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. 36 .................... X__
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _ X__
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Amendment No. 37 .................................... _ 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:
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) X on January 31, 2001 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
Kirkpatrick & Lockhart L.L.P.
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
WACHOVIA INTERNATIONAL EQUITY FUND
A PORTFOLIO OF THE WACHOVIA FUNDS
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
Prospectus
January 31, 2001
"WWW.WACHOVIAFUNDS.COM"
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
CONTENTS
Fund Goal, Strategies, Risk and Performance
What are the Fund's Fees and Expenses?
What are the Fund's Main Investments and Investment Techniques?
What are the Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Exchange Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
january 31, 2001
FUND GOAL, STRATEGIES AND RISK
WHAT IS THE FUND'S INVESTMENT GOAL?
Seeks to produce capital appreciation.
WHAT IS THE MAIN INVESTMENT STRATEGY OF THE FUND?
The Fund invests primarily in securities of large capitalization foreign
companies. The Fund invests at least 80% of its assets in the equity securities
of large capitalization foreign companies, including multinational companies.
The Fund invests in American Depositary Receipts (ADRs) and may also invest
directly in non-U.S. dollar-denominated equity securities of foreign companies.
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. An investment in the Fund is not a deposit of a bank
and is not insured or guaranteed by Wachovia Bank, N.A., the Federal Deposit
Insurance Corporation or any other government agency.
The primary factors that may reduce the Fund's return include:
STOCK MARKET RISK. The value of equity securities in the Fund's portfolio will
fluctuate and, as a result, the Fund's share price may decline suddenly or over
a sustained period of time.
RISK OF FOREIGN INVESTING. Because the Fund will invest in securities issued by
foreign companies, the Fund's share price may be more affected by foreign
economic and political conditions, taxation policies and accounting and auditing
standards than would otherwise be the case.
INVESTMENT STYLE RISK. Due to their relatively high valuations, growth
stocks are typically more volatile than value stocks.
CURRENCY RISK. Because exchange rates for currencies fluctuate daily,
prices of the foreign securities in which the Fund invests are more volatile
than prices of securities traded exclusively in the United States.
A more detailed description of these risks can be found in "What are the
Risks of Investing in the Fund?" herein.
PERFORMANCE
The Fund is a new fund that is just commencing operations, and therefore, has no
performance history.
WHAT ARE THE FUNDS' FEES AND EXPENSES?
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund's CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES.
SHAREHOLDER FEES CLASS CLASS CLASS
FEES PAID DIRECTLY FROM YOUR INVESTMENT A B C
Maximum Sales Charge (Load) Imposed on Purchases (as 5.75% None 1.00%
a percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage None 5.00% 1.00%
of original purchase price or redemptionproceeds, as
applicable)
Maximum Sales Charge (Load) Imposed on Reinvested None None None
Dividends (and other Distributions) (asapercentage of
offering price)
Redemption Fee (as a percentage of amount redeemed, None None None
if applicable)
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES1
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee 0.70% 0.70% 0.70%
Distribution (12b-1) Fee None 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25%
Other Expenses ___% ___% ___%
Total Annual Fund Operating Expenses (Before Waiver)1 ___% ___% ___%
Waiver of Fund Expenses ____% ___% ___%
Total Actual Annual Fund Operating Expenses (After ____% ___% ___%
Waiver)
1
EXAMPLE
The following Example is intended to help you compare the cost of investing
in each Fund's Class _ Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in each Fund's Class _ 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 each Fund's 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 3
YEAR YEARS
Expenses assuming
redemption
Expenses assuming no
redemption
WHAT ARE THE FUND'S MAIN INVESTMENTS AND INVESTMENT TECHNIQUES?
The Fund invests primarily in the securities of large capitalization foreign
companies, including multinational companies. The Fund invests in ADRs and may
also invest directly in non-U.S. dollar-denominated equity securities of foreign
companies.
The Fund will invest in the securities of large capitalization companies, that
is, securities of companies whose market capitalization is greater than $1
billion at the time of purchase. Simms Capital Management, Inc. (Sub-Adviser)
seeks growth at a reasonable price.
The Sub-Adviser looks for securities that offer the best potential for growth at
a reasonable price. That is, the Sub-Adviser looks for stocks that it believes
will increase in value over time, based upon its analysis of a company's growth
prospects. The Sub-Adviser seeks to invest in companies with relatively high
return on equity and high earnings growth rates, not companies or industries
that have predominantly cyclical characteristics. In choosing investments, the
Sub-Adviser analyzes the following factors:
o The present value of a company's future cash flows using a proprietary
Dividend Discount Model. This model computes the present value of the
estimated future dividends of a company utilizing an assumed interest
rate;
o The stock's price relative to similar companies and the market;
o The company's financial condition and cash flow;
o The growth of the company's earnings;
o Demand and supply for a company's shares, including insider transactions;
o Industry momentum, that is, the rate at which the company's sector is
growing;
o The stock's liquidity;
o The company's exposure to economic conditions outside the U.S.;
o For foreign securities, diversification by country as compared with the
country weighting of the Morgan Stanley Capital International Europe,
Australasia, Far East (EAFE) Index; and
o For foreign securities, a company's economic exposure to countries outside
its home base, including the U.S.
Under normal market conditions, the Sub-Adviser expects to invest at least 80%
of the Fund's total assets in ADRs of foreign companies or directly in non-U.S.
dollar-denominated equity securities of foreign companies. The Sub-Adviser
expects to invest no more than 20% of the Fund's total assets in convertible or
preferred securities, debt securities or money market instruments, if at all.
The Sub-Adviser uses a bottom-up approach in selecting stocks.
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.
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.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. 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), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), 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.
PREFERRED STOCKS
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock. The Fund may treat such
redeemable preferred stock as a fixed income security.
The Fund may also invest in:
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 contracts.
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 interest
rate 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.
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 engage in 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.
Buy put options on securities, securities indices and futures contracts in
anticipation of a decrease in the value of the underlying asset.
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.
PORTFOLIO TURNOVER
Instead of a buy-and-hold strategy, the Fund actively trades its portfolio
securities in an attempt to achieve its investment objective. Active trading
will cause the Fund to have an increased portfolio turnover rate, which is
likely to generate shorter-term gains (losses) for its shareholders, which are
taxed at a higher rate than longer-term gains (losses). Actively trading
portfolio securities increases the Fund's trading costs and may have an adverse
impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategy by
investing its assets in cash and shorter-term debt securities and similar
obligations. 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 give up greater investment returns to maintain the safety
of principal, that is, the original amount invested by shareholders.
BORROWING
Each Fund may borrow from banks as a temporary defensive measure, to meet
redemption requests or for other purposes that are consistent with the Fund's
investment objective and strategies.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the 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.
CLOSED-END FUNDS
The Fund may invest in closed-end funds that invest in foreign securities.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
MARKET AND EQUITY 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.
Equity risk is also related to the size of the company issuing stock. Companies
may be catagorized as having a small, medium or large capitalization (market
value). The Fund generally invests in large capitalization companies, which are
considered to pose less equity risk than medium or small capitalization
companies.
FOREIGN SECURITIES RISK
The Fund will invest in foreign securities. Foreign securities pose additional
risks because foreign economic or political conditions may be less favorable
than those of the United States. Securities in foreign markets may also be
subject to taxation policies that reduce returns for U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market anaylsts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser or Sub-Adviser, from obtaining information
concerning foreign companies that is as frequent, extensive and reliable as the
information available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
RISKS RELATED TO INVESTING FOR GROWTH
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 development, 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 and may be more adversely
affected in a down market compared to value stocks that pay higher dividends.
CURRENCY RISKS
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.
The Adviser attempts 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.
MANAGER RISK
Manager risk is the risk that a portfolio manager's investment strategy may not
produce the intended results. Manager risk also involves the possibility that a
portfolio manager fails to execute an investment strategy effectively.
FUTURES AND OPTIONS RISKS
The successful use of futures, options, and other derivative instruments is
based on the investment adviser's ability to correctly anticipate market
movements. When the direction of the prices of the Fund's securities does not
correlate with the changes in the value of these transactions, or when the
trading market for derivatives becomes illiquid, the Fund could lose money.
SECURITIES LENDING RISKS
The Fund may lend securities. When a 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.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Class A Shares, Class B Shares and Class C
Shares (Shares) any day the New York Stock Exchange (NYSE) is open for business.
When the Fund receives your transaction request in proper form (as described in
the prospectus), it is processed at the next determined net asset value (NAV)
plus any applicable sales charge (the public offering price).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open. The Fund generally values equity securities
according to the last sale price in the market in which they are primarily
traded (either a national securities exchange or the over-the-counter market).
However, the Fund's Board may determine in good faith that another method of
valuing investments is necessary to appraise their fair market value when a
market price is unavailable.
The maximum sales charge that you will pay on an investment in Class A Shares
of the Fund is 5.75% of average daily net assets. The maximum contingent
deferred sales charge that you will pay on an investment in Class B Shares of
the Fund is 5.00% and 1.00% on Class C Shares. Keep in mind that investment
professionals may charge you fees for their services in connection with your
share transactions. The minimum initial and subsequent investment amounts are
$250 and $50, respectively. Minimum initial investments may be waived from time
to time for purchases by the Trust Division of Wachovia Bank, N.A. (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 Wachovia Funds.
Orders for more than $250,000 of Class B Shares or Class C Shares will
automatically be invested in Class A Shares.
SALES CHARGE WHEN YOU PURCHASE-CLASS A SHARES
Class A Shares are sold at the Fund's NAV next determined after an order is
received, plus a sales charge as follows:
PURCHASE AMOUNT SALES SALES
CHARGE CHARGE
AS A AS A
PERCENTAGE PERCENTAGE
OF PUBLIC OF NAV
OFFERING
PRICE
Less than $50,000 5.75% 6.10%
$50,000 but less 4.50% 4.71%
than $100,000
$100,000 but less 3.75% 3.63%
than $250,000
$250,000 but less 2.50% 2.56%
than $500,000
$500,000 but less 2.00% 2.04%
than $1 million
$1 million or greater 0.00% 0.00%
THE SALES CHARGE AT PURCHASE MAY BE REDUCED BY:
o quantity purchases of Shares of the Fund or any Wachovia Fund;
o combining concurrent purchases of Fund Shares made by you, your spouse, or
your children under age 21;
o accumulating purchases (in calculating the sales charge on an additional
purchase, you may count the current value of previous Share purchases still
invested in the Fund); or
o signing a letter of intent to purchase at least $100,000 in Shares within
13 months (call the Fund for an application and more information).
THE SALES CHARGE WILL BE ELIMINATED WHEN YOU PURCHASE SHARES:
o using the reinvestment privilege;
o by exchanging Shares from the same share class of another Wachovia Fund; or
o through wrap accounts or other investment programs where you pay an
investment professional a fee for services.
If your investment qualifies for a reduction or elimination of the sales charge
as described below, you or your investment professional should notify the Fund's
Distributor, Federated Securities Corp. (Distributor), at the time of purchase.
If the Distributor is not notified, you will receive the reduced sales charge
only on additional purchases, and not retroactively on previous purchases.
SALES CHARGE WHEN YOU REDEEM-CLASS B SHARES
Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).
SHARES HELD UP TO: CDSC
1 year 5.00%
2 years 4.00%
3 years 3.00%
4 years 3.00%
5 years 2.00%
6 years 1.00%
7 years or more 0.00%
Class B Shares will convert to Class A Shares at NAV approximately eight years
after purchase.
SALES CHARGE WHEN YOU PURCHASE OR REDEEM CLASS C SHARES
Class C Shares are sold at the Fund's NAV next determined after an order is
received, plus a sales charge of 1.00%. Redemptions within the first year after
purchase are subject to a CDSC of 1.00%.
REDUCING OR ELIMINATING THE CDSC (CLASS B AND CLASS C SHARES)
If your investment qualifies, for a reduction or elimination of the CDSC as
described below, you or your investment professional should notify the
Distributor at the time of redemption. If the Distributor is not notified, the
CDSC will apply. YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING SHARES:
o purchased with reinvested dividends or capital gains;
o purchased within 90 days of redeeming Shares of an equal or lesser amount;
o representing the portion of redemption proceeds attributable to increases
in the value of your account due to increases in the NAV;
o that you exchange into the same share class of another Wachovia Fund (or
into Investment Shares of the Wachovia U.S. Treasury Money Market Fund);
o representing up to 10% of the value of Shares subject to a systematic
withdrawal plan; or
o if you have certain disabilities as defined by the IRS.
IN ADDITION, YOU WILL NOT BE CHARGED A CDSC:
o when the Fund redeems your Shares and closes your account for failing to
meet the minimum balance requirement;
o if your redemption is a required retirement plan distribution;
o upon the death of the shareholder(s) of the account or the redemption of
Shares by a designated beneficiary.
If your redemption qualifies, the Distributor should be notified at the time of
redemption to eliminate the CDSC. To keep the sales charge as low as possible,
the Funds will sell your shares in the following order:
o Shares that are not subject to a CDSC;
o Shares held the longest; and
o then, the CDSC is calculated using the share price at the time of purchase
or redemption, whichever is lower.
HOW IS THE FUND SOLD?
The Fund offers four share classes: Class A Shares, Class B Shares, Class C
Shares and Class Y Shares.
This prospectus relates only to Class A Shares, Class B Shares and Class C
Shares of the Fund. Each share class has different sales charges and other
expenses, which affect its performance. Call 1-800-994-4414 or contact your
investment professional for more information.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through an investment professional that
has an agreement with the Distributor (Authorized Dealer). When the Distributor
receives sales charges and marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their 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. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class B Shares and Class C Shares at an annual
rate of up to 0.75% of the average daily NAV of the Fund's Class B and Class C
Shares. Because you pay marketing fees on an ongoing basis, your investment cost
for Class B and Class C Shares may be higher over time than for shares with
different sales charges and marketing fees.
HOW TO PURCHASE SHARES
You may purchase Shares through the Trust Division of Wachovia Bank, through
Wachovia Investments or through an Authorized Dealer.
If you do not specify your Class choice on your form of payment, you
automatically will receive Class A Shares.
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 your account agreement.
Orders must be received by 3:00 p.m. (Eastern time) in order to receive that
day's public offering price. Orders received after 3:00 p.m. (Eastern time) will
be purchased at the next determined public offering price.
THROUGH WACHOVIA INVESTMENTS
Customers of Wachovia Investments or Wachovia Brokerage Service may purchase
Shares by mail, by telephone, or in person.
All purchase orders must be received by 3:00 p.m. (Eastern time) to receive
that day's public offering price. Orders received after 3:00 p.m. (Eastern time)
will be purchased at the next determined public offering price.
BY MAIL
To purchase Shares of the Fund by mail, send a check made payable to the Fund
and send to:
P.O. Box 8612
Boston, MA 02266-8612
Orders by mail are considered received after payment by check is converted into
federal funds which is normally the next business day after Wachovia Investments
receives the check.
BY TELEPHONE
Once you have opened an account and completed the appropriate sections of the
account application, you may purchase Shares by telephone. For more information
call 1-800-994-4414.
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 public offering price. Orders received after 3:00 p.m. will
be purchased at the next determined public offering price.
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Wachovia Fund. You must meet the minimum initial investment requirement for
purchasing Shares.
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. Under this program, funds may be automatically
withdrawn from your checking account and invested in Fund shares at NAV next
determined after an order is received. Investments in Class A and Class C Shares
will include the applicable sales charge. You may apply for participation in
this program through Wachovia Bank or through the Distributor.
HOW TO EXCHANGE SHARES
EXCHANGE PRIVILEGE
You may exchange Shares of a Wachovia Fund into Shares of the same class of
another Wachovia Fund at NAV and without a sales charge. To do this, you must: o
meet any minimum initial investment requirements; and o receive a prospectus for
the Fund into which you wish to exchange. An exchange is treated as a redemption
and a subsequent purchase, and is a taxable transaction. Signatures must be
guaranteed if you request an exchange into another Fund with a different
shareholder registration.
A Fund may modify or terminate the exchange privilege at any time.
Shareholders will be notified of the modification or termination of the exchange
privilege. A Fund's management or investment adviser may determine from the
amount, frequency and pattern of exchanges that a shareholder is engaged in
excessive trading which is detrimental to the Fund and other shareholders. If
this occurs, the Fund may terminate the availability of exchanges to that
shareholder and may bar that shareholder from purchasing other Funds.
BY TELEPHONE
You may exchange Shares by telephone by calling 1-800-994-4414.
Telephone exchange instructions must be received by 4:00 p.m. (Eastern
time) for Shares to be exchanged that day.
Your telephone instructions may be recorded. If a Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Funds will notify you if telephone
transaction privileges change.
If you are not able to make your exchange by telephone, an exchange request
may be made in writing and sent by overnight mail to:
The Wachovia Funds
1099 Hingham Street
Rockland, MA 02370-3317
HOW TO REDEEM SHARES
The Fund redeems shares at its NAV next determined after the Fund receives the
redemption request in proper form, plus any applicable sales charge. Shares may
be redeemed by telephone or by mail through the trust department of Wachovia
Bank, through Wachovia Investments, through an Authorized Dealer, or directly
from the Fund.
All redemption requests must be received before 3:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's NAV.
BY MAIL
You may redeem shares by sending a written request to Wachovia Bank or Wachovia
Investments, as appropriate.
Send your written redemption request including your name, the Fund's name,
your account number and the Share or dollar amount requested to:
The Wachovia Funds
P.O. Box 8612
Boston, MA 02266-8612
BY TELEPHONE
You may redeem Shares of a Fund by calling the Funds at 1-800-994-4414.
Shareholders who are trust customers of Wachovia Bank may also contact their
trust officer.
Shareholders who have an Authorized Dealer should contact their Authorized
Dealer for specific instructions on how to redeem by telephone.
Your telephone instructions may be recorded. If a Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Funds will notify you if telephone
transaction privileges change.
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 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 Funds intend 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.
RETIREMENT DISTRIBUTIONS
A minimum of 10% of the value of your retirement distribution (redemption) will
be withheld for taxes in the absence of your specific instructions.
SYSTEMATIC WITHDRAWAL PROGRAM
The Systematic Withdrawal Program allows you to automatically redeem Shares
monthly or quarterly at a minimum of $100. Your account value must be at least
$10,000 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.
Due to the fact that Class A and Class C Shares are sold with an initial sales
charge, it is not advisable for you to purchase Class A or Class C Shares while
participating in this program. A CDSC may be imposed on systematic redemptions
of Class B Shares.
SHARE CERTIFICATES
The Fund does not issue Share certificates.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared and paid quarterly to shareholders invested in the Fund
on the record date.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect to receive cash payments.
If you purchase Shares just before the Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a 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. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Non-retirement accounts may be closed if redemptions or exchanges cause the
account balance to fall below the minimum initial investment amount. Before an
account is closed, the shareholder will be notified and allowed 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 tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Capital gains distributions are taxable at different
rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.
Please consult your tax adviser regarding your federal, state, and local tax
liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
investment adviser for the Fund, Wachovia Asset Management, a business unit of
Wachovia Bank. The investment adviser manages the Fund's assets, including
buying and selling portfolio securities. 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
approximately $44 billion in managed assets as of December 31, 1999.
The investment adviser is entitled to receive annual investment advisory fee
of 0.70% of the Fund's average daily net assets. The investment adviser may
voluntarily choose to waive a portion of its fees or reimburse a Fund for
certain expenses. Pursuant to an agreement between the investment adviser and
the Trust, the investment adviser agrees during the period from December 1, 2000
through January 31, 2002 to waive its fees and/or make reimbursements to the
Funds, so that each Fund's net operating expenses do not exceed, in the
aggregate, the Fund's total actual operating expenses. 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.
SUB-ADVISER
Simms Capital Management Inc., located at 55 Railroad Avenue, Greenwich,
Connecticut 06830, is the sub-adviser for the Fund. The Sub-Adviser is a
registered investment adviser and offers investment advisory services to
open-end investment funds and other managed pooled investment vehicles. The
Sub-Adviser supervises and assists in the overall management of the Fund's
affairs, subject to oversight by Wachovia Asset Management, the Fund's Adviser,
and the Fund's Board of Trustees. The Sub-Adviser is paid by the investment
adviser and not by the Fund.
PORTFOLIO MANAGERS
ROBERT A. SIMMS
Mr. Simms has been the President and CEO of the Sub-Adviser since 1984. Mr.
Simms was with Bear, Stearns & Co., Inc. investment bankers, from 1972 to 1984,
becoming a General Partner in 1977. His responsibilities included Manager of the
Institutional Department, Manager of the Options and Futures Department, and
Director of Asset Management Services. He was Executive Vice President of Black
& Co. from 1968 to 1972, a member of the Institutional Sales Department of
Paine, Webber, Jackson & Curtis from 1965 to 1968 and a research analyst for
Dominick & Dominick from 1961 to 1965. He received a BA from Rutgers University
in 1960.
THOMAS L. MELLY
Mr. Melly, a Principal of the Sub-Adviser, joined the Sub-Adviser in 1990.
Previously, Mr. Melly was with Lake Partners, Inc., an independent investment
consulting firm which advises high net worth investors and private and
institutional investment partnerships. His responsibilities included the design
and implementation of custom-tailored investment programs and the evaluation of
hedge funds and investment managers in the specialized areas of short selling,
risk and convertible arbitrage and high yield securities. He was an
institutional fixed income specialist at Autranet, Inc. and Tucker, Anthony &
R.L. Day, Inc. from 1985 to 1988. From 1981 until 1983 he was an account officer
and credit analyst at Chemical Bank. Mr. Melly received his MBA from the Amos
Tuck School at Dartmouth in 1985 and his BA from Trinity College in 1980.
JENNIFER D. MILLER
Ms. Miller, a Principal of the Sub-Adviser, joined the Sub-Adviser in 1991.
Previously, Ms. Miller spent six years in the Investment Strategy Group at
Salomon Brothers Inc. Her responsibilities included the quantitative and
technical analysis of the firm's priority positions. She also served as a
liaison between the research staff, the firm's proprietary traders and clients
to establish and manage portfolios using optimization, immunization, and index
techniques. Ms. Miller received her MBA from the Stern Graduate School of
Business at New York University in 1990 and her BS in Finance from Lehigh
University in 1982.
THOMAS S. KINGSLEY
Mr. Kingsley, a Principal and Director of Trading of the Sub-Adviser,
joined the Sub-Adviser in September of 1994. Mr. Kingsley was a Mechanical
Engineer and a Nuclear Test Engineer with General Dynamics, Electric Boat
Division prior to joining the firm. His primary responsibilities included acting
as the site production manager for major modifications to the exterior of a
submarine, evaluation of acoustic performance, and testing associated with
nuclear power plant installation and operation. He received his MBA in Financial
Services from Rensselaer Polytechnic Institute and his BS in Mechanical
Engineering from Florida Atlantic University/Rutgers University.
ROBERT ROSA, JR.
Mr. Rosa joined the Sub-Adviser in March 1997. Mr. Rosa was an intern at
the Sub-Adviser from June 1996 to February 1997. From 1989 to 1996 he worked for
Allied Signal Corporation as a Structural Analyst. Mr. Rosa received his MBA
with High Honors in Finance from Sacred Heart University and his BS with High
Honors in Mechanical Engineering from Worcester Polytechnic Institute. Mr. Rosa
is also a level II candidate in the CFA program.
HERVE VAN CALOEN
Mr. van Caloen, a Principal, joined the Sub-Adviser in July 1999. Mr van
Caloen was with Scudder Stevens & Clark from 1985 through 1989 as an
international portfolio manager responsible for the European investments of the
Scudder International Fund. He joined Mitchell Hutchins Asset Management in 1989
where he founded and managed the Paine Webber Europe Growth Fund until the end
of 1991. He was head of international investments and portfolio manager at
Provident Capital Management, growing the assets to over $1 billion by 1995. He
also started and managed an emerging markets fund for Provident in 1994. Mr van
Caloen joined Schroder Capital Management International as First Vice President
in 1996 and briefly managed a small international hedge fund for GTF Asset
Management. Mr. van Caloen has his MBA from the Claremont Graduate School and
his Bachelor's degree from the European University in Antwerp, Belgium.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Fund's fiscal year end is November 30. As this is the Fund's first fiscal
year, financial information is not yet available.
The following document contains further details about the Fund and is available
upon request and without charge:
Statement of Additional Information (SAI) - The SAI includes additional
information about the Funds. The SAI is incorporated by reference into this
prospectus, making it legally a part of this prospectus.
To obtain the SAI and other information without charge call your investment
professional or the Fund at 1-800-994-4414.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
<TABLE>
<CAPTION>
<S> <C>
WACHOVIA INTERNATIONAL EQUITY FUND
101 Greystone Boulevard
SC-9215
Columbia, SC 29226
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Wachovia Asset Management
100 North Main Street
Winston-Salem, NC 27101
SUB-ADVISER SIMMS CAPITAL MANAGEMENT,
INC.
55 RAILROAD AVENUE
GREENWICH, CONNECTICUT
06830
TRANSFER AGENT, DIVIDEND DISBURSING
AGENT, AND PORTFOLIO RECORDKEEPER
Federated Shareholder
Services Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
COUNSEL TO THE WACHOVIA FUNDS AND THE WACHOVIA MUNICIPAL FUNDS
Kirkpatrick & Lockhart LLP
1800 Massachusetts
Avenue, N.W.
Washington, DC 20036-1800
COUNSEL TO THE INDEPENDENT TRUSTEES
Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street
Suite 3300
Chicago, IL 60802-4207
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
January 31, 2001
</TABLE>
_______ (1/01)
Investment Company Act File No. 811-6504
WACHOVIA INTERNATIONAL EQUITY FUND
A PORTFOLIO OF THE WACHOVIA FUNDS
CLASS Y SHARES
Prospectus
January 31, 2001
"WWW.WACHOVIAFUNDS.COM"
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
CONTENTS
Fund Goal, Strategies, Risk and Performance
What are the Fund's Fees and Expenses?
What are the Fund's Main Investments and Investment Techniques?
What are the Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Exchange Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information
january 31, 2001
FUND GOAL, STRATEGIES AND RISK
WHAT IS THE FUND'S INVESTMENT GOAL?
Seeks to produce capital appreciation.
WHAT IS THE MAIN INVESTMENT STRATEGY OF THE FUND?
The Fund invests primarily in securities of large capitalization foreign
companies. The Fund invests at least 80% of its assets in the equity securities
of large capitalization foreign companies, including multinational companies.
The Fund invests in American Depositary Receipts (ADRs) and may also invest
directly in non-U.S. dollar-denominated equity securities of foreign companies.
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. An investment in the Fund is not a deposit of a bank
and is not insured or guaranteed by Wachovia Bank, N.A., the Federal Deposit
Insurance Corporation or any other government agency.
The primary factors that may reduce the Fund's return include:
STOCK MARKET RISK. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline suddenly or
over a sustained period of time.
RISK OF FOREIGN INVESTING. Because the Fund will invest in securities
issued by foreign companies, the Fund's share price may be more affected by
foreign economic and political conditions, taxation policies and accounting and
auditing standards than would otherwise be the case.
INVESTMENT STYLE RISK. Due to their relatively high valuations, growth
stocks are typically more volatile than value stocks.
CURRENCY RISK. Because exchange rates for currencies fluctuate daily,
prices of the foreign securities in which the Fund invests are more volatile
than prices of securities traded exclusively in the United States.
A more detailed description of these risks can be found in "What are the
Risks of Investing in the Fund?" herein.
PERFORMANCE
The Fund is a new fund that is just commencing operations, and therefore, has no
performance history.
WHAT ARE THE FUNDS' FEES AND EXPENSES?
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund's CLASS Y SHARES.
SHAREHOLDER FEES CLASS
FEES PAID DIRECTLY FROM YOUR INVESTMENT Y
Maximum Sales Charge (Load) Imposed on Purchases (as None
a percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage None of original purchase
price or redemptionproceeds, as applicable) Maximum Sales Charge (Load) Imposed
on Reinvested None Dividends (and other Distributions) (asapercentage of
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 0.70%
Distribution (12b-1) Fee None
Shareholder Services Fee 0.25%
Other Expenses ___%
Total Annual Fund Operating Expenses (Before Waiver)1 ___%
Waiver of Fund Expenses ___%
Total Actual Annual Fund Operating Expenses (After ___%
Waiver)
1
EXAMPLE
The following Example is intended to help you compare the cost of investing in
each Fund's Class _ Shares with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in each Fund's Class _ 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 each Fund's 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 3
YEAR YEARS
Expenses assuming
redemption
Expenses assuming no
redemption
WHAT ARE THE FUND'S MAIN INVESTMENTS AND INVESTMENT TECHNIQUES?
The Fund invests primarily in the securities of large capitalization foreign
companies, including multinational companies. The Fund invests in ADRs and may
also invest directly in non-U.S. dollar-denominated equity securities of foreign
companies.
The Fund will invest in the securities of large capitalization companies, that
is, securities of companies whose market capitalization is greater than $1
billion at the time of purchase. Simms Capital Management, Inc. (Sub-Adviser)
seeks growth at a reasonable price.
The Sub-Adviser looks for securities that offer the best potential for growth at
a reasonable price. That is, the Sub-Adviser looks for stocks that it believes
will increase in value over time, based upon its analysis of a company's growth
prospects. The Sub-Adviser seeks to invest in companies with relatively high
return on equity and high earnings growth rates, not companies or industries
that have predominantly cyclical characteristics. In choosing investments, the
Sub-Adviser analyzes the following factors:
o The present value of a company's future cash flows using a proprietary
Dividend Discount Model. This model computes the present value of the
estimated future dividends of a company utilizing an assumed interest
rate;
o The stock's price relative to similar companies and the market;
o The company's financial condition and cash flow;
o The growth of the company's earnings;
o Demand and supply for a company's shares, including insider transactions;
o Industry momentum, that is, the rate at which the company's sector is
growing;
o The stock's liquidity;
o The company's exposure to economic conditions outside the U.S.;
o For foreign securities, diversification by country as compared with the
country weighting of the Morgan Stanley Capital International Europe,
Australasia, Far East (EAFE) Index; and
o For foreign securities, a company's economic exposure to countries
outside its home base, including the U.S.
Under normal market conditions, the Sub-Adviser expects to invest at least 80%
of the Fund's total assets in ADRs of foreign companies or directly in non-U.S.
dollar-denominated equity securities of foreign companies. The Sub-Adviser
expects to invest no more than 20% of the Fund's total assets in convertible or
preferred securities, debt securities or money market instruments, if at all.
The Sub-Adviser uses a bottom-up approach in selecting stocks.
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.
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.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. 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), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), 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.
PREFERRED STOCKS
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock. The Fund may treat such
redeemable preferred stock as a fixed income security.
The Fund may also invest in:
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 contracts.
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 interest
rate 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.
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 engage in 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.
Buy put options on securities, securities indices and futures contracts in
anticipation of a decrease in the value of the underlying asset.
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.
PORTFOLIO TURNOVER
Instead of a buy-and-hold strategy, the Fund actively trades its portfolio
securities in an attempt to achieve its investment objective. Active trading
will cause the Fund to have an increased portfolio turnover rate, which is
likely to generate shorter-term gains (losses) for its shareholders, which are
taxed at a higher rate than longer-term gains (losses). Actively trading
portfolio securities increases the Fund's trading costs and may have an adverse
impact on the Fund's performance.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategy by
investing its assets in cash and shorter-term debt securities and similar
obligations. 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 give up greater investment returns to maintain the safety
of principal, that is, the original amount invested by shareholders.
BORROWING
Each Fund may borrow from banks as a temporary defensive measure, to meet
redemption requests or for other purposes that are consistent with the Fund's
investment objective and strategies.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the 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.
CLOSED-END FUNDS
The Fund may invest in closed-end funds that invest in foreign securities.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
MARKET AND EQUITY 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.
Equity risk is also related to the size of the company issuing stock. Companies
may be catagorized as having a small, medium or large capitalization (market
value). The Fund generally invests in large capitalization companies, which are
considered to pose less equity risk than medium or small capitalization
companies.
FOREIGN SECURITIES RISK
The Fund will invest in foreign securities. Foreign securities pose additional
risks because foreign economic or political conditions may be less favorable
than those of the United States. Securities in foreign markets may also be
subject to taxation policies that reduce returns for U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market anaylsts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser or Sub-Adviser, from obtaining information
concerning foreign companies that is as frequent, extensive and reliable as the
information available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
RISKS RELATED TO INVESTING FOR GROWTH
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 development, 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 and may be more adversely
affected in a down market compared to value stocks that pay higher dividends.
CURRENCY RISKS
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.
The Adviser attempts 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.
MANAGER RISK
Manager risk is the risk that a portfolio manager's investment strategy may not
produce the intended results. Manager risk also involves the possibility that a
portfolio manager fails to execute an investment strategy effectively.
FUTURES AND OPTIONS RISKS
The successful use of futures, options, and other derivative instruments is
based on the investment adviser's ability to correctly anticipate market
movements. When the direction of the prices of the Fund's securities does not
correlate with the changes in the value of these transactions, or when the
trading market for derivatives becomes illiquid, the Fund could lose money.
SECURITIES LENDING RISKS
The Fund may lend securities. When a 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.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Class Y Shares (Shares) any day the New
York Stock Exchange (NYSE) is open for business. When the Fund receives your
transaction request in proper form (as described in the prospectus), it is
processed at the next determined net asset value (NAV).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open. The Fund generally values equity securities
according to the last sale price in the market in which they are primarily
traded (either a national securities exchange or the over-the-counter market).
However, the Fund's Board may determine in good faith that another method of
valuing investments is necessary to appraise their fair market value when a
market price is unavailable. The minimum initial and subsequent investment
amounts are $250 and $50, respectively. Minimum initial investments may be
waived from time to time for purchases by the Trust Division of Wachovia Bank,
N.A. (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 Wachovia Funds.
HOW IS THE FUND SOLD?
The Fund offers four share classes: Class A Shares, Class B Shares, Class C
Shares and Class Y Shares.
This prospectus relates only to Class Y Shares of the Fund. Each share class
has different sales charges and other expenses, which affect its performance.
Call 1-800-994-4414 or contact your investment professional for more
information.
The Fund's Distributor markets the Shares described in this prospectus to
institutions or individuals, directly or through an investment professional that
has an agreement with the Distributor (Authorized Dealer). The Distributor and
its affiliates may pay out of their 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. (Federated).
HOW TO PURCHASE SHARES
You may purchase Shares through the Trust Division of Wachovia Bank, in
accordance with the procedures set forth in your account agreement.
Orders must be received by 3:00 p.m. (Eastern time) in order to receive that
day's public offering price. Orders received after 3:00 p.m. (Eastern time) will
be purchased at the next determined public offering price.
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Wachovia Fund. You must meet the minimum initial investment requirement for
purchasing Shares.
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. Under this program, funds may be automatically
withdrawn from your checking account and invested in Fund shares at NAV next
determined after an order is received. Investments in Class A and Class C Shares
will include the applicable sales charge. You may apply for participation in
this program through Wachovia Bank or through the Distributor.
HOW TO EXCHANGE SHARES
EXCHANGE PRIVILEGE
You may exchange Shares of a Wachovia Fund into Shares of the same class of
another Wachovia Fund at NAV. To do this, you must: o meet any minimum initial
investment requirements; and o receive a prospectus for the Fund into which you
wish to exchange. An exchange is treated as a redemption and a subsequent
purchase, and is a taxable transaction. Signatures must be guaranteed if you
request an exchange into another Fund with a different shareholder registration.
A Fund may modify or terminate the exchange privilege at any time.
Shareholders will be notified of the modification or termination of the exchange
privilege. A Fund's management or investment adviser may determine from the
amount, frequency and pattern of exchanges that a shareholder is engaged in
excessive trading which is detrimental to the Fund and other shareholders. If
this occurs, the Fund may terminate the availability of exchanges to that
shareholder and may bar that shareholder from purchasing other Funds.
BY TELEPHONE
You may exchange Shares by telephone by calling 1-800-994-4414.
Telephone exchange instructions must be received by 4:00 p.m. (Eastern
time) for Shares to be exchanged that day.
Your telephone instructions may be recorded. If a Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Funds will notify you if telephone
transaction privileges change.
HOW TO REDEEM SHARES
The Fund redeems shares at its 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 department of Wachovia Bank, through Wachovia
Investments, or directly from the Fund.
All redemption requests must be received before 3:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's NAV. Shareholders who are trust
customers of Wachovia Bank may also contact their trust officer by telephone or
mail for assistance with redemptions. You may redeem Shares by calling the
Wachovia Funds Service Center for assistance at 1-800-922-9000.
Your telephone instructions may be recorded. If a Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Funds will notify you if telephone
transaction privileges change.
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 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 Funds intend 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.
RETIREMENT DISTRIBUTIONS
A minimum of 10% of the value of your retirement distribution (redemption) will
be withheld for taxes in the absence of your specific instructions.
SYSTEMATIC WITHDRAWAL PROGRAM
The Systematic Withdrawal Program allows you to automatically redeem Shares
monthly or quarterly at a minimum of $100. Your account value must be at least
$10,000 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, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared and paid quarterly to shareholders invested in the Fund
on the record date.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares,unless you elect to receive cash payments.
If you purchase Shares just before the Fund declares a dividend or capital
gain distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a 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. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Non-retirement accounts may be closed if redemptions or exchanges cause the
account balance to fall below the minimum initial investment amount. Before an
account is closed, the shareholder will be notified and allowed 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 tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Capital gains distributions are taxable at different
rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.
Please consult your tax adviser regarding your federal, state, and local tax
liability.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
investment adviser for the Fund, Wachovia Asset Management, a business unit of
Wachovia Bank. The investment adviser manages the Fund's assets, including
buying and selling portfolio securities. 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
approximately $44 billion in managed assets as of December 31, 1999.
The investment adviser is entitled to receive annual investment advisory fee
of 0.70% of the Fund's average daily net assets. The investment adviser may
voluntarily choose to waive a portion of its fees or reimburse a Fund for
certain expenses. Pursuant to an agreement between the investment adviser and
the Trust, the investment adviser agrees during the period from December 1, 2000
through January 31, 2002 to waive its fees and/or make reimbursements to the
Funds, so that each Fund's net operating expenses do not exceed, in the
aggregate, the Fund's total actual operating expenses. 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.
[Portfolio Manager
SUB-ADVISER
Simms Capital Management Inc., located at 55 Railroad Avenue, Greenwich,
Connecticut 06830, is the sub-adviser for the Fund. The Sub-Adviser is a
registered investment adviser and offers investment advisory services to
open-end investment funds and other managed pooled investment vehicles. The
Sub-Adviser supervises and assists in the overall management of the Fund's
affairs, subject to oversight by Wachovia Asset Management, the Fund's Adviser
and the Fund's Board of Trustees. The Sub-Adviser is paid by the investment
adviser and not by the Fund.
PORTFOLIO MANAGERS
ROBERT A. SIMMS
Mr. Simms has been the President and CEO of the Sub-Adviser since 1984. Mr.
Simms was with Bear, Stearns & Co., Inc. investment bankers, from 1972 to 1984,
becoming a General Partner in 1977. His responsibilities included Manager of the
Institutional Department, Manager of the Options and Futures Department, and
Director of Asset Management Services. He was Executive Vice President of Black
& Co. from 1968 to 1972, a member of the Institutional Sales Department of
Paine, Webber, Jackson & Curtis from 1965 to 1968 and a research analyst for
Dominick & Dominick from 1961 to 1965. He received a BA from Rutgers University
in 1960.
THOMAS L. MELLY
Mr. Melly, a Principal of the Sub-Adviser, joined the Sub-Adviser in 1990.
Previously, Mr. Melly was with Lake Partners, Inc., an independent investment
consulting firm which advises high net worth investors and private and
institutional investment partnerships. His responsibilities included the design
and implementation of custom-tailored investment programs and the evaluation of
hedge funds and investment managers in the specialized areas of short selling,
risk and convertible arbitrage and high yield securities. He was an
institutional fixed income specialist at Autranet, Inc. and Tucker, Anthony &
R.L. Day, Inc. from 1985 to 1988. From 1981 until 1983 he was an account officer
and credit analyst at Chemical Bank. Mr. Melly received his MBA from the Amos
Tuck School at Dartmouth in 1985 and his BA from Trinity College in 1980.
JENNIFER D. MILLER
Ms. Miller, a Principal of the Sub-Adviser, joined the Sub-Adviser in 1991.
Previously, Ms. Miller spent six years in the Investment Strategy Group at
Salomon Brothers Inc. Her responsibilities included the quantitative and
technical analysis of the firm's priority positions. She also served as a
liaison between the research staff, the firm's proprietary traders and clients
to establish and manage portfolios using optimization, immunization, and index
techniques. Ms. Miller received her MBA from the Stern Graduate School of
Business at New York University in 1990 and her BS in Finance from Lehigh
University in 1982.
THOMAS S. KINGSLEY
Mr. Kingsley, a Principal and Director of Trading of the Sub-Adviser,
joined the Sub-Adviser in September of 1994. Mr. Kingsley was a Mechanical
Engineer and a Nuclear Test Engineer with General Dynamics, Electric Boat
Division prior to joining the firm. His primary responsibilities included acting
as the site production manager for major modifications to the exterior of a
submarine, evaluation of acoustic performance, and testing associated with
nuclear power plant installation and operation. He received his MBA in Financial
Services from Rensselaer Polytechnic Institute and his BS in Mechanical
Engineering from Florida Atlantic University/Rutgers University.
ROBERT ROSA, JR.
Mr. Rosa joined the Sub-Adviser in March 1997. Mr. Rosa was an intern at
the Sub-Adviser from June 1996 to February 1997. From 1989 to 1996 he worked for
Allied Signal Corporation as a Structural Analyst. Mr. Rosa received his MBA
with High Honors in Finance from Sacred Heart University and his BS with High
Honors in Mechanical Engineering from Worcester Polytechnic Institute. Mr. Rosa
is also a level II candidate in the CFA program.
HERVE VAN CALOEN
Mr. van Caloen, a Principal, joined the Sub-Adviser in July 1999. Mr van
Caloen was with Scudder Stevens & Clark from 1985 through 1989 as an
international portfolio manager responsible for the European investments of the
Scudder International Fund. He joined Mitchell Hutchins Asset Management in 1989
where he founded and managed the Paine Webber Europe Growth Fund until the end
of 1991. He was head of international investments and portfolio manager at
Provident Capital Management, growing the assets to over $1 billion by 1995. He
also started and managed an emerging markets fund for Provident in 1994. Mr van
Caloen joined Schroder Capital Management International as First Vice President
in 1996 and briefly managed a small international hedge fund for GTF Asset
Management. Mr. van Caloen has his MBA from the Claremont Graduate School and
his Bachelor's degree from the European University in Antwerp, Belgium.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Fund's fiscal year end is November 30. As this is the Fund's first fiscal
year, financial information is not yet available.
The following document contains further details about the Fund and is available
upon request and without charge:
Statement of Additional Information (SAI) - The SAI includes additional
information about the Funds. The SAI is incorporated by reference into this
prospectus, making it legally a part of this prospectus.
To obtain the SAI and other information without charge call your investment
professional or the Fund at 1-800-994-4414.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
<TABLE>
<CAPTION>
<S> <C>
WACHOVIA INTERNATIONAL EQUITY FUND
101 Greystone Boulevard
SC-9215
Columbia, SC 29226
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Wachovia Asset Management
100 North Main Street
Winston-Salem, NC 27101
SUB-ADVISER SIMMS CAPITAL MANAGEMENT,
INC.
55 RAILROAD AVENUE
GREENWICH, CONNECTICUT
06830
TRANSFER AGENT, DIVIDEND DISBURSING
AGENT, AND PORTFOLIO RECORDKEEPER
Federated Shareholder
Services Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
COUNSEL TO THE WACHOVIA FUNDS AND THE WACHOVIA MUNICIPAL FUNDS
Kirkpatrick & Lockhart LLP
1800 Massachusetts
Avenue, N.W.
Washington, DC 20036-1800
COUNSEL TO THE INDEPENDENT TRUSTEES
Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street
Suite 3300
Chicago, IL 60802-4207
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
January 31, 2001
</TABLE>
_________ (1/01)
Investment Company Act File No. 811-6504
WACHOVIA INTERNATIONAL EQUITY FUND
A PORTFOLIO OF THE WACHOVIA FUNDS
Class A Shares, Class B Shares, Class C and Class Y Shares
January 31, 2001
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the Fund's prospectus, dated January 31, 2001.
Obtain the Prospectus without charge by calling 1-800-994-4414.
Contents
How Is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How Is the Fund Sold?
How to Buy Shares
How to Exchange Shares
How to Redeem Shares
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund
How does the Fund Measure Performance?
Financial Information
Investment Ratings
Addresses
Federated Securities Corp., Distributor,
a subsidiary of Federated Investors, Inc.
________ (1/01)
HOW IS THE FUND ORGANIZED?
The Wachovia Funds (the Trust) is an open-end, management investment company
that was established under the laws of the Commonwealth of Massachusetts on
November 19, 1991. The Trust may offer separate series of shares representing
interests in separate portfolios of securities. The Board of Trustees (the
Board) has established four classes of shares of the Fund, known as Class A
Shares, Class B Shares, Class C and Class Y Shares (Shares). This SAI relates to
all four classes of Shares.
Unless otherwise noted in the Prospectus or this SAI, a Fund may invest no more
than 5% of its total assets in any of the securities or financial instruments
described below (unless the context requires otherwise).
Unless otherwise noted, whenever an investment policy or limitation states a
maximum percentage of a Fund's assets that may be invested in any security or
other asset, or sets forth a policy regarding quality standards, such standard
or percentage limitation will be determined immediately after and as a result of
the Fund's acquisition of such security or other asset except in the case of
borrowing (or other activities that may be deemed to result in the issuance of a
"senior security" under the Investment Company Act of 1940, as amended (the
"1940 Act")). Accordingly, any subsequent change in values, net assets, or other
circumstances will not be considered when determining whether the investment
complies with a Fund's investment policies and limitations. If the value of a
Fund's holdings of illiquid securities at any time exceeds the percentage
limitation applicable at the time of acquisition due to subsequent fluctuations
in value or other reasons, the Trustees will consider what actions, if any, are
appropriate to maintain adequate liquidity.
SECURITIES IN WHICH THE FUND INVESTS
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 or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock. The Fund may also treat
such redeemable preferred stock as a fixed income security.
Securities of other investment companies - closed-end funds
The Fund may purchase closed-end funds that invest in foreign securities. Unlike
open-end investment companies, like the Fund, closed-end funds issue a fixed
number of shares that trade on major stock exchanges or over-the-counter. Also
unlike open-end funds, closed-end funds do not stand ready to issue and redeem
shares on a continuous basis. Closed-end funds often sell at a discount from net
asset value.
The Fund's investment in closed-end funds is subject to thte 1940 Act's limits
on investment in other mutual funds. Under the 1940 Act, each Fund may invest up
to 5% of its total assets in any one mutual fund, but may not own more than 3%
of any one mutual fund or invest more than 10% of its total assets in mutual
funds as a group.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Real Estate Investment Trusts (REITs)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial real
estate market.
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.
Initial Public Offerings
Under certain market conditions, the Fund may frequently invest in companies at
the time of their initial public offering (IPO). By virtue of its size and
institutional nature, the Advisor may have greater access than individual
investors have to IPOs, including access to so-called "hot issues" which are
generally traded in the aftermarket at prices in excess of the IPO price. IPOs
will frequently be sold within 12 months of purchase which may result in
increased short-term capital gains.
MASTER LIMITED PARTNERSHIPS
A master limited partnership is a publicly owned limited partnership whose
shares are bought and sold on an organized stock exchange.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income 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 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 it costs 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 interest rate and prepayment risks of these mortgage backed
securities.
receipts
Receipts are separately traded interest and principal component parts of bills,
notes, and bonds issued by the U.S. Treasury that are transferable through the
Federal book entry system, known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") and Coupon Under Book Entry Safekeeping
("CUBES"). These instruments are issued by banks and brokerage firms and are
created by depositing Treasury notes and Treasury bonds into a special account
at a custodian bank; the custodian holds the interest and principal payments for
the benefit of the registered owners of the certificates or receipts. The
custodian arranges for the issuance of the certificates or receipts evidencing
ownership and maintains the register. Receipts include Treasury Receipts
("TRs"), Treasury Investment Growth Receipts ("TIGRs"), and Certificates of
Accrual on Treasury Securities ("CATS").
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 amount
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 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 interest rate risks for each CMO class.
SEQUENTIAL CMOS
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.
PACS, TACS AND COMPANION 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.
IOS AND POS
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.
FLOATERS AND INVERSE FLOATERS
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.
Z CLASSES AND RESIDUAL CLASSES
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 have prepayment
risks. Like CMOs, asset backed securities may be structured like 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 interest rate and credit risks of a zero coupon security. A zero
coupon step-up security converts to a coupon security before final maturity.
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.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities 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 have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price 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:
it is organized under the laws of, or has a principal office located in,
another country;
the principal trading market for its securities is in another country; or
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. The foreign securities underlying American Depositary Receipts
(ADRs) are not 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), Global Depositary Receipts (GDRs), and International Depositary Receipts
(IDRs), 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.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European investment Bank and the Inter-American Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
Brady Bonds
Brady Bonds are U.S. dollar denominated debt obligations that foreign
governments issue in exchange for commercial bank loans. The International
Monetary Fund (IMF) typically negotiates the exchange to cure or avoid a default
by restructuring the terms of the bank loans. The principal amount of some Brady
Bonds is collateralized by zero coupon U.S. Treasury securities which have the
same maturity as the Brady Bonds. However, neither the U.S. government nor the
IMF has guaranteed the repayment of any Brady Bond.
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 contracts.
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 interest
rate 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.
A 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 ontract 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 ommodity 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.
A Fund, except the Wachovia Municipal Funds may engage in 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.
Buy put options on securities, securities indices and futures contracts in
anticipation of a decrease in the value of the underlying asset.
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.
HYBRID DERIVATIVE 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, and 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 interest rate 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
Repurchase agreements are transactions in which a 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 adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The investment adviser 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.
Delayed Delivery Transactions
Delayed delivery 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, delayed delivery
transactions create interest rate risks for the Fund. Delayed
deliverytransactions 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 interest rate risks because the underlying mortgages may be
less favorable than anticipated by the Fund.
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 interest rate risks
and credit risks.
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 interest rate risks and credit
risks. These transactions create leverage risks.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts or
special transactions, a 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
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.
The investment adviser attempts 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
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
adviser allocates 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.
A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similar businesses, by issuers located in the
same state, or with other similar characteristics. As a result, the Fund will be
more susceptible to any economic, business, political, or other developments
which generally affect these issuers.
LIQUIDITY RISKS
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.
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.
RISKS RELATED TO INVESTING FOR GROWTH
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 development, 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 and may be more adversely
affected in a down market compared to value stocks that pay higher dividends.
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.
CURRENCY RISKS
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.
The investment adviser attempts 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
The Fund may invest in foreign securities. Foreign securities pose additional
risks because foreign economic or political conditions may be less favorable
than those of the United States. Securities in foreign markets may also be
subject to taxation policies that reduce returns for U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to interest rate
changes in the interest rate paid by similar securities. Generally, when
interest rates rise, prices of fixed income securities fall. However, market
factors, such as the demand for particular fixed income securities, may cause
the price of certain fixed income securities to fall while the prices of other
securities rise or remain unchanged. 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 security to changes in interest rates.
CREDIT RISKS
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.
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.
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. 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.
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.
HEDGING RISK
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. The Fund's ability to hedge
may be limited by the costs of the derivatives contracts. The Fund may attempt
to lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use derivatives contracts that cover a narrow range of
circumstances or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.
LEVERAGE RISKS
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.
The Fund does not currently use hedging or leveraged transactions, but it may do
so in the future. The Fund is not required to use hedging techniques at any
time.
FUNDAMENTAL INVESTMENT OBJECTIVE
The investment objective of the Fund is to produce capital appreciation. The
investment objective may not be changed by the Fund's Trustees without
shareholder approval.
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 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) 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 Funds will not invest 25% or more of the value of their 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 their assets except portfolio securities. This
shall not prevent the Fund from purchasing or holding U.S. government
obligations, money market instruments, demand master notes, bonds, debentures,
notes, certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by the
Fund's investment objective, policies, and limitations.
THE ABOVE INVESTMENT LIMITATIONS CANNOT BE CHANGED BY THE BOARD OF TRUSTEES
(BOARD) UNLESS AUTHORIZED BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD 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. The Fund
will invest in other investment companies primarily for the purpose of investing
their short-term cash on a temporary basis.
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 of 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.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of their total assets in securities
subject to restrictions on resale under the Securities Act of 1933, except for
certain restricted securities which meet the criteria for liquidity as
established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of their net assets in securities which
are illiquid, including repurchase agreements providing for settlement in more
than seven days after notice, over-the-counter options, non-negotiable time
deposits with maturities over seven days, and certain securities not determined
under guidelines established by the Trustees to be liquid.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities, other than put options on
stock indices, unless the securities are held in the Fund's portfolio and not
more than 5% of the value of the Fund's total assets would be invested in
premiums on open put option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the amount
of any further payment.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of their 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."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
ofor equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available; oin the absence of recorded sales for
equity securities, according to the mean between the last closing bid and asked
prices; ofor 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; ofor 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 ofor 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. From time to
time, 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 over-the-counter 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 daily net income realized by each class. Such
variance will reflect only accrued net income to which the shareholders of a
particular class are entitled.
REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows.
QUANTITY DISCOUNTS.
Larger purchases of the same Share class reduce the sales charge you pay. You
can combine purchases of Shares made on the same day by you, your spouse, and
your children under age 21. In addition, purchases made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account can be
combined.
ACCUMULATED PURCHASES.
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.
CONCURRENT PURCHASES.
You can combine concurrent purchases of the corresponding Share class of two
Funds in calculating the applicable sales charge.
LETTER OF INTENT.
You can sign a letter of intent committing to purchase a certain amount of the
same or corresponding class of Shares within a 13 month period in order to
combine such purchases in calculating the applicable sales charge. The Fund's
custodian will hold Shares in escrow equal to the maximum applicable sales
charge. If you complete your commitment, the escrowed Shares will be released to
your account. If you do not complete your commitment within 13 months, the
custodian will redeem an appropriate number of escrowed Shares to pay for the
applicable sales charge.
REINVESTMENT PRIVILEGE.
You may reinvest, within 90 days, your Share redemption proceeds at the next
determined NAV, without any sales charge. This sales charge elimination is
offered because a sales charge was previously assessed.
REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because no sales commissions have
been advanced to the selling financial intermediary, the shareholder has already
paid a Contingent Deferred Sales Charge (CDSC), or nominal sales efforts are
associated with the original purchase of Shares.
Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:
ofollowing the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder; orepresenting
minimum required distributions from an Individual Retirement Account or other
retirement plan to a shareholder who has attained the age of 70-1/2; owhich are
involuntary redemptions of shareholder accounts that do not comply with the
minimum balance requirements; orepresenting up to 10% of the value of Class B
Shares subject to a Systematic Withdrawal Program; of Shares that represent a
reinvestment within 90 days of a previous redemption that was assessed a CDSC;
oof Shares held by the Trustees, employees, and sales representatives of the
Fund, the investment adviser, the Distributor and their affiliates; employees of
any financial intermediary that sells Shares pursuant to a sales agreement with
the Distributor; and the immediate family members of the foregoing persons; and
oof Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other financial intermediary, to the extent that no payments were advanced for
purchases made through such entities.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professional for sales and/or administrative services. Any payments
to investment professional in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to a financial intermediary. In addition, the Distributor may pay investment
professionals 0.25% of the purchase price of $1 million or more of Class A
Shares that its customer has not redeemed over the first year. The Adviser may
reimburse the Distributor for amounts paid under this program.
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professional such as banks,
broker/dealers, trust departments of bank, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professional) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
Federated Investors, Inc. (Federated) and its subsidiaries may benefit from
arrangements where the Rule 12b-1 Plan fees related to Class B Shares and Class
C Shares may be paid to third-parties who have advanced commissions to
investment professionals.
HOW TO BUY SHARES
PURCHASES AT NET ASSET VALUE
Class A Shares of a Fund may be purchased at NAV, without an initial sales
charge, by investment advisers registered under the Investment Adviser's act of
1940, purchasing on behalf of their clients, by Wachovia Bank, or affiliates for
funds which are held in fiduciary, advisory, agency, custodial, or similar
capacity, and for which Wachovia Bank, or an affiliate or a third party will
provide shareholder services for a fee paid by the Fund, and by trustees,
officers, directors and retired directors, advisory board members, employees and
spouses and children under the age of 21 of such persons, and any trusts, or
individual retirement accounts operated for such persons.
THROUGH A RETIREMENT PROGRAM
Class A Shares may be purchased at NAV by participants in qualified retirement
plans for which Wachovia Bank, or an affiliate, had previously, but no longer,
serves in an administrative or fiduciary capacity. Purchases made by or through
a Qualified Retirement Plan (Retirement Plan) that has in excess of an aggregate
investment of $500,000 in certain Delaware Group Funds and any portfolios of The
Wachovia Funds and purchases made by companies participating in a Retirement
Plan that has at least 100 employees will be made at NAV, without the imposition
of the sales charge. Purchases made by any Retirement Plan that has an aggregate
investment of over $500,000 in the Wachovia Funds may also purchase at NAV.
Class Y Shares are also offered to participants in qualified retirement plans
that offer a Wachovia Fund as an investment option through a program known as
"Institutional Solutions" marketed by Delaware Investment and Retirement
Services, Inc.
INVESTMENT ADVISORY CUSTOMERS
Class Y Shares are also offered to institutions and individuals with whom
Wachovia Asset Management, a business unit of Wachovia Bank, has a contract to
provide investment advisory servies.
FORMER TRUST CUSTOMERS
Former trust customers of Wachovia Bank, N.A. whose trust relationship
transferred to State Street Bank & Trust Company during the period September 3,
1999 through June 30, 2000 may continue to hold the Class Y Shares of The
Wachovia Funds.
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.
SUBACCOUNTING SERVICES
Investment professionals are encouraged to open single master accounts. However,
certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services they provide that may be related to the ownership
of Shares. This information should, therefore, be read together with any
agreement between the customer and the financial intermediary with regard to the
services provided, the fees charged for those services, and any restrictions and
limitations imposed.
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 EXCHANGE SHARES
QUALIFIED RETIREMENT PLAN PARTICIPANTS
Participants in a Delaware/Wachovia Qualified Retirement Plan are permitted to:
oexchange all or part of their Class A Shares of other eligible Delaware Funds,
as well as Eligible Wachovia Funds at NAV; and oexchange all or part of their
Eligible Wachovia Fund shares into Class A Shares of the Eligible Delaware
Funds, at NAV.
However, a participant in any Retirement Plan that has an aggregate investment
of $1 million or less in the Eligible Funds who exchanges into an Eligible Fund
from the Money Fund must pay the applicable front-end sales charge at the time
of the exchange (unless the Money Fund shares were acquired in an exchange from
an Eligible Fund subject to a front-end sales charge or by reinvestment of
dividends).
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 Investment
Company Act of 1940, 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
The share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All classes of each Fund in
the Trust have equal voting rights, except that in matters affecting only a
particular Fund or class, only Shares of that Fund or class are entitled to
vote.
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
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, the Fund will not receive special tax treatment and will pay federal income
tax.
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
Trusts' other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income 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 a 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.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
WHO MANAGES AND PROVIDES SERVICES TO THE FUNDS?
BOARDS OF TRUSTEES
The Boards are responsible for managing the Trusts' business affairs and for
exercising all the Trusts' 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 Trusts,
principal occupations for the past five years, total compensation received as a
Trustee from the Trusts for their most recent fiscal year. The Wachovia Funds
are comprised of 16 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.
--------------------------------------------------------------------------------
Name Birthdate Address Occupations for past 5 Aggregate Compensation
Positions with Trusts Years from Fund Complex
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
James A. Hanley Retired; Vice President $33,200
August 13, 1931 and Treasurer, Abbott
4272 Sanctuary Way Laboratories (health care
Bonita Springs, FL products) (until 1992).
Trustee
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Samuel E. Hudgins Hudgins Consulting, LLC $33,200
March 4, 1929 (independent consultant);
715 Whitemere Court, N.W. President, Percival
Atlanta, GA Hudgins & Company, LLC
Trustee (investment
bankers/financial consultants) (until September
1997); Director, Atlantic American Corporation
(insurance holding company).
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
D. Dean Kaylor Retired; Executive Vice $26,000
June 29, 1930 President and Chief
2835 Greenbriar Financial Officer, NBD
Harbor Springs, MI Bank, N.A. and NBD
Trustee Bancorp, Inc. (bank and
bank holding company)
(until 1990).
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Alvin J. Schexnider, Ph.D. Director, Office of Health $26,000
May 26, 1945 Policy Development, Wake
3174 Turkey Hill Road Forest University School
Winston-Salem, NC 27106 of Medicine (since
Trustee February 2000);
Chancellor, Winston-Salem
State University (1996 to
January 2000); Formerly,
Vice Provost, Virginia
Commonwealth University
(1987 to 1996).
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Charles S. Way, Jr.* President and CEO, The $26,000
December 18, 1937 Beach Company and its
211 King Street Suite 300 various affiliated
Charleston, SC companies and partnerships.
Trustee
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
John W. McGonigle Executive Vice President $0
October 26, 1938 and Secretary of the
Federated Investors Tower Federated Fund Complex;
Pittsburgh, PA Executive Vice President,
President and Treasurer Secretary and Director,
Federated Investors, Inc.;
Trustee, Federated
Investment Management
Company and Federated
Investment Counseling;
Director, Federated Global
Investment Management
Corp, Federated Services
Company and Federated
Securities Corp.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
R. Edward Bowling Senior Vice President, $0
March 25, 1958 Wachovia Bank, N.A;
Wachovia Bank, N.A. Manager, Product
100 North Main Development and Investment
Winston-Salem, NC 27101 Solutions, Wachovia Asset
Management
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
James Ostrowski Assistant Vice President, $0
November 17, 1959 Federated Services
Federated Investors Tower Company.
Pittsburgh, PA
Vice President and
Assistant Treasurer
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Gail C. Jones Vice President and $0
October 26, 1953 Corporate Counsel,
Federated Investors Tower Federated Services Company
Pittsburgh, PA
Secretary
--------------------------------------------------------------------------------
INVESTMENT ADVISER
The investment adviser conducts investment research and makes investment
decisions for the Funds. The investment adviser is a business unit of Wachovia
Bank, N.A.
The investment adviser shall not be liable to the Trust, the Funds, 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 it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Trust.
SUB-ADVISER
Simms Capital Management, Inc. (the "Sub-Adviser"), a Delaware corporation
registered as an investment adviser with the SEC, serves as the Fund's
sub-adviser. The Sub-Adviser is located at 55 Railroad Avenue, Greenwich,
Connecticut 06830. As of September 30, 2000, the Sub-Adviser managed over $2
billion for numerous clients including large corporate and public retirement
plans, Taft-Hartley plans, foundations and endowments, high net worth
individuals, and mutual funds. Mr. Simms, President and CEO of the Sub-Adviser,
and Mr. Melly, Ms. Miller, Mr. Poltrack, Mr. Kingsley and Mr. Gorman, Principals
of the Sub-Adviser, may be deemed to control the Sub-Adviser.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the investment adviser looks for prompt execution of the
order at a favorable price. The investment adviser will generally use those who
are recognized dealers in specific portfolio instruments, except when a better
price and execution of the order can be obtained elsewhere. The investment
adviser 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 adviser 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 adviser makes 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 adviser or by affiliates of Federated in
advising other accounts. To the extent that receipt of these services may
replace services for which the investment adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The investment
adviser and its 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 chargedby such
persons are reasonable in relationship to the value of the brokerage and
research services provided.
Investment decisions for the Fund are made independently from those of
other accounts managed by the investment adviser. 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 adviser 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 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 Wachovia Funds, The Wachovia Municipal Funds and the Wachovia
Variable Insurance Funds (excluding Wachovia Prime Cash Management Fund) as
specified below:
Maximum Administrative Fee Average Aggregate Daily Net Assets of the Funds
--------------------------------------------------------------------------------
.10 of 1% on the first $3.5 billion
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
.06 of 1% on $3.5 billion to $5.0 billion
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
.04 of 1% on $5.0 billion to $10 billion
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
.03 of 1% on $10.0 billion to $20.0 billion
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
.02 of 1% on assets in excess of $20.0 billion
--------------------------------------------------------------------------------
CUSTODIAN
Wachovia Bank, N.A., is custodian (the Custodian) for the securities and cash of
the Funds. Under the Custodian Agreement, the Custodian holds the Funds'
portfolio securities in safekeeping and keeps all necessary records and
documents relating to its duties. For the services to be provided to the Trusts
pursuant to the Custodian Agreement, the Trusts pay the Custodian an annual fee
based upon the average daily net assets of the Funds and which is payable
monthly. The Custodian will also charge transaction fees and out-of-pocket
expenses. Foreign instruments purchased by the Funds are held by foreign banks
participating in a network coordinated by State Street Bank.
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 Funds' portfolio
investments.
INDEPENDENT AUDITORS
The independent auditors for the Fund, Ernst & Young LLP, plans and
performs its audit so that it may provide an opinion as to whether the Fund's
financial statements and financial highlights are free of material misstatement.
SHAREHOLDER SERVICES
The Fund may pay Federated Administrative Services, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Services Company may select others to perform these services
for their customers and may pay them fees.
CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING
As required by SEC rules, the Fund, its Adviser, and its Distributor have
adopted codes of ethics. These codes govern securities trading activities of
investment personnel, Fund Trustees, and certain other employees. Although they
do permit these people to trade in securities, including those that the Fund
could buy, they also contain significant safeguards designed to protect the Fund
and its shareholders from abuses in this area, such as requirements to obtain
prior approval for, and to report, particular transactions.
HOW DO THE FUNDS MEASURE PERFORMANCE?
The Funds 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, such as maximum sales 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 income and
capital gains 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
When Shares of a 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. The yield does not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professional 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:
oreferences to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices; ocharts, 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; odiscussions 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 Funds; and oinformation about the
mutual fund industry from sources such as the InvestmentCompany 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
viewof 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 gains distributions and income dividends and takes
into account any change in maximum offering price over a specific period of
time. From time to time, a Fund will quote its Lipper ranking in advertising and
sales literature.
Dow Jones Industrial Average ("DJIA") represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for the
stock market as a whole.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (the "S&P
Index"), is a composite index of common stocks in industry, transportation, and
financial and public utility companies. In addition, the S&P Index assumes
reinvestment of all dividends paid by stocks listed on the S&P Index. Taxes due
on any of these distributions are not included, nor are brokerage or other fees
calculated in the S&P Index figures.
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.
Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East
Index (EAFE) is 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.
MSCI All Country World Financial Index is a medium- to large-cap unmanaged index
comprising the banking, financial services, insurance and real estate
industries. It is diversified across 46 countries and more than 400 companies.
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.
Consumer Price Index is generally considered to be a measure of inflation.
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 topay 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
thelowest 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 RATING
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
A--Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated "Baa" are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class. B--Bonds which are rated "B" generally lack characteristics
of a desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Ca--Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C--Bonds which are rated "C" are the lowest rated class of
bonds and issues so rated can be regarded as having extremely poor prospects or
ever attaining any real investment standing.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from "Aa" through "B" in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
STANDARD & POOR'S 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 RATING DEFINITIONS
Prime-1--Issuers rated "Prime-1" (or related supporting institutions) have
a superior capacity for repayment of short-term promissory obligations.
"Prime-1" repayment capacity will normally be evidenced by many of the following
characteristics: (gamma) Leading market positions in well-established
industries; (gamma) High rates of return on funds employed; (gamma) Conservative
capitalization structure with moderate reliance on debt and ample asset
protection; (gamma) Broad margins in earnings coverage of fixed financial
charges and high internal cash generation; or (gamma) 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:
oLeading market positions in well established industries;
oHigh rates of return on funds employed;
oConservative capitalization structure with moderate reliance on debt and ample
asset protection; oBroad margins in earning coverage of fixed financial charges
and high internal cash generation; and oWell-established access to a range of
financial markets and assured sources of alternate liquidity.
Prime-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity forrepayment 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/VMIG2--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.
ADDRESSES
WACHOVIA INTERNATIONAL EQUITY FUND
CLASS A SHARES, CLASS B SHARES, CLASS C AND CLASS Y SHARES
101 Greystone Boulevard
SC-9215
Columbia, SC 29226
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Wachovia Asset Management
100 North Main Street
Winston-Salem, NC 27101
SUB-ADVISER
Simms Capital Management, Inc.
55 Railroad Avenue
Greenwich, Connecticut 06830
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
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)
(viii) Conformed copy of Amendment #11 to the
Declaration of Trust; (23)
(ix) Conformed copy of Amendment #12 to the
Declaration of Trust; (23)
(x) Conformed copy of Amendment #14 to the
Declaration of Trust; (23)
(xi) Conformed copy of Amendment #15 to the
Declaration of Trust; (23)
(xii) Conformed copy of Amendment #16 to the
Declaration of Trust; (23)
(xiii) Conformed copy of Amendment #17 to the
Declaration of Trust; (23) (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)
(23) Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 34 on Form N-1A filed October 6, 2000. (File Nos. 33-44590
and 811-6504)
(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 Letter Agreement between The Wachovia Funds and
Wachovia Bank, N.A. and Amendment #1 to Letter Agreement; (23)
(xv) Conformed copy of Sub-Advisory Contract between Wachovia Bank, N.A.
and Flaherty & Crumrine, Inc.; (23)
(xvi) Conformed copy of Exhibit L to the Investment Advisory Contract; (23)
(xvii) Conformed copy of Exhibit M to the Investment Advisory Contract; (23)
(xviii) Conformed copy of Exhibit O to the Investment Advisory Contract; (23)
(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)
(23) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 34 on Form N-1A filed October 6, 2000. (File Nos. 33-44590
and 811-6504)
(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;(21)
(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; (22)
(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).
(21) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 29 on Form N-1A filed July 29, 1999. (File Nos. 33-44590 and
811-6504)
(22) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 33 on Form N-1A filed January 28, 2000. (File Nos. 33-44590
and 811-6504)
(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)
(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; (22)
(xxvii)Conformed copy of Agreement for Fund Accounting Services, Administrative
Service and Transfer Agency Services; (22)
(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) Conformed
copy of Exhibit F to the Administrator's 12b-1 Agreement; (22) (xi) Conformed
copy of Exhibit F to the Broker's 12b-1 Agreement; (22) (xii) Conformed copy of
Exhibits F, G and H to the distribution Plan; (22) (xiii) Conformed copy of
Selling and Services Agreement; (23)
---------------------
+ 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).
(22) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 33 on Form N-1A filed January 28, 2000. (File Nos. 33-44590
and 811-6504)
(23) Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 34 on Form N-1A filed October 6, 2000. (File Nos. 33-44590
and 811-6504)
(n) 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; (21) (iii) Amendment to Exhibit A to Multiple Class
Plan; (22)
(o) Conformed Copy of Power of Attorney; (23)
(p) (i) Copy of Code of Ethics of the Registrant and
Wachovia Asset Management; (23)
(ii)Copy of Code of Ethics of Sub-Adviser Twin Capital
Management, Inc.; (23) (iii)Copy of Code of Ethics of
Sub-Adviser Flaherty & Crumrine, Inc.; (23) (iv) The
Registrant hereby incorporates, on behalf of the
Distributor, the conformed copy of the Code of Ethics
for Access Persons from Item 23(p) of the Money Market
Obligations Trust Registration Statement on Form N-1A
filed with the Commission on February 25, 2000 (File
Nos. 33-31602 and 811-5950).
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: Chief Executive Officer, L. M. Baker, Jr.; President and
Chief Operating Officer, G. Joseph Prendergast; Vice Chairman, Robert S. McCoy,
Jr.; Vice Chairman, Walter E. Leonard, Jr.; State Chief Executive Officer, Lewis
N. Miller, Jr. (Virginia); State Chief Executive Officer, Will B. Spence (North
Carolina/South Carolina); State Chief Executive Officer, D. Gary Thompson
(Florida/Georgia); State President, James C. Cherry (Virginia Banking); State
President, J. Kenneth Coppedge (Florida Banking); State President, Isaiah
Tidwell (Georgia Banking); Senior Executive Vice President, Jean E. Davis;
Senior Executive Vice President, Mickey W. Dry; Senior Executive Vice President,
Stanhope A. Kelly; Senior Executive Vice President, Kenneth W. McAllister;
Senior Executive Vice President, John C. McLean, Jr.; and Senior Executive Vice
President, Donald K. Truslow. The business address of each of the Officers of
the investment adviser is Wachovia Bank, N.A., 100 North Main Street,
Winston-Salem, N.C. 27101.
The Directors of the investment adviser are: L.M. Baker, Jr.; James S.
Balloun; Peter C. Browning; John T. Casteen, III; John L. Clendenin; Thomas K.
Hearn, Jr.; George W. Henderson, III; W. Hayne Hipp; Robert A. Ingram; George R.
Lewis; Elizabeth Valk Long; John G. Medlin, Jr.; Lloyd U. Noland, III; Morris W.
Offit; G. Joseph Prendergast; Sherwood H. Smith, Jr.; and John C. Whitaker, Jr.
+ 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)
(21) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 29 on Form N-1A filed July 29, 1999. (File Nos. 33-44590 and
811-6504)
(22) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 33 on Form N-1A filed January 28, 2000. (File Nos. 33-44590
and 811-6504)
(23) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 34 on Form N-1A filed October 6, 2000. (File Nos. 33-44590
and 811-6504)
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:
Cash Trust Series II; Cash Trust Series, Inc.; CCB Funds; Edward D. Jones &
Co. Daily Passport Cash Trust; Federated Limited Duration Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Core
Trust; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Fixed Income Securities, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
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
International Series, Inc.; Federated Investment Series Funds, Inc.; Federated
Managed Allocation Portfolios; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Securities Income
Trust; Federated Short-Term Municipal Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock 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.; Federated World
Investment Series, Inc.; FirstMerit Funds; Hibernia Funds; Independence One
Mutual Funds; Intermediate Municipal Trust; Marshall Funds, Inc.; Money Market
Obligations Trust; Regions Funds; RIGGS Funds; SouthTrust Funds; Wachovia
Variable Insurance Funds; The Wachovia Funds; The Wachovia Municipal Funds; and
Vision Group of Funds, Inc.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
------------------ ------------------------ -----------------
Richard B. Fisher Chairman, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Arthur L. Cherry Director, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales --
Federated Investors Tower and Director,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Executive Vice --
Federated Investors Tower Vice President and Assistant
1001 Liberty Avenue Secretary,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
James F. Getz President-Broker/Dealer and --
Federated Investors Tower Director,
1001 Liberty Avenue Federated Securities Corp.
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
Ronald M. Petnuch 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
Matthew W. Brown 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
Mark Carroll Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Steven R. Cohen 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
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
Robert J. Deuberry 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
Timothy Franklin Vice President, --
Federated Investors Tower Federated Securities Corp
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark A. Gessner 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
G. Tad Gullickson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Scott Gundersen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dayna C. Haferkamp Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Anthony J. Harper 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
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
Ed Koontz Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher A. Layton Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael H. Liss 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
Amy Michalisyn 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
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peter III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raleigh Peters 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 J. Segura 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
Paul A. Uhlman 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
Terence Wiles 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
Robert W. Bauman Assistant 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
Charles L. Davis, Jr. 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
Donald C. Edwards Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John T. Glickson Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest L. Linane 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
Lynn Sherwood-Long Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kirk A. Montgomery Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley, III Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy S. Johnson Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Victor R. Siclari Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(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 BANK, N.A. 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)
FLAHERTY & CRUMRINE, INC. 301 E. Colorado Blvd.
--------------------------
(Sub-Adviser to Wachovia Suite 720
Executive Fixed Income Fund only) Pasadena, CA 91101
SIMMS CAPITAL MANAGEMENT, INC. 55 Railroad Avenue
------------------------------
(Sub-Adviser to Wachovia Greenwich, CT 06830
International 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, THE WACHOVIA FUNDS, 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 13th day of November, 2000.
THE WACHOVIA FUNDS
BY: /s/ Gail Cagney
Gail Cagney, Secretary
Attorney in Fact for John W. McGonigle
November 13, 2000
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
---- ----- ----
By: /s/Gail Cagney
Gail Cagney Attorney In Fact November 13, 2000
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
D. Dean Kaylor* Trustee
Alvin J. Schexnider, Ph.D.* Trustee
Charles S. Way, Jr.* Trustee
* By Power of Attorney
