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out
of or attributed to the Company's lack of good faith, negligence,
willful misconduct, or failure to meet the standard of care set forth
in Article 15A above.
D. Reliance
At any time the Company may apply to any officer of the Investment
Company or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the services to
be performed by the Company under this Agreement, and the Company and
its agents or subcontractors shall not be liable and shall be
indemnified by the Investment Company or the appropriate Fund for any
action reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such action
is not in violation of applicable federal or state laws or
regulations and is taken in good faith and without negligence. The
Company, its agents and subcontractors shall be protected and
indemnified in recognizing Share certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the
officers of the Investment Company or the Fund, and the proper
countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
E. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party
seeking indemnification shall promptly notify the other party in
writing of such assertion, and shall keep the other party advised
with respect to all developments concerning such claim. The party who
may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such claim.
The party seeking indemnification shall in no case confess any claim
or make any compromise or settlement in any case in which the other
party may be required to indemnify it except with the other party's
prior written consent.
Article 16. Term and Termination of Agreement.
This Agreement shall be effective from the date first written above and
shall continue through November 30, 2001 ("Initial Term"). Thereafter, this
Agreement shall be automatically renewed each year for an additional term of one
year ("Additional Term") provided that either party may terminate this Agreement
by written notice delivered at least six months prior to the expiration of the
Initial or any Additional Term. In the event, however, of a material breach by
the Company of its obligations under this Agreement, including a failure by the
Company to meet the applicable standard of care set forth herein, the Investment
Company shall promptly notify the Company in writing of such breach and, upon
receipt of such notice, the Company shall promptly cure the breach, and, if the
breach is not so cured within 30 days after the Company's receipt of notice
thereof, the Investment Company may terminate this Agreement on not less than 30
days' written notice. The termination date for all original or after-added Funds
which are, or become, a party to this Agreement shall be coterminous. Investment
Companies that merge or dissolve during the Initial Term or Additional Term
shall cease to be a party on the effective date of such merger or dissolution.
Upon the termination of this Agreement by the Investment Company, the
Investment Company shall pay to the Company such compensation as may be payable
prior to the effective date of such termination. In the event that the
Investment Company designates a successor to any of the Company's obligations
hereunder, the Company shall, at the expense and direction of the Investment
Company, transfer to such successor all relevant books, records and other data
established or maintained by the Investment Company under the foregoing
provisions. Additionally, the Company reserves the right to charge for any other
reasonable expenses associated with such termination. The provisions of Articles
7 and 15 shall survive the termination of this Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a written agreement executed
by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Investment Company's declaration of trust.
Article 19. Governing Law.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Pennsylvania,
provided however, that nothing herein shall be construed in a manner
inconsistent with the 1940 Act or any rule or regulation promulgated by the SEC
thereunder.
Article 20. Notices.
Except as otherwise specifically provided herein, notices and other
writings delivered or mailed postage prepaid to the Investment Company at 5800
Corporate Drive, Pittsburgh, Pennsylvania 15237-7010 or to the Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779 or to such other
address as the Investment Company or the Company may hereafter specify, shall be
deemed to have been properly delivered or given hereunder to the respective
address.
<PAGE>
Article 21. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
Article 22. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
Article 23. Successor Agent.
If a successor agent for the Investment Company shall be appointed by the
Investment Company, the Company shall upon termination of this Agreement deliver
to such successor agent at the office of the Company all properties of the
Investment Company held by it hereunder. If no such successor agent shall be
appointed, the Company shall at its office upon receipt of Proper Instructions
deliver such properties in accordance with such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date when
such termination shall become effective, then the Company shall have the right
to deliver to a bank or trust company, which is a "bank" as defined in the 1940
Act, of its own selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than $2,000,000, all
properties held by the Company under this Agreement. Thereafter, such bank or
trust company shall be the successor of the Company under this Agreement.
Article 24. Force Majeure.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage, power
or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
Article 25. Severability.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
Article 26. Limitations of Liability of Trustees and Shareholders of the
Investment Company.
The execution and delivery of this Agreement have been authorized by the
trustees of the Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any of
the trustees or shareholders of the Investment Company, but bind only the
property of the Fund, or Class, as provided in the declaration of trust of the
Investment Company.
<PAGE>
Article 27. Compensation.
A. The Funds will compensate the Company for the services described
herein in accordance with the fees agreed upon from time to time
between the parties hereto. Such fees do not include out-of-pocket
disbursements of the Company for which the Funds shall reimburse the
Company. Out-of-pocket disbursements shall include, but shall not be
limited to, the items agreed upon between the parties from time to
time, including those items listed on Exhibit 1 attached hereto.
B. The Fund and/or the Classes, and not the Company, shall bear the cost
of: custodial fees and expenses; membership dues in the Investment
Company Institute or any similar organization; transfer agency fees
and expenses; investment advisory fees; costs of printing and mailing
Share certificates (if issued); Prospectuses, reports and notices;
administrative fees and expenses; interest on borrowed money;
brokerage commissions; taxes and fees payable to federal, state and
other governmental agencies; fees and expenses of the trustees of the
Investment Company who are not employees of the Company; independent
auditors fees and expenses; legal and audit department expenses billed
to the Company for work performed related to the Investment Company,
the Funds, or the Classes; law firm fees and expenses; organizational
expenses; or other expenses not specified in this Article 27 which may
be properly payable by the Funds and/or Classes.
C. The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request of the
Company. The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
By: /s/ Charles L. Davis, Jr.
Name: Charles Davis
Title: Vice President
FEDERATED SERVICES COMPANY
By: /s/ Lawrence Caracciolo
Name: Lawrence Caracciolo
Title: Senior Vice President
<PAGE>
EXHIBIT 1
to the Agreement for
Fund Accounting Services,
Administrative Services
and
Transfer Agency Services
The Agreement for Fund Accounting Services, Administrative Services and
Transfer Agency Services dated June 3, 1999, among THE WACHOVIA FUNDS, THE
WACHOVIA MUNICIPAL FUNDS and FEDERATED SERVICES COMPANY shall apply to the
following Portfolios:
Wachovia Money Market Fund
Investment Shares
Institutional Shares
Wachovia Tax-Free Money Market Fund
Investment Shares
Institutional Shares
Wachovia U.S. Treasury Money Market Fund
Institutional Shares
Investment Shares
Wachovia Prime Cash Management Fund
Institutional Shares
Wachovia Balanced Fund
Class A Shares*
Class B Shares
Class Y Shares
Wachovia Equity Fund
Class A Shares*
Class B Shares
Class Y Shares
Wachovia Equity Index Fund
Class A Shares*
Class B Shares
Class Y Shares
Wachovia Executive Equity Fund
Class A Shares
Class B Shares
Class Y Shares
Wachovia Executive Fixed Income Fund
Class A Shares
Class B Shares
Class Y Shares
Wachovia Fixed Income Fund
Class A Shares*
Class B Shares
Class Y Shares
<PAGE>
Wachovia Short-Term Fixed Income Fund
Class A Shares*
Class B Shares
Class Y Shares
Wachovia Special Values Fund
Class A Shares*
Class B Shares
Class Y Shares
Wachovia Quantitative Equity Fund
Class A Shares*
Class B Shares
Class Y Shares
Wachovia Emerging Markets Fund
Class A Shares*
Class B Shares
Class Y Shares
Wachovia Georgia Municipal Bond Fund
Class A Shares
Class B Shares
Class Y Shares
Wachovia North Carolina Municipal Bond Fund
Class A Shares
Class B Shares
Class Y Shares
Wachovia South Carolina Municipal Bond Fund
Class A Shares
Class B Shares
Class Y Shares
Wachovia Growth & Income Fund
Class A Shares
Class B Shares
Class Y Shares
Wachovia Virginia Municipal Bond Fund
Class A Shares
Class B Shares
Class Y Shares
Wachovia Intermediate Fixed Income Fund
Class A Shares
Class B Shares
Class Y Shares
Wachovia Personal Equity Fund
Class A Shares
Class B Shares
Class Y Shares
*Existing Shares were redesignated as Class A Shares
<PAGE>
I. General Fee
For all Fund Accounting, Administrative, and Transfer Agency Services provided
pursuant to this Agreement, the Investment Company agrees to pay and the Company
hereby agrees to accept as full compensation for its services rendered hereunder
a fee as follows:
With respect to Wachovia Prime Money Market Fund ... 5 basis points on
average daily net assets of Wachovia Prime Money Market Fund.
With respect to all other Funds:
10.0 basis points on average daily net assets* up to $3.5 billion
6.0 basis points on average daily net assets* of $3.5 to $5.0 billion
4.0 basis points on average daily net assets* of $5.0 to $10.0 billion
3.0 basis points on average daily net assets* of $10.0 to $20.0 billion
2.0 basis points on average daily net assets* over $20.0 billion
*Of all Funds, excluding Wachovia Prime Money Market Fund
II. Fund Accounting Services Out-of-Pocket Expenses
Out-of-pocket expenses include, but are not limited to, the following: postage
(including overnight courier service), statement stock, envelopes, telephones,
telecommunication charges (including Fax), travel, duplicating, forms, supplies,
microfiche, computer access charges, client specific system enhancements ,access
to the shareholder recordkeeping system, security pricing services, variable
rate change notification services, paydown factor notification services
III. Transfer Agency Services Out-of-Pocket Expenses
Out-of-pocket expenses include but are not limited to postage (including
overnight courier service), statement stock, envelopes, telecommunication
charges (including Fax), travel, duplicating, forms, supplies, microfiche,
computer access charges, client specific enhancements, disaster recovery, closed
account fees, processing fees (including check encoding), and expenses incurred
at the specific direction of the Fund. Postage for mass mailings is due seven
days in advance of the mailing date. IV. Payment
Payment is due thirty days after the date of the invoice.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Schedule to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of June 3, 1999.
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
By: /s/ Charles L. Davis, Jr.
Name: Charles Davis
Title: Vice President
FEDERATED SERVICES COMPANY
By: /s/ Lawrence Caracciolo
Name: Lawrence Caracciolo
Title: Senior Vice President
Exhibit m(x) under Form N-1A
Exhibit 10 under Item 601/Reg.S-K
Trust changed name to The Wachovia Funds - 7/31/97
ADMINISTRATOR'S RULE 12b-1 AGREEMENT
This Agreement is made between the financial institution executing this
Agreement (the "Administrator") and Federated Securities Corp. ("FSC") for the
mutual funds or portfolios (referred to individually as the "Fund" and
collectively as the "Funds") or classes thereof for which FSC serves as
distributor of shares of beneficial interest or capital stock ("Shares") and
which have adopted a Rule 12b-1 Plan ("Plan") and approved this form of
agreement pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"). In consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. FSC hereby appoints the Administrator to render or cause to be rendered
sales and administrative support services to the Funds and their shareholders.
2. The services to be provided under Paragraph 1 may include, but are not
limited to, the following:
(a) communicating Fund account openings to FSC through computer
terminals located on the Administrator's premises
("computer terminals"), through a toll-free telephone
number or otherwise;
(b) communicating Fund account closings to FSC through the
computer terminals, through a toll-free telephone number or
otherwise;
(c) entering Fund purchase transactions through the computer
terminals, through a toll-free telephone number or
otherwise;
(d) entering Fund redemption transactions through the computer
terminals, through a toll-free telephone number or
otherwise;
(e) electronically transferring and receiving funds for Fund Share
purchases and redemptions;
(f) confirming and reconciling all such transactions and reviewing
the activity in Fund accounts;
(g) posting and reinvesting dividends and other distributions to
shareholders;
(h) maintaining and distributing current copies of
prospectuses, statements of additional information and
shareholder reports of the Funds;
(i) advertising the availability of its services and products with
respect to the Funds;
(j) providing assistance and review in designing materials to
send to customers and potential customers and developing
methods of making such materials accessible to customers
and potential customers;
(k) providing information about the product needs of customers; and
(l) responding to customers' and potential customers' questions about
the Funds;
(m) providing training and supervision of its personnel with respect to
the foregoing.
The services listed above are illustrative. The Administrator is not required to
perform each service and may at any time perform either more or fewer services
than described above.
3. During the term of this Agreement, FSC will pay the Administrator fees
for each Fund as set forth in a written schedule delivered to the Administrator
pursuant to this Agreement. The fee schedule may be changed by FSC pursuant to
Paragraph 9 of this Agreement. For the payment period in which this Agreement
becomes effective or terminates, there shall be an appropriate proration of the
fee on the basis of the number of days that this Agreement is in effect during
the quarter.
4. With respect to each Fund, this Agreement shall continue in effect for
one year from the date of its execution, and thereafter for successive periods
of one year if the form of this Agreement is approved at least annually by the
Directors or Trustees of the Fund, including a majority of the members of the
Board of Directors or Trustees of the Fund who are not interested persons of the
Fund and have no direct or indirect financial interest in the operation of the
Fund's Plan or in any related documents to the Plan ("Disinterested Directors or
Trustees") cast in person at a meeting called for that purpose.
5. Notwithstanding Paragraph 4, this Agreement may be terminated as
follows:
(a) by FSC at any time, without the payment of any penalty, by
the vote of a majority of the Disinterested Directors or
Trustees of the particular Fund or by a vote of a majority
of the outstanding voting securities of the Fund or
portfolio or class thereof as defined in the 1940 Act, on
not more than sixty (60) days' written notice to the
Administrator;
(b) automatically in the event of the Agreement's assignment as
defined in the 1940 Act or upon the termination of the
"Administrative Support and Distributor's Contract" or
"Distributor's Contract" or "Distribution Agreement"
between the Fund and FSC; and
(c) by either party to the Agreement without cause by giving
the other party at least sixty (60) days' written notice of
its intention to terminate.
6. The termination of this Agreement with respect to any one Fund will not
cause the Agreement's termination with respect to any other Fund.
7. The Administrator agrees to provide FSC or its designee such customer
information as is reasonably necessary to monitor sales of Shares and ensure
Shares are properly and duly registered with applicable state securities
authorities. The Administrator also agrees to obtain any taxpayer identification
number certification from its customers required under Section 3406 of the
Internal Revenue Code, and any applicable Treasury regulations, and to provide
FSC or its designee with timely written notice of any failure to obtain such
taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
8. This Agreement supersedes any prior service agreements between the
parties for the Funds.
9. This Agreement may be amended by FSC from time to time by the following
procedure. FSC will mail a copy of the amendment to the Administrator's address,
as shown below. If the Administrator does not object to the amendment within
thirty (30) days after its receipt, the amendment will become part of the
Agreement. The Administrator's objection must be in writing and be received by
FSC within such thirty (30) days.
10. This Agreement shall be construed in accordance with the laws of the
State of North Carolina; provided, however that nothing herein shall be
construed in a manner inconsistent with the 1940 Act or any rule or regulation
promulgated by the Securities and Exchange Commission thereunder.
WACHOVIA BANK OF NORTH CAROLINA, NATIONAL ASSOCIATION
301 North Main Street
Winston Salem, NC 27101
Date: _5/28/92 By: /s/ Robert S. Kniejski
FEDERATED SECURITIES CORP.
Federated Investors Tower
Pittsburgh, Pennsylvania
15222-3779
Date: _March 11, 1992 By: /s/ Richard B. Fisher
------------------ -----------------------------------
Richard B. Fisher, President
<PAGE>
Superseded by Exhibit B to 12b-1 Agreement
All references to Biltmore should be changed to Wachovia - 7/31/97 Biltmore U.S.
Government Money Market Fund withdrawn from registration.
The Biltmore Funds
--------------------------
EXHIBIT A to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
Portfolios
FSC will pay the Administrator fees for the following mutual funds,
portfolios or classes thereof (the "Funds") effective as of the dates set forth
below:
Name Date
Biltmore Money Market Fund March 9, 1992
(Investment Shares)
Biltmore U.S. Government Money Market Fund March 9, 1992
(Investment Shares)
Biltmore Tax-Free Money Market Fund March 9, 1992
(Investment Shares)
Administrative Fees
1. During the term of this Agreement, FSC will pay Administrator a monthly
fee in respect of each Fund. This fee will be computed at the annual rate of
0.40% of the average net asset value of Shares held during the month in accounts
for which the Administrator provides services under this Agreement.
2. For the monthly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
<PAGE>
Superseded by Exhibit C to 12b-1 Agreement
All references to Biltmore should be changed to Wachovia - 7/31/97 Biltmore U.S.
Government Money Market Fund withdrawn from registration.
The Biltmore Funds
--------------------------
EXHIBIT B to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
Portfolios
FSC will pay the Administrator fees for the following mutual funds,
portfolios or classes thereof (the "Funds") effective as of the dates set forth
below:
Name Date
Biltmore Money Market Fund March 9, 1992
(Investment Shares)
Biltmore U.S. Government Money Market Fund March 9, 1992
(Investment Shares)
Biltmore Tax-Free Money Market Fund March 9, 1992
(Investment Shares)
Biltmore U.S. Treasury Money Market Fund January 31, 1993
(Investment Shares)
Administrative Fees
1. During the term of this Agreement, FSC will pay Administrator a monthly
fee in respect of each Fund. This fee will be computed at the annual rate of
0.40% of the average net asset value of Shares held during the month in accounts
for which the Administrator provides services under this Agreement.
2. For the monthly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
<PAGE>
Superseded by Exhibit D to 12b-1 Agreement
All references to Biltmore should be changed to Wachovia - 7/31/97
THE BILTMORE FUNDS
THE BILTMORE MUNICIPAL FUNDS
EXHIBIT C to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
Portfolios
FSC will pay the Administrator fees for the following mutual funds,
portfolios or classes thereof (the "Funds") effective as of the dates set forth
below:
Name Date
Biltmore Balanced Fund June 6, 1996
(Class B Shares)
Biltmore Emerging Markets Fund June 6, 1996
(Class B Shares)
Biltmore Equity Fund June 6, 1996
(Class B Shares)
Biltmore Equity Index Fund June 6, 1996
(Class B Shares)
Biltmore Fixed Income Fund June 6, 1996
(Class B Shares)
Biltmore Quantitative Equity Fund June 6, 1996
(Class B Shares)
Biltmore Short-Term Fixed Income Fund June 6, 1996
(Class B Shares)
Biltmore Special Values Fund June 6, 1996
(Class B Shares)
Biltmore Georgia Municipal Bond Fund June 6, 1996
(Class B Shares)
Biltmore North Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Biltmore South Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Administrative Fees
1. During the term of this Agreement, FSC will pay Administrator a
monthly fee in respect of each Fund. This fee will be computed at the annual
rate of 0.75 of 1% of the average net asset value of Shares held during the
month in accounts for which the Administrator provides services under this
Agreement.
2. For the monthly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
<PAGE>
Superseded by Exhibit E to 12b-1 Agreement
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
EXHIBIT D to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
FSC will pay the Administrator fees for the following mutual funds,
portfolios or classes thereof (the "Funds") effective as of the dates set forth
below:
Name Date
Wachovia Balanced Fund June 6, 1996
(Class B Shares)
Wachovia Emerging Markets Fund June 6, 1996
(Class B Shares)
Wachovia Equity Fund June 6, 1996
(Class B Shares)
Wachovia Equity Index Fund June 6, 1996
(Class B Shares)
Wachovia Fixed Income Fund June 6, 1996
(Class B Shares)
Wachovia Quantitative Equity Fund June 6, 1996
(Class B Shares)
Wachovia Short-Term Fixed Income Fund June 6, 1996
(Class B Shares)
Wachovia Special Values Fund June 6, 1996
(Class B Shares)
Wachovia Georgia Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia North Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia South Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia Growth & Income Fund December 4, 1997
(Class B Shares)
Wachovia Virginia Municipal Bond Fund December 4, 1997
(Class B Shares)
Wachovia Intermediate Fixed Income Fund March 4, 1998
(Class B Shares)
Administrative Fees
1. During the term of this Agreement, FSC will pay Administrator a
monthly fee in respect of each Fund. This fee will be computed at the annual
rate of 0.75 of 1% of the average net asset value of Shares held during the
month in accounts for which the Administrator provides services under this
Agreement.
2. For the monthly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
As revised: December 4, 1997
<PAGE>
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
EXHIBIT E to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
FSC will pay the Administrator fees for the following mutual funds,
portfolios or classes thereof (the "Funds") effective as of the dates set forth
below:
Name Date
Wachovia Balanced Fund June 6, 1996
(Class B Shares)
Wachovia Emerging Markets Fund June 6, 1996
(Class B Shares)
Wachovia Equity Fund June 6, 1996
(Class B Shares)
Wachovia Equity Index Fund June 6, 1996
(Class B Shares)
Wachovia Fixed Income Fund June 6, 1996
(Class B Shares)
Wachovia Quantitative Equity Fund June 6, 1996
(Class B Shares)
Wachovia Short-Term Fixed Income Fund June 6, 1996
(Class B Shares)
Wachovia Special Values Fund June 6, 1996
(Class B Shares)
Wachovia Georgia Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia North Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia South Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia Growth & Income Fund December 4, 1997
(Class B Shares)
Wachovia Virginia Municipal Bond Fund December 4, 1997
(Class B Shares)
Wachovia Intermediate Fixed Income Fund March 4, 1998
(Class B Shares)
Administrative Fees
1. During the term of this Agreement, FSC will pay Administrator a monthly fee
in respect of each Fund. This fee will be computed at the annual rate of 0.75 of
1% of the average net asset value of Shares held during the month in accounts
for which the Administrator provides services under this Agreement.
2. For the monthly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
As revised: March 4, 1998
<PAGE>
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
EXHIBIT F to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
FSC will pay the Administrator fees for the following mutual funds,
portfolios or classes thereof (the "Funds") effective as of the dates set forth
below:
Name Date
Wachovia Balanced Fund June 6, 1996
(Class B Shares)
Wachovia Emerging Markets Fund June 6, 1996
(Class B Shares)
Wachovia Equity Fund June 6, 1996
(Class B Shares)
Wachovia Equity Index Fund June 6, 1996
(Class B Shares)
Wachovia Fixed Income Fund June 6, 1996
(Class B Shares)
Wachovia Quantitative Equity Fund June 6, 1996
(Class B Shares)
Wachovia Short-Term Fixed Income Fund June 6, 1996
(Class B Shares)
Wachovia Special Values Fund June 6, 1996
(Class B Shares)
Wachovia Georgia Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia North Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia South Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia Growth & Income Fund December 4, 1997
(Class B Shares)
Wachovia Virginia Municipal Bond Fund December 4, 1997
(Class B Shares)
Wachovia Intermediate Fixed Income Fund March 4, 1998
(Class B Shares)
Wachovia Executive Equity Fund June 3, 1999
(Class B Shares)
Wachovia Executive Fixed Income Fund June 3, 1999
(Class B Shares)
Wachovia Personal Equity Fund July 1, 1999
(Class B Shares)
Administrative Fees
1. During the term of this Agreement, FSC will pay Administrator a monthly fee
in respect of each Fund. This fee will be computed at the annual rate of 0.75 of
1% of the average net asset value of Shares held during the month in accounts
for which the Administrator provides services under this Agreement.
2. For the monthly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
As revised: July 1, 1999
Exhibit m(xi) under Form N-1A
Exhibit 10 under Item 601/Reg.S-K
Trust name changed to The Wachovia Funds - 7/31/97
BROKER'S RULE 12b-1 AGREEMENT
This Agreement is made between the financial institution executing this
Agreement (the "Broker") and Federated Securities Corp. ("FSC") for the mutual
funds or portfolios (referred to individually as the "Fund" and collectively as
the "Funds") or classes thereof for which FSC serves as distributor of shares of
beneficial interest or capital stock ("Shares") and which have adopted a Rule
12b-1 Plan ("Plan") and approved this form of agreement pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "1940 Act"). In
consideration of the mutual covenants hereinafter contained, it is hereby agreed
by and between the parties hereto as follows:
1. FSC hereby appoints the Broker to render or cause to be rendered sales
and administrative support services to the Funds and their shareholders.
2. The services to be provided under Paragraph 1 may include, but are not
limited to, the following:
(a) communicating Fund account openings to FSC through computer
terminals located on the Broker's premises ("computer
terminals"), through a toll-free telephone number or
otherwise;
(b) communicating Fund account closings to FSC through the
computer terminals, through a toll-free telephone number or
otherwise;
(c) entering Fund purchase transactions through the computer
terminals, through a toll-free telephone number or
otherwise;
(d) entering Fund redemption transactions through the computer
terminals, through a toll-free telephone number or
otherwise;
(e) electronically transferring and receiving funds for Fund
purchases and redemptions;
(f) confirming and reconciling all such transactions and reviewing
the activity in Fund accounts;
(g) posting and reinvesting dividends and other distributions to
shareholders;
(h) maintaining and distributing current copies of
prospectuses, statements of additional information and
shareholder reports of the Funds;
(i) advertising the availability of its services and products with
respect to the Funds;
(j) providing assistance and review in designing materials to
send to customers and potential customers and developing
methods of making such materials accessible to customers
and potential customers;
(k) providing information about the product needs of customers; and
(l) providing training and supervision of its personnel with respect to
the foregoing; (m) responding to customers' and potential customers'
questions about the Funds.
The services listed above are illustrative. The Broker is not required to
perform each service and may at any time perform either more or fewer services
than described above.
3. During the term of this Agreement, FSC will pay the Broker fees for each
Fund as set forth in a written schedule delivered to the Broker pursuant to this
Agreement. The fee schedule may be changed by FSC pursuant to Paragraph 9 of
this Agreement. For the payment period in which this Agreement becomes effective
or terminates, there shall be an appropriate proration of the fee on the basis
of the number of days that this Agreement is in effect during the quarter.
4. With respect to each Fund, this Agreement shall continue in effect for
one year from the date of its execution, and thereafter for successive periods
of one year if the form of this Agreement is approved at least annually by the
Directors or Trustees of the Fund, including a majority of the members of the
Board of Directors or Trustees of the Fund who are not interested persons of the
Fund and have no direct or indirect financial interest in the operation of the
Fund's Plan or in any related documents to the Plan ("Disinterested Directors or
Trustees") cast in person at a meeting called for that purpose.
5. Notwithstanding Paragraph 4, this Agreement may be terminated as
follows:
(a) by FSC at any time, without the payment of any penalty, by
the vote of a majority of the Disinterested Directors or
Trustees of the particular Fund or by a vote of a majority
of the outstanding voting securities of the Fund or
portfolio or class thereof as defined in the 1940 Act, on
not more than sixty (60) days' written notice to the
Broker;
(b) automatically in the event of the Agreement's assignment as
defined in the 1940 Act or upon the termination of the
"Administrative Support and Distributor's Contract" or
"Distributor's Contract" or "Distribution Agreement"
between the Fund and FSC; and
(c) by either party to the Agreement without cause by giving
the other party at least sixty (60) days' written notice of
its intention to terminate.
6. The termination of this Agreement with respect to any one Fund will not
cause the Agreement's termination with respect to any other Fund.
7. The Broker agrees to provide FSC or its designee such customer
information as is reasonably necessary to monitor sales of Shares and ensure
Shares are properly and duly registered with applicable state securities
authorities. The Broker also agrees to obtain any taxpayer identification number
certification from its customers required under Section 3406 of the Internal
Revenue Code, and any applicable Treasury regulations, and to provide FSC or its
designee with timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the implementation of any
required backup withholding.
8. This Agreement supersedes any prior service agreements between the
parties for the Funds.
9. This Agreement may be amended by FSC from time to time by the following
procedure. FSC will mail a copy of the amendment to the Broker's address, as
shown below. If the Broker does not object to the amendment within thirty (30)
days after its receipt, the amendment will become part of the Agreement. The
Broker's objection must be in writing and be received by FSC within such thirty
(30) days.
10. This Agreement shall be construed in accordance with the laws of the
State of North Carolina; provided, however that nothing herein shall be
construed in a manner inconsistent with the 1940 Act or any rule or regulation
promulgated by the Securities and Exchange Commission thereunder.
WACHOVIA SECURITIES, INC.
301 North Main Street
Winston Salem, NC 27101
Date: _July 14, 1992 By: /s/ Ellen Sartin
-------------------- ------------------------------
FEDERATED SECURITIES CORP.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Date: _March 11, 1992 By: /s/ Richard B. Fisher
-------------------- --------------------------------
Richard B. Fisher, President
<PAGE>
Superseded by Exhibit B to 12b-1 Agreement
All references to Biltmore should be changed to Wachovia - 7/31/97 Biltmore U.S.
Government Money Market Fund withdrawn from registration.
The Biltmore Funds
--------------------------
EXHIBIT A to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
Portfolios
FSC will pay the Broker fees for the following mutual funds, portfolios or
classes thereof (the "Funds") effective as of the dates set forth below:
Name Date
Biltmore Money Market Fund March 9, 1992
(Investment Shares)
Biltmore U.S. Government Money Market Fund March 9, 1992
(Investment Shares)
Biltmore Tax-Free Money Market Fund March 9, 1992
(Investment Shares)
Administrative Fees
1. During the term of this Agreement, FSC will pay Broker a monthly fee in
respect of each Fund. This fee will be computed at the annual rate of 0.40% of
the average net asset value of Shares held during the month in accounts for
which the Broker provides services under this Agreement.
2. For the monthly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
<PAGE>
Superseded by Exhibit C to 12b-1 Agreement
All references to Biltmore should be changed to Wachovia - 7/31/97 Biltmore U.S.
Government Money Market Fund withdrawn from registration.
The Biltmore Funds
--------------------------
EXHIBIT B to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
Portfolios
FSC will pay the Broker fees for the following mutual funds, portfolios or
classes thereof (the "Funds") effective as of the dates set forth below:
Name Date
Biltmore Money Market Fund March 9, 1992
(Investment Shares)
Biltmore U.S. Government Money Market Fund March 9, 1992
(Investment Shares)
Biltmore Tax-Free Money Market Fund March 9, 1992
(Investment Shares)
Biltmore U.S. Treasury Money Market Fund January 31, 1993
(Investment Shares)
Administrative Fees
1. During the term of this Agreement, FSC will pay Broker a monthly fee in
respect of each Fund. This fee will be computed at the annual rate of 0.40% of
the average net asset value of Shares held during the month in accounts for
which the Broker provides services under this Agreement.
2. For the monthly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
<PAGE>
Superseded by Exhibit D to 12b-1 Agreement
All references to Biltmore should be changed to Wachovia - 7/31/97 Biltmore U.S.
Government Money Market Fund withdrawn from registration.
THE BILTMORE FUNDS
THE BILTMORE MUNICIPAL FUNDS
EXHIBIT C to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
Portfolios
FSC will pay the Broker fees for the following mutual funds, portfolios
or classes thereof (the "Funds") effective as of the dates set forth below:
Name Date
Biltmore Balanced Fund June 6, 1996
(Class B Shares)
Biltmore Emerging Markets Fund June 6, 1996
(Class B Shares)
Biltmore Equity Fund June 6, 1996
(Class B Shares)
Biltmore Equity Index Fund June 6, 1996
(Class B Shares)
Biltmore Fixed Income Fund June 6, 1996
(Class B Shares)
Biltmore Quantitative Equity Fund June 6, 1996
(Class B Shares)
Biltmore Short-Term Fixed Income Fund June 6, 1996
(Class B Shares)
Biltmore Special Values Fund June 6, 1996
(Class B Shares)
Biltmore Georgia Municipal Bond Fund June 6, 1996
(Class B Shares)
Biltmore North Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Biltmore South Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Administrative Fees
1. During the term of this Agreement, FSC will pay Broker a monthly fee
in respect of each Fund. This fee will be computed at the annual rate of 0.75 of
1% of the average net asset value of Shares held during the month in accounts
for which the Broker provides services under this Agreement.
2. For the monthly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
<PAGE>
Superseded by Exhibit E to 12b-1 Agreement
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
EXHIBIT D to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
FSC will pay the Broker fees for the following mutual funds, portfolios
or classes thereof (the "Funds") effective as of the dates set forth below:
Name Date
Wachovia Balanced Fund June 6, 1996
(Class B Shares)
Wachovia Emerging Markets Fund June 6, 1996
(Class B Shares)
Wachovia Equity Fund June 6, 1996
(Class B Shares)
Wachovia Equity Index Fund June 6, 1996
(Class B Shares)
Wachovia Fixed Income Fund June 6, 1996
(Class B Shares)
Wachovia Quantitative Equity Fund June 6, 1996
(Class B Shares)
Wachovia Short-Term Fixed Income Fund June 6, 1996
(Class B Shares)
Wachovia Special Values Fund June 6, 1996
(Class B Shares)
Wachovia Georgia Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia North Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia South Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia Growth & Income Fund December 4, 1997
(Class B Shares)
Wachovia Virginia Municipal Bond Fund December 4, 1997
(Class B Shares)
Wachovia Intermediate Fixed Income Fund March 4, 1998
(Class B Shares)
Administrative Fees
1. During the term of this Agreement, FSC will pay Broker a monthly fee
in respect of each Fund. This fee will be computed at the annual rate of 0.75 of
1% of the average net asset value of Shares held during the month in accounts
for which the Broker provides services under this Agreement.
2. For the monthly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
As revised: March 4, 1998
<PAGE>
Superseded by Exhibit F dated 7/1/99
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
EXHIBIT E to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
FSC will pay the Broker fees for the following mutual funds, portfolios
or classes thereof (the "Funds") effective as of the dates set forth below:
Name Date
Wachovia Balanced Fund June 6, 1996
(Class B Shares)
Wachovia Emerging Markets Fund June 6, 1996
(Class B Shares)
Wachovia Equity Fund June 6, 1996
(Class B Shares)
Wachovia Equity Index Fund June 6, 1996
(Class B Shares)
Wachovia Fixed Income Fund June 6, 1996
(Class B Shares)
Wachovia Quantitative Equity Fund June 6, 1996
(Class B Shares)
Wachovia Short-Term Fixed Income Fund June 6, 1996
(Class B Shares)
Wachovia Special Values Fund June 6, 1996
(Class B Shares)
Wachovia Georgia Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia North Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia South Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia Growth & Income Fund December 4, 1997
(Class B Shares)
Wachovia Virginia Municipal Bond Fund December 4, 1997
(Class B Shares)
Wachovia Intermediate Fixed Income Fund March 4, 1998
(Class B Shares)
Administrative Fees
1. During the term of this Agreement, FSC will pay Broker a monthly fee in
respect of each Fund. This fee will be computed at the annual rate of 0.75 of 1%
of the average net asset value of Shares held during the month in accounts for
which the Broker provides services under this Agreement.
2. For the monthly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
As revised: March 4, 1998
<PAGE>
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
EXHIBIT F to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
FSC will pay the Broker fees for the following mutual funds, portfolios
or classes thereof (the "Funds") effective as of the dates set forth below:
Name Date
Wachovia Balanced Fund June 6, 1996
(Class B Shares)
Wachovia Emerging Markets Fund June 6, 1996
(Class B Shares)
Wachovia Equity Fund June 6, 1996
(Class B Shares)
Wachovia Equity Index Fund June 6, 1996
(Class B Shares)
Wachovia Fixed Income Fund June 6, 1996
(Class B Shares)
Wachovia Quantitative Equity Fund June 6, 1996
(Class B Shares)
Wachovia Short-Term Fixed Income Fund June 6, 1996
(Class B Shares)
Wachovia Special Values Fund June 6, 1996
(Class B Shares)
Wachovia Georgia Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia North Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia South Carolina Municipal Bond Fund June 6, 1996
(Class B Shares)
Wachovia Growth & Income Fund December 4, 1997
(Class B Shares)
Wachovia Virginia Municipal Bond Fund December 4, 1997
(Class B Shares)
Wachovia Intermediate Fixed Income Fund March 4, 1998
(Class B Shares)
Wachovia Executive Equity Fund June 3, 1999
(Class B Shares)
Wachovia Executive Fixed Income Fund June 3, 1999
(Class B Shares)
Wachovia Personal Equity Fund July 1, 1999
(Class B Shares)
Administrative Fees
1. During the term of this Agreement, FSC will pay Broker a monthly fee in
respect of each Fund. This fee will be computed at the annual rate of 0.75 of 1%
of the average net asset value of Shares held during the month in accounts for
which the Broker provides services under this Agreement.
2. For the monthly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
As revised: July 1, 1999
Exhibit m(xii) under Form N-1A
Exhibit 10 under Item 601/Reg.S-K
Trust names changed to The Wachovia
Funds and The Wachovia
Municipal Fund - 7/31/97
DISTRIBUTION PLAN
This Distribution Plan ("Plan") is adopted by the Board Trustees of Error!
Reference source not found.The Biltmore Funds and The Biltmore Municipal Funds,
(the "TrustsError! Reference source not found."), both Massachusetts business
trusts, with respect to certain classes of shares ("Classes") of the portfolios
of the TrustsError! Reference source not found. (the "Funds") set forth in
exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended ("Act"), so as to allow the Error!
Reference source not found. to make payments as contemplated herein,
in conjunction with the distribution of Classes of the Funds
("Shares").
2. This Plan is designed to finance activities of Federated Securities
Corp. ("FSC") principally intended to result in the sale of Shares to
include: (a) providing incentives to financial institutions
("Financial Institutions") to sell Shares; (b) advertising and
marketing of Shares to include preparing, printing and distributing
prospectuses and sales literature to prospective shareholders and
with Financial Institutions; and (c) implementing and operating the
Plan. In compensation for services provided pursuant to this Plan,
FSC will be paid a fee in respect of the following Classes set forth
on the applicable exhibit.
3. Any payment to FSC in accordance with this Plan will be made pursuant
to the "Distributor's Agreement/Contract" entered into by the
TrustsError! Reference source not found. and FSC. Any payments made
by FSC to Financial Institutions with funds received as compensation
under this Plan will be made pursuant to the "Financial Institution
Agreement" entered into by FSC and the Institution.
4. FSC has the right (i) to select, in its sole discretion, the
Financial Institutions to participate in the Plan and (ii) to
terminate without cause and in its sole discretion any Financial
Institution Agreement.
5. Quarterly in each year that this Plan remains in effect, FSC shall
prepare and furnish to the Board of Trustees of the TrustsError!
Reference source not found., and the Board of Error! Reference source
not found. Trustees shall review, a written report of the amounts
expended under the Plan and the purpose for which such expenditures
were made.
6. This Plan shall become effective with respect to each Class (i) after
approval by majority votes of: (a) the Error! Reference source not
found.Trusts' Board of TrusteesError! Reference source not found.; (b)
the members of the Board of the Trusts who are not interested persons
of the Error! Reference source not found.Trusts and have no direct or
indirect financial interest in the operation of the Error! Reference
source not found.Plan or in any related documents to the Plan
("Disinterested TrusteesError! Reference source not found."), cast in
person at a meeting called for the purpose of voting on the Plan; and
(c) the outstanding voting securities of the particular Class , as
defined in Section 2(a)(42) of the Act and (ii) upon execution of an
exhibit adopting this Plan with respect to such Class.
7. This Plan shall remain in effect with respect to each Class presently
set forth on an exhibit and any subsequent Classes added pursuant to
an exhibit for the period of one year from the date set forth on the
initial exhibit and may be continued thereafter if this Plan is
approved with respect to each Class at least annually by a majority of
the Error! Reference source not found.Trusts' Board of TrusteesError!
Reference source not found. and a majority of the Disinterested
TrusteesError! Reference source not found., cast in person at a
meeting called for the purpose of voting on such Plan. If this Plan is
adopted with respect to a Class after the first annual approval by the
TrustsError! Reference source not found. as described above, this Plan
will be effective as to that Class upon execution of the applicable
exhibit pursuant to the provisions of paragraph 6(ii) above and will
continue in effect until the next annual approval of this Plan by the
Error! Reference source not found. Trustees and thereafter for
successive periods of one year subject to approval as described above.
8. All material amendments to this Plan must be approved by a vote of
the Board of Error! Reference source not found. Trustees of the
TrustsError! Reference source not found. and of the Disinterested
TrusteesError! Reference source not found., cast in person at a
meeting called for the purpose of voting on it.
9. This Plan may not be amended in order to increase materially the
costs which the Classes may bear for distribution pursuant to the
Plan without being approved by a majority vote of the outstanding
voting securities of the Classes as defined in Section 2(a)(42) of
the Act.
10. This Plan may be terminated with respect to a particular Class at any
time by: (a) a majority vote of the Disinterested Error! Reference
source not found.; or (b) a vote of a majority of the outstanding
voting securities of the particular Class as defined in Section
2(a)(42) of the Act; or (c) by FSC on 60 days' notice to the Error!
Reference source not found..
11. While this Plan shall be in effect, the selection and nomination of
Disinterested TrusteesError! Reference source not found. of the
Error! Reference source not found.Trust shall be committed to the
discretion of the Disinterested Trustees Error! Reference source not
found. then in office.
12. All agreements with any person relating to the implementation of this
Plan shall be in writing and any agreement related to this Plan shall
be subject to termination, without penalty, pursuant to the
provisions of Paragraph 10 herein.
13. This Plan shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania.
<PAGE>
References to Biltmore changed to Wachovia - 7/31/97.
Biltmore U.S. Government Money Market Fund withdrawn from registration.
EXHIBIT A
to the
Distribution Plan
THE BILTMORE FUNDS
Biltmore Money Market Fund
(Investment Shares)
Biltmore U.S. Government Money Market Fund
(Investment Shares)
Biltmore Tax-Free Money Market Fund
(Investment Shares)
This Plan is adopted by The Biltmore Funds with respect to the Class of
Shares of the Portfolios of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.40 of 1% of the
average aggregate net asset value of the Investment Shares of each Portfolio of
the Trust held during the month.
Witness the due execution hereof this 9th day of March, 1992.
The Biltmore Funds
By:/s/ John W. McGonigle
President
<PAGE>
Portfolio name changed to Wachovia U.S. Treasury Money Market Fund- 7/31/97
EXHIBIT B
to the
Distribution Plan
THE BILTMORE FUNDS
Biltmore U.S. Treasury Money Market Fund
(Investment Shares)
This Plan is adopted by The Biltmore Funds with respect to the Class of
Shares of the Portfolios of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.40 of 1% of the
average aggregate net asset value of the Investment Shares of each Portfolio of
the Trust held during the month.
Witness the due execution hereof this 31st day of January, 1993.
The Biltmore Funds
By:/s/ John W. McGonigle
President
<PAGE>
References to Biltmore changed to Wachovia - 7/31/97.
EXHIBIT C
to the
Plan of Distribution
THE BILTMORE FUNDS
THE BILTMORE MUNICIPAL FUNDS
Class B Shares
Biltmore Balanced Fund
Biltmore Emerging Markets Fund
Biltmore Equity Fund
Biltmore Equity Index Fund
Biltmore Fixed Income Fund
Biltmore Georgia Municipal Bond Fund
Biltmore North Carolina Municipal Bond Fund
Biltmore Quantitative Equity Fund
Biltmore Short-Term Fixed Income Fund
Biltmore South Carolina Municipal Bond Fund
Biltmore Special Values Fund
This Plan is adopted by The Biltmore Funds and The Biltmore Municipal
Funds with respect to the Classes of Shares of the Portfolios of the Trusts set
forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of the
average aggregate net asset value of the Class B Shares of each Portfolio of the
Trust held during the month.
Witness the due execution hereof this 6th day of June, 1996.
The Biltmore Funds
The Biltmore Municipal Funds
By:/s/ John W. McGonigle
President
<PAGE>
EXHIBIT D
to the
Plan of Distribution
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
Class B Shares
Wachovia Growth & Income Fund
Wachovia Virginia Municipal Bond Fund
This Plan is adopted by The Wachovia Funds and The Wachovia Municipal
Funds with respect to the Classes of Shares of the Portfolios of the Trusts set
forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of the
average aggregate net asset value of the Class B Shares of each Portfolio of the
Trust held during the month.
Witness the due execution hereof this 4th day of December, 1997.
The Wachovia Funds
The Wachovia Municipal Funds
By:/s/ John W. McGonigle
President
<PAGE>
EXHIBIT E
to the
Plan of Distribution
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
Class B Shares
Wachovia Intermediate Fixed Income Fund
This Plan is adopted by The Wachovia Funds and The Wachovia Municipal
Funds with respect to the Classes of Shares of the Portfolios of the Trusts set
forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of the
average aggregate net asset value of the Class B Shares of each Portfolio of the
Trust held during the month.
Witness the due execution hereof this 4th day of March, 1998.
The Wachovia Funds
The Wachovia Municipal Funds
By: /s/ John W. McGonigle
Name: John W. McGonigle
Title: President
<PAGE>
EXHIBIT F
to the
Plan of Distribution
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
Class B Shares
Wachovia Personal Equity Fund
This Plan is adopted by The Wachovia Funds and The Wachovia Municipal
Funds with respect to the Classes of Shares of the Portfolios of the Trusts set
forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of the
average aggregate net asset value of the Class B Shares of each Portfolio of the
Trust held during the month.
Witness the due execution hereof this 1st day of July, 1999.
The Wachovia Funds
The Wachovia Municipal Funds
By: /s/ Charles L. Davis, Jr.
Name: Charles L. Davis, Jr.
Title: Vice President
<PAGE>
EXHIBIT F
to the
Plan of Distribution
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
Class B Shares
Wachovia Executive Equity Fund
This Plan is adopted by The Wachovia Funds and The Wachovia Municipal
Funds with respect to the Classes of Shares of the Portfolios of the Trusts set
forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of the
average aggregate net asset value of the Class B Shares of each Portfolio of the
Trust held during the month.
Witness the due execution hereof this 3rd day of June, 1999.
The Wachovia Funds
The Wachovia Municipal Funds
By: /s/ Charles L. Davis, Jr.
Name: Charles L. Davis, Jr.
Title: Vice President
<PAGE>
EXHIBIT G
to the
Plan of Distribution
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
Class B Shares
Wachovia Executive Fixed Income Fund
This Plan is adopted by The Wachovia Funds and The Wachovia Municipal
Funds with respect to the Classes of Shares of the Portfolios of the Trusts set
forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.75 of 1% of the
average aggregate net asset value of the Class B Shares of each Portfolio of the
Trust held during the month.
Witness the due execution hereof this 3rd day of June, 1999.
The Wachovia Funds
The Wachovia Municipal Funds
By: /s/ Charles L. Davis, Jr.
Name: Charles L. Davis, Jr.
Title: Vice President
Exhibit o (ii) under Form N-1A
Exhibit 10 under Item 601/Reg.S-K
NAMES CHANGED TO THE WACHOVIA FUNDS AND THE WACHOVIA MUNICIPAL FUNDS 7/31/96
THE BILTMORE FUNDS
THE BILTMORE MUNICIPAL FUNDS
MULTIPLE CLASS PLAN
This Multiple Class Plan (the "Plan") is adopted by The Biltmore
Funds and The Biltmore Municipal Funds (the "Trust"), a Massachusetts
Business Trust, with respect to the classes of shares (the "Classes")
of the portfolio of the Trust (the "Funds") set forth on exhibits
hereto.
1. Purpose
This Plan is adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, as amended (the "Rule"), so as to allow the
Trust to issue more than one class of shares of any or all of the
Funds in reliance on the Rule and to make payments as contemplated
herein.
2. Separate Arrangements / Class Differences
(a) Designation of Classes: The Funds set forth on Amendments to
Exhibit A offer three classes of shares: Class A Shares (called
"Investment Shares" in the case of the Money Market Funds), Class B
Shares and Class Y Shares (called "Institutional Shares" in the case
of the Money Market Funds).
(b) Expense allocations: The expenses incurred pursuant to the Rule
12b-1 Plan and Shareholder Services Plan will be borne solely by the
Class A and B Shares of the applicable Fund. Each class may bear such
expenses as are permitted to be allocated under applicable law and
the Trusts' Declarations of Trust.
(c) Distribution of Shares: Class A, B and Y Shares may be purchased
through Wachovia Brokerage Services, Inc., the Wachovia Banks or
through other service organizations (as defined in the applicable
prospectus), as well as from the distributor. Class A Shares may be
sold with a front-end sales charge; Class B Shares may be sold with a
contingent deferred sales charge; Class Y Shares will be sold without
a sales charge.
(d) Voting Rights: Shareholders of each class are entitled to one
vote for each share held on the record date for any action requiring
a vote by the shareholders and a proportionate fractional vote for
each fractional share held. Shareholders of the Trust will vote in
the aggregate and not by Fund or class except (i) as otherwise
expressly required by law or when the Trustees determine that the
matter to be voted upon affects only the interests of the
shareholders of a particular Fund or class, and (ii) only holders of
Investment Shares will be entitled to vote on matters submitted to
shareholder vote with respect to the Rule 12b-1 Plan applicable to
such class.
<PAGE>
3. Exchange Features
Shareholders of Class A Shares, Class B Shares and Class Y Shares may
exchange such shares in any Biltmore Fund for the same class of
shares of any class in any other Biltmore Fund for which such
shareholder is eligible for investment pursuant to the acquired
Fund's prospectus. Exchanges will be made on the respective net asset
value of the shares being exchanged as next determined after receipt
of the request in good order. Class B Shares being acquired in an
exchange will be deemed to have been acquired on the date of purchase
of the exchanged shares for purposes of calculating any contingent
deferred sales charge.
4. Effectiveness
This Plan shall become effective with respect to each Class, (i) to
the extent required by the Rule, after approval by a majority vote
of: (a) the Trust's Board of Trustees; (b) the members of the Board
of the Trust who are not interested persons of the Trust and have no
direct or indirect financial interest in the operation of the Trust's
Plan , and/or (ii) upon execution of an exhibit adopting the Plan
with respect to such class.
<PAGE>
Superseded by Amendment to Exhibit A dated 6/6/96
EXHIBIT A
to the
Multiple Class Plan
THE BILTMORE FUNDS
Investment Shares
Institutional Shares
Biltmore Money Market Fund
Biltmore Tax-Free Money Market Fund
Biltmore U.S. Treasury Money Mary Fund
This Multiple Class Plan is adopted by The Biltmore Funds with respect
to the Class(es) of Shares of the portfolios of The Biltmore Funds set forth
above.
Witness the due execution here of this June 1, 1995.
The Biltmore Funds
By: /s/ John W. McGonigle
Title: President
Date: June 1, 1995
<PAGE>
Superseded by Amendment to Exhibit A dated 3/4/98
AMENDMENT TO
EXHIBIT A
to the
Multiple Class Plan
THE BILTMORE FUNDS
THE BILTMORE MUNICIPAL FUNDS
Biltmore Balanced Fund
Biltmore Emerging Markets Fund
Biltmore Equity Fund
Biltmore Equity Index Fund
Biltmore Fixed Income Fund
Biltmore Georgia Municipal Bond Fund
Biltmore North Carolina Municipal Bond Fund
Biltmore Quantitative Equity Fund
Biltmore Short-Term Fixed Income Fund
Biltmore South Carolina Municipal Bond Fund
Biltmore Special Values Fund
Class A Shares
Class B Shares
Class Y Shares
Biltmore Money Market Fund
Biltmore Tax-Free Money Market Fund
Biltmore U.S. Treasury Money Market Fund
Class Y Shares (Institutional Shares)
Class A Shares (Investment Shares)
Biltmore Prime Cash Management Fund
Class Y Shares (Institutional Shares)
This Multiple Class Plan is adopted by The Biltmore Funds and The
Biltmore Municipal Funds with respect to the Class(es) of Shares of the
portfolios of the Funds set forth above.
Witness the due execution here of this June 6, 1996.
The Biltmore Funds
The Biltmore Municipal Funds
By: /s/ John W. McGonigle
Title: President
Date: June 6, 1996
<PAGE>
Superseded by Amendment to Exhibit A dated 7/1/99
AMENDMENT TO
EXHIBIT A
to the
Multiple Class Plan
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
Class A Shares, Class B Shares & Class Y Shares of the
following:
Wachovia Balanced Fund
Wachovia Emerging Markets Fund
Wachovia Equity Fund
Wachovia Equity Index Fund
Wachovia Fixed Income Fund
Wachovia Georgia Municipal Bond Fund
Wachovia Growth & Income Fund
Wachovia Intermediate Fixed Income Fund
Wachovia North Carolina Municipal Bond Fund
Wachovia Quantitative Equity Fund
Wachovia Short-Term Fixed Income Fund
Wachovia South Carolina Municipal Bond Fund
Wachovia Special Values Fund
Wachovia Virginia Municipal Bond Fund
Institutional Shares of the following:
Wachovia Prime Cash Management Fund
Institutional Shares and Investment Shares of the
following:
Wachovia Money Market Fund
Wachovia Tax-Free Money Market Fund
Wachovia U.S. Treasury Money Market Fund
This Multiple Class Plan is adopted by The Wachovia Funds and The
Wachovia Municipal Funds with respect to the Class(es) of Shares of the
portfolios of the Funds set forth above.
Witness the due execution here of this 4th day of March, 1998.
The Wachovia Funds
The Wachovia Municipal Funds
By: /s/ John W. McGonigle
Name: John W. McGonigle
Title: President
<PAGE>
AMENDMENT TO
EXHIBIT A
to the
Multiple Class Plan
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
Class A Shares, Class B Shares & Class Y Shares of the
following:
Wachovia Balanced Fund
Wachovia Emerging Markets Fund
Wachovia Equity Fund
Wachovia Equity Index Fund
Wachovia Fixed Income Fund
Wachovia Georgia Municipal Bond Fund
Wachovia Growth & Income Fund
Wachovia Intermediate Fixed Income Fund
Wachovia North Carolina Municipal Bond Fund
Wachovia Personal Equity Fund
Wachovia Quantitative Equity Fund
Wachovia Short-Term Fixed Income Fund
Wachovia South Carolina Municipal Bond Fund
Wachovia Special Values Fund
Wachovia Virginia Municipal Bond Fund
Institutional Shares of the following:
Wachovia Prime Cash Management Fund
Institutional Shares and Investment Shares of the
following:
Wachovia Money Market Fund
Wachovia Tax-Free Money Market Fund
Wachovia U.S. Treasury Money Market Fund
This Multiple Class Plan is adopted by The Wachovia Funds and The
Wachovia Municipal Funds with respect to the Class(es) of Shares of the
portfolios of the Funds set forth above.
Witness the due execution here of this 1st day of July, 1999.
The Wachovia Funds
The Wachovia Municipal Funds
By: /s/ Charles L. Davis, Jr.
Name: Charles L. Davis, Jr.
Title: Vice President
<PAGE>
AMENDMENT TO
EXHIBIT A
to the
Multiple Class Plan
THE WACHOVIA FUNDS
THE WACHOVIA MUNICIPAL FUNDS
Class A Shares, Class B Shares & Class Y Shares of the
following:
Wachovia Balanced Fund
Wachovia Emerging Markets Fund
Wachovia Equity Fund
Wachovia Equity Index Fund
Wachovia Executive Equity Fund
Wachovia Executive Fixed Income Fund
Wachovia Fixed Income Fund
Wachovia Georgia Municipal Bond Fund
Wachovia Growth & Income Fund
Wachovia Intermediate Fixed Income Fund
Wachovia North Carolina Municipal Bond Fund
Wachovia Personal Equity Fund
Wachovia Quantitative Equity Fund
Wachovia Short-Term Fixed Income Fund
Wachovia South Carolina Municipal Bond Fund
Wachovia Special Values Fund
Wachovia Virginia Municipal Bond Fund
Institutional Shares of the following:
Wachovia Prime Cash Management Fund
Institutional Shares and Investment Shares of the
following:
Wachovia Money Market Fund
Wachovia Tax-Free Money Market Fund
Wachovia U.S. Treasury Money Market Fund
This Multiple Class Plan is adopted by The Wachovia Funds and The
Wachovia Municipal Funds with respect to the Class(es) of Shares of the
portfolios of the Funds set forth above.
Witness the due execution here of this 3rd day of June, 1999.
The Wachovia Funds
The Wachovia Municipal Funds
By: /s/ Charles L. Davis, Jr.
Name: Charles L. Davis, Jr.
Title: Vice President
